What is hotel revenue management?

Hotel revenue management is a technique that manages the tools needed to set prices, process bookings and achieve sales. Knowing how to apply it properly can make the difference between an effective strategic revenue management plan and one that does not allow the establishment to take off.

Deciding on revenue management strategies is one of the main functions of hotel managers. If you aspire to this position or a career in the hotel industry, you should consider a Bachelor of Tourism such as the one offered at Universidad Europea in Valencia.

For now, read this article if you want to learn about the different phases that make up revenue management applied to a hotel establishment.

How do you apply and measure the success of hotel revenue management?

These are the steps that will allow you to apply revenue management properly and achieve success:

1. Data collection: price history, peak and off-peak periods, inventory and other factors that can influence price changes throughout the year.
2. Segmentation: profiling the buyer persona will allow you to create an offer adapted to the different types of customers that may come to the hotel.
3. Estimates: make predictions about demand and inventory, bearing in mind the market share you can aim for in each period.
4. Optimisation: set the most appropriate price taking into consideration the three previous points.
5. Restart the process: take the data from the previous season as a reference and prepare for a new one.

On the other hand, it is possible to measure the impact of the revenue management process by a series of indicators:

• RevPar: revenue generated by each available room.
• GopPar: gross profit per available room.
• TrevPar: total revenue per room.
• Lead time: time between booking and customer arrival.
• Forecasting: statistically based forecasts.
• Overbooking: selling more rooms than available to ensure that all rooms are occupied.
• Competitive set: select several competitors and use them as a benchmark.
• ADR (average daily rate): the result of dividing the revenue generated from rooms by the number of occupied rooms.
• Upselling: selling a product that is superior to the initial product that the customer wanted.
• Cross-selling: sell complementary products to those selected by the customer.

Revenue management strategies

The main objective of these strategies is to obtain revenue. In this case, what the customer pays for staying at the hotel.

This price is usually determined by the length of stay, the market and even the time of year. At other times, these prices depend on competition, discounts or exclusivity criteria.

Revenue management tactics

Among the tactics that can be carried out to obtain better results with revenue management, the following stand out:

• Internet bookings: provide greater flexibility to the customer and have greater visibility and booking possibilities.
• Revenue culture: offer services in advance and have a team predisposed to generate greater profitability.
• Product sales: revenue does not need to come exclusively from room sales.
• Event packages: making it easier for the customer to sell tour and transport packages can generate more revenue for the establishment.

Other benefits of revenue management

All revenue management tactics are primarily aimed at financial gain, but there are other types of benefits associated with its practice.

• Increased hotel occupancy and revenue.
• Improvement of the average daily rate.
• Proper adjustment of the forecast. 
• Optimal management of overbooking.
• Greater involvement of hotel staff. 
• Improved work processes in each area.  

We hope this article has helped you to understand how the proper application of revenue management can increase a hotel's sales and, in addition, improve the service offered to customers.