Maximizing Hotel Profitability: Top Revenue Management Strategies
Revenue Management

Maximizing Hotel Profitability: Top Revenue Management Strategies

Neil Prem
Neil Prem

Table of Contents

Do you wish to thrive in the current scenario of the hospitality industry with a competitive advantage?

If yes, you must use top hotel revenue management strategies to boost your bottom line. But what exactly is hotel revenue management, and why is it important?

Revenue management is the process of selling the right rooms at the right price to the right guests at the right time through the right distribution platforms at the best rates.

It can help hotel businesses increase their revenue while still offering their guests the services, amenities, and comforts they desire.

Effective revenue management keeps track of the rates that different guests from various categories are willing to pay. This can only be done by assessing and tracking the demand and matching it against the availability.

Additional Reasons why revenue management is critical include the following:

  • Boost the hotel's operational effectiveness
  • Reduce expenses
  • Increase the accuracy of demand forecasting
  • Assist decision-makers in choosing the appropriate staffing mix
  • Offer the hotel a competitive advantage over its rivals

Hoteliers can include or bundle a mix of services to a basic room night to appeal to a wide range of visitors (including couples, families, and even business and solo travellers). It is because customer demand shifts depending on the day of the week and the time of year.

Therefore, getting the ideal revenue management solution for a specific hotel property necessitates a specialized revenue management service. It will evaluate the competitor set (or compset) and the market to discover the best business prospects for the hotel.

In this blog, we’ll cover the following revenue management strategies in hotel industry:

  • Dynamic pricing strategies for hotel revenue management
  • Forecasting strategies for hotel revenue management
  • Demand management strategies for hotel revenue management

Let’s dive in!

Dynamic Pricing Strategies for Hotel Revenue Management

Dynamic pricing is one of the best hotel revenue management strategies employed by hoteliers to boost revenue and increase the occupancy rate for the hotel, depending on supply and demand.

It is also known as time-based pricing or demand-based pricing because these rates are modified in real-time depending on algorithms and travellers’ demands.

Demand-based pricing is not a new concept, but it has gained popularity as a result of technological advancements that enable hotels to manage and monitor demand data in real time.

Dynamic pricing effectively adjusts your standard room rates in response to shifting guest preferences, important events, and seasonal peaks to bring in the highest number of reservations and maximize occupancy.

Here are some practical examples of how hotels can employ demand pricing strategies (based on demand, seasonality, and events) to maximize their revenue:

  • Hotels may increase their prices during the peak time of the year when demand is highest. On the other hand, the hotel may lower its rates during the low occupancy season to attract more visitors.
  • While beach resorts can charge more during the summer, ski resorts can increase their prices throughout the winter.
  • A hotel located near an upcoming popular music festival venue can increase its occupancy rates during the event to take benefit of the surge in demand.

Thanks to remarkable software developments, hoteliers can now adjust their pricing structure with just a few clicks, as opposed to the far more time-consuming and cumbersome procedures in the past.

Benefits of Implementing Dynamic Pricing

Here are some of the benefits of implementing this comprehensive revenue management strategy in hotel:

1. Offer Reasonable Room Rates

Hotels that implement a dynamic pricing strategy can maintain parity with competitors by frequently revising room rates in response to market activity.

Hoteliers can configure pricing algorithms by taking into account the room rates offered by the compset and general regional demand. It makes sure that hotels maintain their competitiveness with other rates in the market.

2. Win More Clients

The target of revenue managers who implement dynamic pricing is to set hotel rates in conformity with what visitors are willing to pay.

When this happens, it's profitable for both parties since hotels witness higher occupancy rates because more visitors feel they're getting a good deal when they book there.

Additionally, dynamic pricing helps hotels continue to learn more about their target market, attract more customers, and strengthen client loyalty.

3. Automate Time-Consuming Activities and Increase Profits

For hotel revenue managers, manually collecting and assessing data from numerous sources is a time-consuming activity. They rather need adequate time to concentrate on other crucial tasks, such as:

  • Developing marketing strategies
  • Establishing group business plans
  • Managing other demanding tasks based on the delegation of responsibilities at the hotel

Here, implementing dynamic pricing can increase average daily rates, occupancy rates, and RevPAR performance while increasing the efficiency of demand forecasts, rate optimization, and performance tracking.

Possible Drawbacks of Dynamic Pricing

Although the benefits of implementing dynamic pricing are guaranteed, it can still result in drawbacks if not implemented properly. Here are some of the possible drawbacks of dynamic pricing:

1.  Frequent Rate Changes and Hotel Integrity Concerns

A hotel may find that making frequent changes to its room rates increases its profitability, but it may also cause potential guests to doubt the reliability of the pricing.

Wondering how?

Well, a visitor might think of a hotel as unreliable, or worse, greedy, if they see a hotel room rate is $95 at 9 am, but when they try to book it a couple of hours later, it's changed to $105.

As a result, constant price changes, especially those that occur rapidly, may drive guests to make reservations at other hotels.

2. Technical Complications

An effective integration among several hotel management software systems is necessary for reliable dynamic pricing to take effect.

An RMS (revenue management system) and a PMS (property management system) are typically used in conjunction at hotel properties that employ the dynamic pricing strategy to facilitate periodic improvements.

These software solutions generally collaborate with channel manager systems that ensure the efficiency of the distribution platforms for hotels. If they do not integrate seamlessly, rate revisions may not be implemented accurately altogether.

Also, it will necessitate manual data entry, which can reduce accuracy and consume a great deal of time.

How to Implement Dynamic Pricing Effectively?

Data is the primary concern when implementing a dynamic pricing strategy in any hotel. It is challenging to establish this strategy without the right software due to a number of variables.

A real-time software solution is necessary to account for variables such as supply, demand, competitors' pricing, market pricing, and current trends.

While adopting a dynamic pricing strategy, you must keep the following factors in mind:

  • Keeping track of supply and demand in the region and ensuring that your hotel rates don't go beyond or below the standard industry rate
  • Factoring in the types of rooms and the cost of the services your hotel offers
  • Including a range of hotel rooms at various pricing rates to meet your target profit point and different customer segments
  • Keeping a check on your competitors to understand their current occupancy and pricing rates

This will enable you to better understand your regional market scenarios so that you can implement your hotel's dynamic pricing plan successfully.

Forecasting Strategies for Hotel Revenue Management

Revenue forecasting in the hospitality industry is a technique for predicting your revenue performance and property's future demand. It is one of the most reliable hotel revenue management strategies to implement and boost your revenue.

Forecasting lets you anticipate future outcomes and provides you with the opportunity to rectify past errors, increase profitability, and be ready for setbacks or unforeseen events by analyzing past and current data.

Therefore, to effectively update your pricing and revenue strategies, you must implement forecasting strategies. If you don't perform accurate forecasting, you won't be able to set and revise your pricing, offers, and bundles for the following months with any degree of accuracy.

Tips to Improve Your Hotel Forecasting

Here are 3 tips that can help you improve the quality and accuracy of your forecasting:

1. Leverage Historical Data

When forecasting demand for hotel rooms, the best resource you have at your disposal is historical data because past information can be an excellent predictor of the future.

Although past data cannot be 100% reliable, it is reasonable enough to foresee comparable demand surges if you observe specific trends, such as an upturn in some months or an increase in reservations in others. The same goes for trends related to adverse weather conditions, economic decline, etc.

It is crucial to pay attention to broader market developments.

These might be trends that apply to the entire hospitality industry, like a general rise or fall in travellers booking hotels in your region or an increase in rival businesses.

In addition, trends impacting the wider demographic, such as economic crises or development, could also influence your forecast.

3. Make Forecasts Based on Segments

After you have a standard forecast based on the many data points and market trends you have taken into account, you must try to segment it. You could, for instance, base your forecasts on the following variables:

  • Different countries guests visit from
  • Major distribution channels individually
  • Segmenting guests into categories: business, groups, leisure
  • Considering the demand for certain types of rooms, suites, or guest houses

This will allow you to gain a better perspective of your company's origins, the impacts of each segment type on the business, and the types of guests you should bring in.

Benefits of Implementing Forecasting

Here are some of the obvious advantages of implementing one of the best revenue management strategies in hotel industry:

1. Yielding Across Multiple Channels

A successful forecast of hotel revenue and occupancy rate enables a revenue manager to maximize yield across all channels.

For instance, if high unrestricted demand is predicted for a hotel, the revenue manager could sell rooms via low-cost/high-rate channels to increase revenues.

2. Marketing Strategy

Accurate hotel forecasting is vital for the successful implementation of a hotel's marketing plan. Because hoteliers incorporate forecasting algorithms to develop their promotional offers, the correlation between hotel forecasting and marketing strategy is clearly evident.

It is a key catalyst for the hotel's marketing and sales staff to launch marketing efforts aimed at generating demand. At the same time, promotions are launched to accomplish the same objective.

3. Purchase Decisions

A good forecast helps with both the buying of perishable and non-perishable supplies. For instance, a hotel may opt to reduce the list of its buffet offerings in its café during a time of low occupancy, necessitating the purchase of several perishable food items.

Possible Challenges of Forecasting

Hotel forecasting is a complex task that calls for a thorough analysis of several aspects. Here are a few challenges that hotel forecasting presents:

1. Data Accuracy

Demand forecasting accuracy depends on having reliable and current data. However, collecting and evaluating data can be tricky, especially for smaller hotels.

2. Seasonality

Seasonal factors such as vacations, climate, and local events frequently cause shifts in customer demand.

3. Changing preferences of travellers

The hospitality industry could be impacted by traveller trends, such as a rise in ecotourism or the popularity of certain locations.

So how do you forecast effectively and prevent the complexities of hotel forecasting?

How to Forecast Effectively for Your Hotel Business?

Your forecasts should always result in the flexibility to react to market shifts, increase occupancy, and boost revenue.

To accomplish this, you must take into account a range of factors, including staffing levels and resource allocation, in addition to key revenue indicators like occupancy, night hotel rates, and average daily rates.

Your strategies will be more established, and there will be less ambiguity if you can collate more data. Yet, it's crucial to keep in mind that your forecast shouldn't be static.

You should conduct weekly or monthly evaluations when new data becomes accessible. Further, you should periodically review performance, assessing what went well and what failed.

This enables you to improve your forecasts and tweak your revenue management strategy to achieve even better outcomes.

Demand Management Strategies for Hotel Revenue Management

Demand management, in simple terms, is the process of identifying and managing client demand. Demand management primarily analyzes the logistics of demand, what services your clients want and how to deliver them to your clients.

As you run a business, forecasting demand enables you to plan for unpredictability and potential roadblocks. This allows you to respond more efficiently and keep the supply chain moving.

Demand management, when implemented properly, aids businesses in identifying demand gaps and making any necessary adjustments to their business strategies.

It involves viewing things from the perspective of the target customer base. In this manner, businesses can more accurately predict what customers want and maintain credibility.

What Is Hotel Demand Management?

Demand management in the hospitality industry consists of the integration of all the main commercial departments of the hotel business, with the primary focus on revenue optimization, which in turn increases asset value.

When it comes to living up to and exceeding clients' expectations in the hotel sector, providing outstanding lodging facilities and services is simply not enough.

This is why one of the most critical elements in finding success in the hospitality industry is excellent demand management.

It not only impacts the hotel's general operations, vision, and mission but also has an influence on the simpler things that contribute to making every visitor's experience unique and memorable.

The hospitality sector faces several challenges concerning its market that can be mitigated via effective demand management. Let’s take the example of hotel overbooking, a roadblock for all hotel businesses:

Hotel overbooking happens when a hotel business accepts more bookings than the number of available rooms, with the assumption that some guests would cancel, reschedule, or not show up.

But if more visitors come than there are rooms to accommodate, it may result in major problems for both the company and the visitors. Therefore, hotels can employ demand management strategies, such as channel management, to mitigate this risk.

The purpose of channel management is to optimize revenue and occupancy across multiple distribution channels. Hotels can boost their visibility and attract a wider audience through various channels.

Also, this strategy enables hotels to fairly distribute their inventory across multiple channels, minimizing the likelihood of overbooking.

Benefits of Implementing Demand Management

Demand management is, without a doubt, one of the best hotel revenue management strategies. Nonetheless, some people may still be sceptical about demand management's credibility and its potential benefits for the hotel industry.

Here are some of the benefits of implementing demand management in the hospitality sector:

1. Increased Forecast Accuracy

The accuracy of short-term forecasts is improved by the use of demand sensing, point-of-sale (POS) data, big data, and data analytics.

2. Organizational Agility

You can effectively manage operations during difficult times if you have the capability to react to and adapt to shifts in the market and within the business.

3. Improved Human Resources

Businesses can more precisely manage staffing levels when they are able to forecast demand peaks.

4. Greater Competitive Edge

Businesses gain a competitive advantage by improving efficiency and raising value throughout the entire supply chain by successfully predicting, organizing, and integrating business processes.

Potential Risks of Demand Management

Here are some of the potential risks that hotel businesses might face while ineffectively implementing demand management:

1. Inflexible Management

Demand management as a strategy reflects the aura of a powerhouse and can yield significant results for businesses. But, it requires leaders dedicated to developing agile, flexible systems supported by the appropriate resources.

2. Substandard Demand Data

Gathering up-to-date and accurate data can be a challenging process. Because market conditions are constantly fluctuating, it is problematic for businesses to solely depend on historical data to forecast demand.

Therefore, leveraging technology that provides the most current data will eliminate the difficulty of showing quantitative demand fluctuations.

How to Implement Demand Management Effectively?

Any hotel business looking to enhance its demand management strategy must begin by identifying the underlying reasons for demand fluctuations. The following are some of the most common reasons for it:

  • Changes in the economy
  • Customers' behaviours
  • Marketing campaigns
  • New product launches
  • Seasonality

Once you've identified the core reasons for fluctuation, you can develop a strategy to address them. A few best practices can make a significant difference when it comes to hotel demand management:

  • Knowing your target customer base will assist you in properly marketing your offerings to them
  • Determining their needs

As automation cuts down on time spent on manual and repetitive tasks, you must leverage it to streamline your work processes. For instance, automating sales tracking and reporting will enable you to efficiently gather information about previous and existing demand.

Partner with AxisRooms to Optimize Your Revenue Management Strategies!

Revenue management assists hotels in maximizing their modest revenue stream, which is their hotel rooms. By applying hotel revenue management strategies, hospitality businesses can:

  • Identify what the guest wants
  • Understand booking patterns
  • Update suitable room rates
  • Scale their business
  • Gain a competitive edge against rival companies

In this blog, we discussed three of the best hotel revenue management strategies. You can implement them to expand your reach and generate more income.

Additionally, you must automate your work processes with a revenue management software to eliminate manual tasks that slow you down, such as data gathering and analyzing them.

But hotel businesses often miss out on utilizing a revenue management software to its full capability.

You can prevent that by partnering with AxisRooms and taking full advantage of every one of the benefits offered by a revenue management system.

You can accomplish the following using AxisRooms' RM as a Service offering:

  • Successfully implement hotel revenue management strategies based on seasonality, occupancy, and length of stay
  • Monitor demand, supply, and market trends
  • Reach your targeted client base with a more powerful digital presence
  • Discover fresh business opportunities
  • Ensure rate parity across sales channels

Contact us today to learn more about how our revenue management service can help your hotel business grow and scale!