Revenue Management

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Revenue Management

What is the meaning / definition of Revenue Management in the hospitality industry?

Running a successful hotel does not simply involve selling as many rooms as possible in any given trading gear, in a kind of random first-come-first-served way with a 'hope for the best' atmosphere surrounding things. No. The key to achieving sustained success in the Hospitality Industry is to be hard working, organised and to work to a well-orchestrated strategy formulated and managed by experienced professionals.

Amongst the most important staff members at any hotel are the revenue management team: professionals who know how to sell:

  • the right room,
  • to the right client,
  • at the right moment,
  • for the right price, and
  • on the right distribution channel (i.e. the one with the best commission efficiency!).

Excellent revenue management can also help predict and stimulate consumer demand, and to optimise inventory and price availability in order to maximise profits, not only at times of high interest but also during low periods (when a coastal resort or skiing hotspot is out of season, for example).

Flexibility is essential
Taking a long-term view is always best, with forecasting being hugely influential in the fruitful adjusting of revenue management strategies. Adopting a flexible open-minded approach to revenue management is also important in an industry where new trends often emerge; particularly in general consumer behaviour and the way in which people everywhere purchase holidays and make hotel reservations across different distribution channels.

A long-term strategy tends to pay dividends in hotels with the following characteristics:

  • fixed capacity
  • perishable product(s)
  • high fixed and low variable costs
  • product can be priced differently
  • demand evolves
  • product can be sold in advance, and
  • market can be segmented

Don't ignore intuition
Effective revenue management utilises intuitive as well as analytical skills; skill- sets that can actually improve with practice. Revenue managers or teams need to focus on producing a respectable blend of occupancy and rates. A hotel’s mission should be to build base occupancy, through a good mixture of rates, so that every type of customer is catered for.

Beware of this occupancy myth
Too many hotels across the world make the same mistake. That is, they aim for 100 per cent year-round occupancy. That's great. But how about instead aiming for 100 per cent occupancy with an average room rate being set as high as possible?

For example: a 1,500-room hotel on Las Vegas Blvd. (Nevada) with an occupancy of 85 per cent and a $130 average rate will be more profitable than if it had 100 per cent occupancy at $100.

This is a simplified format for those hotels that are currently “simply selling rooms” at the present time.

Baby steps
The purpose of revenue management is to help hotels 'shape' their business. Obviously, there can be much more detail and intricate techniques involved in the overall management process; but sometimes progress has to come in baby steps, especially in the beginning.

No revenue management manager or team? Think again.
Many larger hotels employ full-time revenue managers. However, perhaps surprisingly, most independent and smaller hotels are not using any form of revenue management in their operation, meaning that they are missing out on various benefits, and perhaps not maximising profits each year. Adding a revenue manager or team to their staff will of course incur an expense, but the consequent improved revenue yield should more than cover the cost.

Be proactive – make it happen!
Revenue management is a vehicle to help hotels become aware of the rooms they sell, the rates at which they sell, and the pace at which they sell. It is a way hotels can become pro-active in the selling process, rather than simply posting rates and (with their fingers crossed!) hoping for sales.

See also:

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