A, B, C’s of Revenue Management for independent hotels
Revenue Management is based on the idea of “willingness-to-pay”, selling the right room to the right customer at the right price and the right time, through the correct channel. It certainly sounds like a pie in the sky. Yet, when executed with the necessary due diligence, significant gains to the bottom line is achievable.
5 min read
The Revenue Manager
Hotels are more intentional in managing their revenue potential through rate yielding, versus occupancy, versus demand, versus booking windows and importantly, the willingness of the customer to pay for their product at a point in time. Revenue management includes ancillary spend such as food and beverage services, spa treatments and other facilities provided by the hotel.
Understanding that some guests are more valuable than others is the primary takeaway. Consider a single night stay versus a three-night stay which includes other hotel services. The role of a Revenue Manager is to collect data, analyze it, forecast demand and performance, and then develop data driven strategies to achieve maximum revenues. Considering the complexity of this process, this multifunctional role extends to include the hotel’s sales, marketing, and operations team. In turn, the hotel has to potential to achieve the maximum results from its assets across all market conditions using distribution channels.
Application of revenue management
The fact is most independent hotels do not use revenue management software applications (yet). The good news is that it is possible to improve your bottom line by implementing basic revenue management strategies using the data that is already collected by your reservation team and the freely available data such as your website analytics and OTA market reports.
Even if you do not use software applications to manage your revenue, you do need a revenue management strategy to remain sustainable. Strategies should be flexible and adapt to the changes in demand and consumer behavior. Understanding that the pricing strategy needs to be fluid and possibly change from one day to the next, is critical in achieving revenue goals.
(Technology is continuously evolving, and sophisticated applications has definite advantages in accuracy, data collection and capabilities. Technology complements the role of the revenue manager and do not replace it.)
Development and approach
The key performance indicators to consider when revenue management strategies are to be developed are readily available from your hotel’s property management system.
OCC % (Occupancy Rates), ADR (Average Daily Rate), REVPAR (Revenue per Available Room), TREVPAR (Revenue per room + supplemental income) and GOPAR (Gross Operating Profit Per Available Room).
- Market Segmentation
Most hotels are already segmenting between business and leisure travel or the channel from where bookings are generated. Other factors to track includes, cancellation rates, length of stay, no-shows, booking windows and demographics. Understanding where your biggest opportunities are is crucial in perfecting your marketing funnel and pricing strategy.
- Constraint and Unconstrained Demand Forecasting
Using historical data and the real time market environment consider the ability of the hotel to sell or over-sell its rooms. Identifying opportunities to yield higher rates on higher occupancy dates in advance will assist you in better managing the reservation processes.
Reliable and consistent forecasting is the fundamental building blocks of effective revenue management. Without technological assistance the task is more intricate and time-consuming but the booking pace (pick-up), historical data and local market knowledge will assist in anticipating demand.
- Pricing Strategies
Value perception is king in a price sensitive sector. When considering your pricing strategy determine which pricing strategy will compliment your business mix. Structure your rates in such a way that your guest perceives value, integration to your OTA’s are not in conflict with your travel agent partners and that incentives are offered to direct bookers. Keep in mind that an effective revenue management strategy requires dynamic pricing that can change from one day to the next.
Pitfalls to Avoid:Tactical pricing strategies where the goal is to marginally undercut competitors may be effective in volatile market environments, but it is not a strategy that Let’s Africa promotes. This tactic leads to price wars, driving rates down, it also conditions the market that your product is of lesser value, does not promote recovery in the long run and makes it much more difficult to achieve higher average rates when demand recovers.
Pro Tip: Get the edge on competitors through value adds, packaged offers, excellent customer reviews and marketing your unique selling points instead.
- Distribution and Channel Mix
Each market segment has its preferred method of booking. Taking a holistic approach to your distribution is important. There is always room for improvement. Naturally driving channels with a lower acquisition costs is preferred, such as your own website, social media, telephone, email and walk in guests. Add online travel agents, meta search engines and global distribution systems to the mix, these platforms can reach many more potential customers than your marketing budget will allow. Tour operators, wholesalers, travel agents and corporate business is a valuable source of revenue if you meet their commission requirements and compliment their target markets.
The goal of benchmarking is tracking performance and using the findings to adjust where necessary. It is the norm to benchmark against a set of competitor hotels to evaluate performance. This is not a conclusive assessment tool. Also measuring performance against budgets and forecasts will quickly highlight where improvement is necessary.
Total revenue management is a data driven process that combines all the departments of the hotel to drive optimal revenues. It is a strategy that optimizes all aspects of the hotel’s operations to increase profitability.