Revenue management (RM) is a strategy used by hotels to improve profitability and increase revenue. It involves managing hotel pricing so that it matches demand. If you’re reading this, then you most likely own or run a hotel. But do you own or run a hotel that can benefit from revenue management? Probably not. The vast majority of hotels are not profitable, and until they become profitable, they won’t have much reason to use an RM strategy.

However, if you operate in a market where demand for hotels is consistently high and supply is consistent enough that you can set prices without upsetting your guests or losing profitability, that is, if conditions are right for using Revenue Management at your hotel, then why not? Let’s look at the benefits of using revenue management for hotel: –

Managing Demand is Key to Profitability

The first and most obvious reason to use an RM strategy is to manage demand. If you’re on a property with consistent demand, then you have a great chance of generating a profit. RM allows you to adjust prices to avoid over-occupancy and undershooting room rates problems that plague many hotels.

When you use RM, you’re able to set prices that meet demand. If there are 2 rooms available at $120 per night and demand is at 3 rooms per night, you can set the price at $120 plus $20 per night. That would allow you to book the 3 rooms that you want at a price that’s lower than if you were at full occupancy. You’re also not fully occupying the hotel. And when demand is consistently high, you can make a decent profit!

Benefits of Revenue Management for Hotels

Increase Profitability

RM allows you to increase profitability by designing and executing a pricing strategy. This is important because if you don’t increase profitability, then you’ll never be able to grow your business and become debt-free. To expand your hotel business, you must take on more debt.

This means you need to pay back the bank or have enough cash to cover the debt. If you don’t have enough profits, you can’t do either. Because hotel companies use RM, they can choose which room types to place in different parts of the hotel. This allows them to fill rooms with higher-priced room types. This strategy is called “categorizing,” and it’s one of the most important strategies you can use in Revenue Management.

Build a Stronger Brand

Hotels that use revenue management solutions build stronger and more recognizable brands. This is because most travellers prefer to stay in hotels that are clean, reliable, and safe. If you don’t set a price for your rooms, then what’s the first thing your guests will notice? The condition of your hotel.

 Hotels that use RM programs design and execute a pricing strategy that is consistent with building a stronger brand. They must use the hotel marketing channel to build their brand, and the way to do that is to design and execute a pricing strategy in line with their marketing strategy.

Build Trust with Guests

Trust is the foundation of any relationship, and relationships are the foundation of business. Your guests will become more trusting of you if you use Revenue Management. This will improve the quality of the guest experience and your guest retention rate.

Hotels that use Revenue Management design and execute a pricing strategy that is consistent with building trust with guests. They must use all channels to build trust, including online reviews, social media, and in-hotel communication. If a guest has a complaint, then the hotel manager must address it right away.

Strive for Bottom-Line Excellence

Hotels that use Revenue Management design and execute a pricing strategy that is consistent with striving for bottom-line excellence. They must design and execute a pricing strategy that is integrated with their financial goals, as well as their profit-sharing goals. If you want to use Revenue Management, then you must design and execute a pricing strategy that is consistent with striving for bottom-line excellence.

Decrease hotel booking and revenue loss cost

Some hotels spend a lot of time and money booking and collecting room revenue. That’s a waste of time. Using Revenue Management, you can simply set your prices and let the market decide what they want to pay. If a guest wants to book a room at your hotel, they will be able to do so at the prices you’ve set.

If they don’t want to book a room, they won’t be able to do so at the prices you’ve set. That’s it. If you don’t reduce booking costs and revenue loss costs with revenue management, you’ll end up spending a lot of money on booking costs, like commissions for agents and travel costs for the staff who book rooms. That’s a lot of money that could be used to increase profit margins.

Reduce bad debts and non-payment risk

There are many hotels in the world where non-payment risk is high. This means that guests who don’t pay their bills often don’t pay their entire bills, but instead leave a large amount of unpaid “bad debt.” This means that the hotels have a large amount of revenue risk. Using Revenue Management, you can simply charge your guests the price you have set, and if they don’t pay, you can simply charge them the price you have set.

This way, you have removed all risk of bad debt, since there is no risk of them not paying the full amount owed. If you don’t use Revenue Management, guest behaviour and the realities of life may make charging guests the price you have set less attractive. But with Revenue Management, there is no question as to whether or not you should charge a guest the price you have set.

Conclusion

Revenue Management is a strategy to increase revenue and manage demand. Just like in retail, you set prices that meet demand and lower costs by using a reservation price. This allows you to increase your average occupancy rates and save on costs with demand-based pricing. By managing demand, you can avoid low occupancy rates and increase profitability by avoiding over-occupancy.