Do you have a revenue management strategy?

Revenue management is key to commercial success but in a recent survey of UK hoteliers, we found over a third (37%) of respondents rely on manual management of their revenue strategy, operating without a Revenue Management System (RMS).

Even more worryingly, 27% don’t have a dedicated revenue management person or team, causing delays in implementation of any revenue decisions taken by senior management and a disjointed approach to commercial strategies.

The lack of revenue management within hotels is spread across all property types – from independent boutique hotels to those part of large groups. So why is revenue management so often forgotten by hotel owners and operators? Is a revenue management strategy really important? And how can it impact your hotel?

Why revenue management is important

Regardless of whether the function sits on-property or at a cluster or group level, revenue management is vital in making your hotel profitable.

Revenue management allows hotels to hone in on selling the right product, at the right price, through the right sales channel, to the right customer, at the right time.

Variables such as demand, length of stay, days before arrival, customer price sensitivity, costs and pricing structure are all assessed as part of a revenue forecast, resulting in a pricing strategy that flexes to a multitude of market data and forces.

At its best, pricing, forecasting, inventory management, and distribution strategy, closely aligning with sales and marketing as part of a wider commercial focus. It helps hoteliers, owners and investors focus on what’s important to drive a property’s success.

Does a revenue management strategy make a difference to a hotel’s performance?
The short answer is yes – and by quite a bit!

All hoteliers surveyed saw healthy ADR increases in the past year as the staycation market boomed post-pandemic. However, hotels without a revenue management function saw the lowest increase (up 9%), followed by those without an RMS (up 12%). Hotels who had either a dedicated revenue manager or an RMS saw ADR increases of 14%.

And it’s not just past performance where this is evident. In hotels without a revenue team, an ADR increase of just 7% is forecast in the coming year, with 10% predicted by those without an RMS. Hotels with an RMS and/or a revenue manager anticipate a healthier 11% growth in ADR.

Without a revenue management strategy and the tools to implement it, hoteliers are literally missing out on money.

How a revenue management system helps

A Revenue Management System (RMS) elevates the understanding and output of a commercial team. In our survey, we found that properties without an RMS were most concerned about their overall pricing/selling strategy (55%) and reaction time (52%) – both challenges easily addressed by an RMS and a robust revenue management strategy.

Hoteliers understand the importance of revenue management but need to invest the human and technological resources to put a revenue management strategy in place and action it.

When asked if they felt operationally efficient in pricing and distribution (key ways of maximising revenue opportunities), hoteliers with a revenue function (82.9%) or RMS (82.6%) believed they were efficient most or all of the time. This dropped significantly in hotels without an RMS (to 62% most or all of the time) and even more so for those without a revenue function (to 53%).

Running a successful hotel business is about more than just filling rooms. In fact, using occupancy as a key measure of business success overlooks the wider value a hotel’s outlets and ancillary services bring. Yet properties without a revenue management team (41%) or system (35%) continue to prize occupation as their leading key performance indicator. For properties with more advanced revenue strategies, the most important KPI was RevPAR (39% of hotels with an RMS; 37% of properties with revenue manager), with Occupancy only 14% (with RMS) or 16% (with revenue team).

Modernising your business strategy, ensuring a hotel is maximising its returns through not only rooms sold at the right price, but filled with the right customers who will deliver greater value through ancillary spend, is essential for hotels to succeed. From our survey data, hoteliers have a clear path forward – create a dedicated revenue function to craft a robust, forward-thinking revenue strategy, and give them the tools to perform, such as automated intelligent revenue management systems like IDeaS G3 RMS.

Find out more about how revenue management can improve your business at ideas.com 

By Michael McCartan, Area Vice President – EMEA of IDeaS Revenue Solutions.