Is Revenue Management Only Useful For Luxury Hotels?

In the past, revenue management was a practice that only high-end, luxury properties implemented for two major reasons: first, it was hugely cost prohibitive, and second, it required the hotel to hire a revenue manager to execute the processes (or oversee the revenue management system – RMS). Only properties with large budgets – both for revenue management and personnel – could actually afford to use revenue management to price their properties, leaving smaller, boutique properties struggling to keep up.

But that was yesterday and today, lots of things have changed. Today, revenue management is a practice that all properties should be using to improve their occupancy, ADR and RevPAR – no matter their budget, number of staff, star rating and property status (branded vs. independent).

There are six major reasons why all hoteliers should be using revenue management to ensure that their property is as profitable as possible:

Increase in Supply

In most popular tourist markets, there is ongoing development of new properties to accommodate the influx of tourists who travel to the destination throughout the year. As more properties are added to your comp set, it becomes much more difficult to manually track the prices of the competition as they continually fluctuate as the market changes. In fact, in many top markets, it’s downright impossible to manually track rate changes within a comp set. This means that those hotels are often blindly updating their rates without taking the competition’s pricing into consideration. That strategy will rarely yield the right price to ensure the highest ADR and the highest occupancy at all times.

Change in Consumer Behavior

I’m sure that you’ve heard me speak about the ongoing change in consumer booking behavior: every year, more and more consumers are choosing to search for, compare rates and book hotel stays online – most frequently through the online travel agencies (OTAs). Which means that if you aren’t listing your properties online – and ensuring that your rates are competitive, you will be losing out on business to the competition.

Continual Maturation of the Online Channel

Since the creation of OTAs, it has become increasingly more difficult for hotels to manage their rates effectively – unless they were using technology to assist their revenue management team. But now with the introduction of metasearch OTAs, weaknesses and errors in manual pricing are completely visible to consumers, making it more difficult for hotels to turn a profit when they aren’t pricing their rooms correctly. The reason being that if even a single channel is priced lower than the rest (which are displayed to consumers in their metasearch results), 99% of all consumers will book the lower rate. That means that you are losing money on each and every booking until you notice the discrepancy in rate parity and update the rates accordingly.

Advances in RMS Technology

Historically, hotels that used RMS were required to hire a revenue manager to oversee the RMS’ actions. Additionally, many RMS did not offer seamless channel manager integration, making the tedious task of manually updating the new rates (to the various OTA channels) a responsibility of the revenue manager. All in all, it was necessary for hotels to have both a revenue manager and an RMS to successfully leverage an RMS for more accurate pricing updates.

That is no longer the case… today, sophisticated revenue management systems exist that combine the benefits of a revenue manager, a channel manager and inventory management system, making them a truly one-stop shop for revenue management success. As well, these RMS can work autonomously with little to no involvement by a revenue manager. That enables hotels that cannot afford to hire a revenue manager, to take advantage of the huge rewards of revenue management at a fraction of the price of a full-time employee.

But of course, we would never advocate for hotels to replace their revenue manager with RMS technology. While technology is invaluable for handling the tedious collection and analysis of data, revenue managers are worth their weight in gold for the high-level strategic thinking and liaising with other internal departments to ensure that the revenue management strategy compliments the marketing and reservations activities happening at the same time.

Frees Staff to Manage More Important Tasks

This is an important benefit to all types of hotels. For small hotels with a very small staff, implementing a sophisticated RMS ensures that the staff does not need to actively monitor the hotel’s rates or inventory, as it is being handled automatically, in real-time by the RMS.

For hotels with large budgets and a revenue management team, implementing a sophisticated RMS will enable the revenue management team to focus their efforts on overall revenue management strategy, rather than the tedium of pricing calculations and manual updates.

And for many properties, the most important reason…

Cost

RMS used to only be affordable for hotels with big budgets, but today, vendors have realized the impracticality of prior pricing strategies and many have implemented more affordable options – many even without a long-term commitment. And for those properties that still find prices too high to be affordable, I recommend contacting the vendor directly and trying to negotiate for a better rate.

This reason in particular, makes it possible for EVERY property – no matter their size, budget, property type or star rating – to afford a revenue management system and the opportunity to take advantage of the substantial benefits provided by the practice of revenue management.