Analytics and performance data are used in revenue management to assist individuals in the hotel sector in anticipating the behavior of their guests. Making informed decisions about pricing and distribution strategies follows the use of the data. Having the correct room for the right person at the right time and location is the ultimate goal of revenue management. When this happens, your chances of maximizing revenue and, consequently, profit increase.
In order to match your supply to their demand, you will ultimately employ the knowledge you have gathered about how your customers think and perceive value. This will show you how to spot a reduction in demand, which indicates the time for lower rates, and when it is advisable to hold onto a room until you can get a higher price.
Having a technique to accurately estimate your potential customers’ purchasing patterns and product demand is the key to developing a revenue management strategy that works. This can include historical and present-day reservations, weather predictions, tourism statistics, and other business information. You will be better able to make informed modifications with this knowledge.
What is Revenue Management?
Revenue management refers to the strategic distribution and pricing tactics you use to sell your property’s perishable inventory to the right guests at the right time, to boost revenue growth. Other products such as your amenities and food and beverage offerings will also come into the picture.
Revenue management revolves around measurement of what customers from different audience segments are willing to pay and this can only be done by measuring and monitoring the supply and demand of your hotel rooms.
Within the hotel industry, it involves the use of data and analytics to help hotel owners monitor supply and demand so they can make predictions on consumer behavior. This then allows them to make better-informed decisions on what accommodation to promote to the right client, at the right time with appropriate pricing through the most suitable distribution channel. It’s a cost-effective business technique that allows the optimization of inventories and helps to maximize profits while ensuring customer satisfaction.
Let’s start with the basics of hotel revenue management to get a better understanding; every traveler has the maximum value they can offer your hotel and revenue management is about capturing as much of this value as you possibly can. There are many ways you can approach this, from motivating guests to book directly to offering purchase extensions, up-sells, or extras as well as encouraging guests to become a return visitor.
Remember, the best strategies and techniques are based on the understanding that hotel pricing is fluid and can change from one day to the next. This is a key reason why hoteliers should never be afraid to increase their rates, and this may be surprising, but customers actually expect increases over time. Most businesses where consumers spend money have varying prices based on demand, supply and shifts in costs.
Why is Revenue Management Important
A successful revenue management plan has advantages beyond those enjoyed by hotels and airlines. There are numerous advantages for tour operators and activity suppliers as well. However, there are certain important factors to consider, such as how to spot market changes. Which lessons apply to your company? How can your tours and offerings be modified to meet consumer demand? You will have all the answers if your revenue management strategy is well-planned.
The five steps to creating your own strategy are as follows:
1. Identify market opportunities
There are many ways of identifying market opportunities. Start with references in the tourism industry, such as the World Tourism Organization and the World Travel & Tourism Council, or even your local DMO and other reliable tourism sources. But after understanding the overall scenario and tourism trends, the key is to also dive into your business data.
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Some of the main resources to take a look into are:
- Google Analytics: find all the information about your website’s usage. From the audience, traffic sources, and even conversions, so you can calculate your website’s ROI. Google also has the Search Console tool, where you can check more info about your organic results, and Google Trends, which shows the data about online research on Google.
- Social Media Insights: Instagram, Facebook, LinkedIn, Twitter, TikTok, and all the main social media channels have the “insights” or “analytics” sections or reports, which will also include data about your audience, reach, and engagement. This way, you will see who you’re talking to in those channels, what type of content drives the best results, and other relevant information.
- OTA’s: if you’re selling tours through OTA’s and other online resellers you must also get sales reports and understand your target preferences within those channels.
- Direct bookings: more than the website traffic, if you’re selling tours on your website you must also check the revenue data on it. How many tours are you selling directly on your website? How many days in advance do people usually book? A booking software like TrekkSoft allows you to optimize your tours and get plenty of information about your online sales from the Business Intelligence section.
Once you analyze your company’s revenue data, it’ll be easier to identify possible market opportunities and demands. With this precious information, you can adapt your services or even create special tours and prices according to the market.
For example, with the COVID-19 pandemic, many companies had to review their cancelation policies to offer more flexible and conscious offers. From time to time, it also happens that a specific destination might get extra attention due to TV shows or movies.
All of that might impact your business, and a good revenue management strategy will help you identify these opportunities.
2. Get to know your customer
By understanding your customer’s behavior, you can meet their expectations or even needs. Your company can improve its services, marketing, and pricing with that in mind.
After using the tools listed previously, more than just understanding the market in general and its opportunities, you will have plenty of information about your digital relationship with your customers. Some aspects to keep in mind are:
- SEO: from the organic searches, what are the main keywords driving traffic to your website? What people are usually looking for when they find your company? Make sure that your website visitors will easily find that information on your website or tour page.
- Social Media: more than just having followers, your social media channels should also have an impact on your revenue. From the “insights” section you’ll see your audience’s age, gender, region, and many other relevant data. Make sure that is aligned with your services and tours, and if you identify market opportunities do some testing.
- Paid Ads: if you’re running paid ads on Google or social media channels, it’s a must to look into the reports. After all, you’re investing your money in it. Double-check which type of ad is getting the best results: does it have a specific Call To Action? Does it include attractive images of your destination and tour? Identify what’s working and what’s not working, and build up a strategy from that.
For example, you might notice if your clients are more likely to book in advance or get a last-minute booking. If you’re getting too many last-minute bookings and it’s more interesting for your company to sell tours in advance, you can create unique campaigns or even prices to balance that.
3. Promote low season
One of the main points of revenue management is that once you better understand your customer’s preferences, you’ll learn about their favorite months, dates, times, and tours. Therefore, you can work with dynamic prices, offering a lower price during low season or quiet dates. This way, you’ll also open the opportunity of attracting new clients, such as locals.
Let’s say that you identify that during high season you get groups of friends and big families, and during low season you’ll have more solo travelers and couples. In that case, you could create group offers, or even create an exclusive couple tour during the low season. Ultimately it will depend on the data you find and your analysis of what’s relevant to your business.
4. Get more direct bookings
Once you learn about the tourism trends and your own audience and even identify market opportunities, make sure you’re offering what your target group likes and expects. It goes from adding key information to your website and tour pages to creating special products and offers accordingly. This way is much easier to promote your website. If you learn about your market and your customers, you’ll be able to reach a more qualified target.
By doing better marketing and adapting your services, you’ll have higher chances of getting travelers to book directly on your website, reducing the fees and costs.
5. A better financial outcome
A better financial outcome is the ultimate benefit of having a well-done revenue management strategy in place. With all the previous steps in place, your sales process, approach, and pitch will put your company in a much better scenario. You’ll have the opportunity to sell more, talk to the correct public, and improve your profits.
There are many strategies that ensure more revenue is driven to your hotel, and many of them don’t involve raising prices or playing with your rates much at all.
The key driver is to ensure the satisfaction of your customer. If your product offering is universally recognized as quality, you have the foundations to charge a higher price.
If guests feel like they’re getting maximum value for their money, it’s very likely they’ll be willing to spend more. Getting more out of each individual guest who stays with you is a great way to increase the overall revenue of your hotel. For instance, guaranteed revenue from a guest you convince to stay an extra night by discounting the additional night might be worth your while, especially in low season.
Here’s a list of general tactics you can use to improve your hotel’s revenue stream:
- Be easily bookable online
These days travelers enjoy the flexibility, convenience, and value of booking online. By starting to connect to online travel agents (or more OTAs) you’ll easily see an uplift.
- Build a revenue based culture
Who’s on your revenue team? Everyone!
Anticipatory service + proactive revenue-minded employee = emotionally connected customer with engaged loyalty and higher revenue returns.
- Upsell other hotel products
Revenue opportunities extend far beyond simply selling your rooms. Think about the amenities you have on site and what you’re charging for them. Go even further by offering hotel guests the chance to purchase items like soap, utensils, bathrobes etc, specifically hotels that have a unique sense of style (boutique hotels are more likely to succeed with selling unique products used within their establishment).
- Leverage local events and attractions
Events and attractions in the area are a great opportunity to curate packages for guests or offer additional services such as transport. The benefits are two-fold; guests enjoy their stay more and your hotel generates more income.
As you move away from tactics and towards a completely developed strategy around your revenue and room sales, you also need to start thinking about and understanding your key performance indicators (KPIs). Once you know what you should be looking at you can start analyzing the data and developing ways to manipulate them in your favor.
As a base, these are some metrics you can explore:
- Occupancy rate
- ADR (Average daily rate)
- RevPAR (Revenue per available room)
- TrevPAR (RevPAR + ancillaries)
- GOPPAR (Gross operating profit per available room)
- RevPASH (Revenue per available seat hour) – useful if you have a hotel restaurant
The principle that you should always keep in mind when choosing KPIs to benchmark against, is to assess market conditions in real-time and adapt accordingly.
Revenue management is a vital component of hospital management and one that can help hotels to become more profitable while providing their customers with the service and amenities they need.