Hotel Revenue Management Guide: Key Profit-Boosting Strategies

Let’s say you’ve just purchased a new hotel to add to your portfolio of accommodations properties, and this hotel is in a popular tourist area. As the previous owner hands you the keys and laments about how they hope you can bring the hotel’s revenue potential back to its glory days, the ideas regarding the changes you’re going to make to the property are already flooding your mind: an addition to the restaurant that’ll host live entertainment, refurbishing the pool, and changing those dreadful bedsheets that look like they crawled straight out of the 1980s.

Any change to your new property necessitates a look at your room pricing strategy. With new amenities and an updated look, you could probably get away with charging a bit more for each room. But as a new hotelier in the area, you also have to consider seasonality, location, and your main competitors, at the very least, when setting new prices. Having access to historical data on the hotel’s revenue is also a huge bonus. 

So imagine that you have all the important information you can get your hands on, and you set prices based on that information. After the first few months…nothing is any better. Rooms are selling at a snail’s pace, and guests are staying for one, maybe two nights at most, and not taking advantage of any amenities. Faced with decades of historical data on different programs and a live feed showing fluctuating competitor rates on popular Online Travel Agencies (OTAs), you start wondering what went wrong and what you’re missing. 

Thankfully, there’s a light at the end of the tunnel: with effective revenue management strategies backed by modern software, you can give your business the best chance of turning itself around.

In this guide, we explore the particulars of revenue management in the hotel industry, including the basics of hotel revenue management, how hotel revenue management has changed over the years, strategies you can implement to increase revenue, and more.

The State of Revenue Management In the Hotel Industry

Over the years, many factors have contributed to the shift in hotel revenue management. While technologies like artificial intelligence (AI) and machine learning (ML) have made significant strides in the efficacy of hotel revenue management software, the rise of OTAs and changes in the global market have been just as impactful with regard to how hotels set their prices. 

Basics of Hotel Revenue Management

In the hotel industry, proprietors sell perishable services with a limited capacity. This means that to achieve peak revenue, all available accommodations (or as close to max as possible) must be consistently sold. In other words, in a perfect world, all rooms would always be booked at the highest possible price, and each guest would purchase all additional services and amenities to augment their stay. 

Pricing is central to a hotel’s ability to get as close to this utopia as possible. The price of a room is a strategic lever that has a major impact on whether rooms are filled or empty. Pricing is, therefore, central to effective hotel room revenue management. 

To set effective room prices, hoteliers use one of two methods: static pricing or dynamic pricing. 

Traditionally, hoteliers have used static pricing (where pricing doesn’t fluctuate over a specific period of time) successfully as long as they know their market well. A typical static pricing strategy will look like this:

• Standard weekday rate
• Elevated rates on the weekends
• Increased rates during peak seasons
• Reduced rates during non-peak seasons

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However, some hoteliers argue that static pricing isn’t effective enough in the modern hospitality industry because there are simply too many factors to consider to rely on static rates and still maximize revenue. Market demand, seasonality, weather, economic conditions, target customer base, competitor rates, travel conditions, and more can significantly impact room rates on a daily and even hourly basis in some areas. 

This has given rise to the idea of dynamic pricing, a technique that has more or less always been standard in the airline industry. With dynamic pricing, algorithms powered by AI and ML analyze vast sets of data, both historical and real-time, providing pricing recommendations that are meant to maximize revenue without any manual intervention needed.

Evolution of Revenue Management Systems

To set better prices considering the many factors that could potentially affect them, revenue management software emerged. Used in the hospitality industry for decades, early revenue management solutions relied on historical data and seasonality to provide pricing recommendations. As you can imagine, this meant that prices didn’t fluctuate too much, but it still gave hoteliers a way to track their revenue generation potential year over year without relying on paper files. But over time, the importance of revenue management in the hotel industry changed significantly. 

Starting in the early 2000s, OTAs started to emerge to allow customers to compare prices for several hotels using one platform. Before long, hoteliers found themselves needing to list their property or properties on these platforms to stay competitive. That adds another layer of complexity to the revenue management process on top of all the other considerations: OTAs make money by charging for listings, so hoteliers need to be able to determine which OTAs are the most profitable to them and cull the ones that aren’t. At the same time, if the hotel changes their prices, each OTA has to be updated. 

At this point in time, the number of factors affecting hotel room revenue management are considerable. Hoteliers not only need to consider the standard factors that impact their pricing but also the rising number of OTAs, changing demographics and global conditions affecting travel, travelers becoming more tech-savvy and cost-conscious, and more. 

In this day and age, it’s no longer enough to rely on spreadsheets, word processors, or old hotel revenue management systems to maintain the profitability of your accommodations business. Modern revenue management software integrates with your property management system (PMS) to be able to provide pricing recommendations based on a holistic view of your business, including customer behavior, current market trends, competitor pricing, and more.

Newbook integrates with a variety of revenue management solutions through our integrations store to help you build a holistic approach to price setting. 

Hotel Revenue Management Strategies That Increase Revenue

Now that we’ve discussed the history behind hotel revenue management and which factors have led to modern revenue growth management, let’s take a closer look at different strategies that you can use to help grow your hotel’s revenue.

1. Improving Strategic Revenue Growth Management With Dynamic Pricing

We’ve discussed the difference between static and dynamic pricing earlier in this article, including how these pricing strategies work. To summarize:

Static Pricing	Dynamic Pricing
Pricing stays the same over a set period of time. Some hotels may use pricing strategies like increasing prices during the weekends or during peak seasons, but typically these prices stay more or less the same year over year.	Uses advanced technology, including AI and ML, to analyze vast amounts of historical and real-time data to dynamically change prices based on a wide range of price-affecting factors, like competitor rates, location, seasonality, travel conditions, and more.

Most hotel revenue management software gives you full control over how your pricing is adjusted, allowing you to rely entirely on automation to set prices or give you the opportunity to review and adjust prices as needed before they go live. This gives you the ability to ease yourself into the world of dynamic pricing at the level that works best for your business.

 In the beginning, you’ll probably want to babysit your pricing more and make adjustments related to the frequency of changes, which factors are considered in pricing adjustments and more. But over time, you’ll likely be able to automate most of your price setting with only minor tweaks. 

2. Demand Forecasting

Forecasting in the hospitality industry involves predicting future room demand and other services. By using historical data and analyzing trends, hotel managers can make informed decisions regarding room pricing, but also marketing strategies, staffing, and the viability of promotions and upsell opportunities. Hotel demand forecasting can be challenging since so many factors need to be considered. 

The factors affecting hotel demand forecasting include:

• Demand for hotel rooms in general for your area, but also specific types of hotel rooms (e.g., rooms with additional amenities such as kitchenettes or rooms that can accommodate multiple people)
• Seasonality
• Local events and attractions
• Economic conditions

Effective hotel revenue management requires hotel managers to use various tools, including a hotel PMS and revenue management system, to gather and analyze data and translate it into actionable information that can be applied to increase profitability. Rather than sifting through this data manually and trying to glean insights, a revenue management system can provide up-to-date reports with the latest information at a glance.

3. Market Trend Analysis

Hotel market trend analysis is another important part of hotel revenue management. With market trend analysis, external data sources are used to paint a picture regarding the current situation with customers, competitors, and the overall business environment that a hotel exists in. Seasoned hoteliers in a particular area will likely have a good idea of the usual ebbs and flows with their target market, but it’s still important to conduct regular market research to keep a pulse on the goings on affecting a local area, especially if you manage multiple properties.

The information gleaned should be used as a key part of your hotel revenue management strategy. Here are two examples:

1. Let’s say a new Disney theme park built in your area is sure to attract a larger number of tourists compared to before, increasing overall demand for accommodations in your area.
2. Or, let’s say a new condominium complex aimed at remote workers is built in your small yet touristy mountain village. 

Both examples are likely to result in attracting more patrons to your hotel’s restaurant, as well as people to your hotel. These are small examples, but can have a major impact on your hotel’s business. Comparing data from other areas similar to yours with similar experiences can help you predict how these new additions could impact your business. 

4. Upselling

Upsells are a great way to increase revenue and should be a key part of your hotel revenue management strategy. Aside from offering promotions and add-ons at the front desk, you can take advantage of upselling opportunities during the booking process. Most people prefer to book online because it’s more convenient than making a phone call, can be done at any time (even outside of the hotel’s standard business hours), and it gives the potential guest more control over their booking as they can see and adjust every detail themselves. 

Incorporating upsells into the booking process through online room booking software is, therefore, a good strategy for increasing upsell potential. With Newbook, for instance, related upsells can be placed organically during the booking process so it doesn’t seem heavy-handed or overly salesy. Allowing the guest to choose to have a bottle of wine in their hotel room upon arrival, hire a pair of bicycles, or make reservations for a romantic dinner at a local restaurant partner are all great ways to prioritize upsells during online bookings.

5. Prioritizing the Right Online Channels

These days, the majority of people prefer to book through OTAs rather than directly with a hotel. This makes it super important to utilize OTAs to attract customers, especially new ones who may not have heard of your hotel before. But OTAs charge accommodation providers for each listing, so it’s up to you to determine which OTAs are the most lucrative to spend your hard-earned cash attracting potential guests. To manage multiple OTAs effectively and determine which ones are worth your time, you need to be able to gather sales data from each of them. 

With Newbook’s channel manager, you can manage multiple listings for multiple properties without having to pay extra (some third-party channel managers will either charge you for extra listings or only have the capability to do one listing per OTA). Plus, you get automatic syncing, so your prices are always up to date on all channels, as well as real-time updates for your availability calendars to prevent double bookings. 

Hotel Revenue Management Analytics: Key Metrics to Analyze

Things can change quickly in the hotel industry, so it’s important to keep tabs on key metrics to ensure that your business is performing as it should. The table below outlines several different important revenue growth management metrics that hoteliers can keep track of to measure revenue:

Hotel Revenue Management Metric	What it Measures	How to Calculate
Average Daily Rate (ADR)	Determines the average revenue drawn from all room sales on a given day.	To calculate ADR, take total room revenue for the day and divide it by the number of rooms sold. Example: A hotel has 26 rooms available. In one day, it sells 15 rooms at various prices, totaling $5,000. When we divide $5,000 by 15, the result is the ADR, which is $333.
Occupancy Rate	This metric tells hoteliers how many rooms are occupied during a given time.	To calculate occupancy rate, take total occupied rooms and divide it by available rooms.  Example: A hotel has 15 rooms and sells 10 in a day. The occupancy rate for that week is 0.66, or 66%.
Revenue Per Available Room (RevPAR)	Determines how much money a hotel has made per available room instead of just the ones occupied by guests. RevPAR is a combined metric that gives a better idea of a hotel’s ability to fill available rooms.	To calculate RevPAR, take total room revenue and divide it by the result of average daily rate multiplied by occupancy rate.  Example: A hotel has 150 rooms, which have an average occupancy rate of 80%. The average cost for a room is $100 a night. The daily RevPAR would be $80. To find the monthly or quarterly RevPAR, multiply the daily RevPAR by the number of days in the applicable period (assuming all rooms are the same price).
Total Revenue Per Available Room (TrevPAR)	Incorporates your hotel’s total net revenue into one metric, including rooms, restaurant sales, services, and attractions.	To calculate TrevPAR, Simply take your hotel’s total net revenue for a given period and divide it by total available rooms. Example: A hotel has a total net revenue of $13,000 for one month, with 20 available rooms. The TrevPAR is $650.
Average Length of Stay (ALOS)	Gives hoteliers a way to measure guest staying behavior.	To calculate ALOS, divide the total number of occupied rooms for a given period by the total number of bookings.  Example: A hotel sells 200 rooms in a month with a total of 98 bookings. 200 divided by 98 equals 2.4, which is the ALOS.

How to Streamline & Automate Hotel Revenue Management

Streamling hotel revenue management is important for being able to quickly glean insights and otherwise keep track of your hotel’s financial performance. Accommodation providers have to consider many different complex factors that affect profitability, and being able to have all that information centralized in one system is paramount.

A hotel revenue manager is going to need to keep a pulse on sales data from a variety of sources: rooms, the restaurant, attractions, facility rentals, and services (such as a spa or massage parlor). In addition to this information, they also need to be aware of current happenings in the local area that may affect pricing (such as concerts or other events), travel conditions, weather, economic conditions, and more. On top of all of that, internal data regarding various trends and patterns, such as from sales and guest behavior, needs to be considered. Given the vast amount of data that’s being thrown at the revenue manager, it makes sense that they would need a system to consolidate and make sense of it all.

In this way, the hotel revenue manager becomes much like a data analyst, except they incorporate their unique experience in the hospitality industry into the mix as well. Using a combination of data and experience, the hotel revenue manager can determine what level of automation is necessary for price setting for the specific hotel. 

Here’s an example:

1. The revenue management system could have an automation that sets prices lower for the start of the Winter season. 
2. However, unseasonably warm temperatures have resulted in more people staying than is typically expected. 
3. Knowing this information, the hotel revenue manager can pause the automation, leaving prices the same as they were in the previous season. 

Combining a revenue management system and PMS is important to keep your hotel’s data centralized. Newbook provides commission management, upselling tools, and dynamic pricing functionality, in addition to robust property management features to keep your quantitative and qualitative data in one place. Plus, dynamic pricing allows you to reduce the time you spend babysitting your prices. Simply setting your minimum and maximum rates is enough, as the system will use market intelligence data to produce optimal prices without you having to lift a finger. 

Conclusion

Effective hotel revenue management maximizes profitability in the ever-changing hospitality industry. The evolution of revenue management strategies, from traditional static pricing to dynamic pricing powered by advanced technologies like AI and ML, has revolutionized how hotels set their prices. The rise of Online Travel Agencies (OTAs), changing market trends, and the need to adapt to diverse customer demands have further complicated the pricing landscape for hoteliers.

Implementing the right revenue management strategies can significantly improve revenue potential. These strategies include:

• Dynamic pricing
• Demand forecasting
• Market trend analysis
• Upselling
• Prioritizing the right online channels

In addition to these strategies, by analyzing key metrics like Average Daily Rate (ADR), Occupancy Rate, Revenue Per Available Room (RevPAR), Total Revenue Per Available Room (TrevPAR), and Average Length of Stay (ALOS), hoteliers can gain valuable insights into their business performance and make data-driven decisions.

Having reliable and proven software at the core of your business is essential to effective hotel revenue management. Book a demo with Newbook today to discover what our comprehensive software can do for you.