Although Hotel Revenue Management is very complex, there are just 8 key steps to setting up a revenue management program in a property for the first time. It is also helpful to review these steps from time to time to keep your property following best practices to optimize revenues. All these steps are essential, but I like to approach them in the following order.
The Basics: Review the basic concepts of hotel Revenue. Before you start to manage revenue for a property there are some basic concepts. Since each hotel room is perishable and has a shelf life of one day, you cannot store up inventory for the peak season. Rather, you need to have a way to generate demand in low patterns and ration the rooms in peaks. This requires dynamic pricing techniques to act as the lever that matches fluctuating demand to a fixed supply of rooms on property. To see more information on the basics, click here.
Historical Results: Establish relevant Revenue History. It's good to look back because demand patterns tend to follow historical trends and patterns. Seasonality and Day of week patterns show up quickly in individual property results reflecting the current market place and the prevailing rate strategies. At a minimum, you should track the last year revenue, Rooms sold and ADR by segment. For more on tracking history, click here.
Segmentation: Determine the key market segments that use your hotel. A market segment is a group of guests who have similar characteristics like booking patterns, price sensitivity, etc. You can have as few as two or as many as 20-30 segments, as long as you can track their performance and make meaningful distinctions between them. For example, two segments might be "Individual" and "Group" guests. These can be further broken down into leisure and business on the individual side and or meetings and conventions on the group side.
Booking Pace: Start tracking and monitoring your booking pace for each segment. Booking pace is a key element of Revenue Management. It measures how many bookings you have on the books at any given time for a future date. A matrix of stay dates by booking dates provides the booking pace or booking curve as it is sometimes called. The idea is to begin measuring it as soon as possible so you can build up some history on how fast your rooms filled up for each day last year. Then, as this year unfurls you can easily determine if demand is stronger or weaker based on whether the booking pace is a head of or behind the same day last year. This enables you to determine if you should be in a promotional mode or an allocation mode in your sales strategy.
Pricing: Review current and past pricing and set a pricing structure and strategy. The single quickest way to improve revenue and profit is to raise the price of your rooms. But that does not always go well with the marketplace. Instead, you need to set up a pricing program that makes sense to your target market and that provides you with the profits required to keep in business. Although there are thousands of ways to price your property the key function of price is to provide a lever to regulate demand and to feel right for guests so they will come back. Most hotels today meet this challenge by BAR pricing methods. BAR stands for best available rate and hotels usually set up a schedule of 5-10 sets of BAR rates. These BAR rates will have a different rate for each level of room type and will have rates for all the qualified segments like AAA. Then if demand picks up the property simply shifts to a higher BAR and all the rates escalate uniformly. Although Bar rates are the most common, they are by no means the best solution for every market or property. For more information on pricing structures click here.
Channel Management: Define Distribution channels appropriate for your property. Where your customers shop for hotel rooms can affect the amount of business you can earn. These places are distribution channels and if you are not on sale in them, you will not be an option for those shoppers. So, it may be a good idea to be in all channels. On the other hand, each channel has costs that the hotel must pay for the bookings, sometimes as much as 30-49% of the revenue the hotel charges for the room. So, the choice of channels to utilize is a key one to determine not only room nights sold but also net revenues received for that business. Click here for a deeper look at Distribution Channel Management.
Budgets and forecasts: Start forecasting future revenues by segment and by time frames. In addition to comparing current performance to last year, it is helpful create a revenue and room night forecast so that departments can plan for issue like funds flow, manpower and rate strategies. These forecasts will expose day of week and seasonal variations that need to be considered in rate setting.
Group Revenue Management: All hotels need to have a group revenue management strategy. Regardless of whether a property has a large meeting facility or simply sleeping rooms, sooner or later they will be asked to handle a group booking, even if it is only a small family reunion; and revenue management for groups has unique requirements. For more information on Group Revenue Management click here.
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Hotel Revenue management is a process of maximizing the profit of organization by meeting the demand of customer’s
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