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Revenue Management 101

Jens Munch, CEO
May 1, 2018 - 3 minute read

There are a lot of articles out there on Revenue Management and how to get started. But most of them start at the beginning…we think you should start at the end. Let’s first work out what the potential impact would be and then focus on that.

What would the areas of work within revenue management look like if they were sorted by revenue potential?

In the spirit of the 80-20-rule these are the 5 areas which will allow you to capture 80% of the revenues you’re leaving on the table - without too much hard work!

First thing’s first

Before reading any further - do you have somebody in your team who has experience of revenue management or is commercially savvy? Maybe it’s you? Are you running you’re property on a modern PMS which connects to modern channel managers and revenue managers?

If not, please stop everything else and fix this first. You can’t be helped if you don’t have tools to understand your business or connect with your customers.

1. Review your segments and categories - 5% growth

Let’s start with big picture. Pull up ADR, Revenue and occupancy for each of your room/bed-categories and segments (group, contract, transient) over the last 12 months.

It will quickly become clear which segments are categories generate the best results. The next question is whether we are holding them back. And if so, do we have a good reason. It’s almost always possible to shift 10-20% to more profitable categories.

Example: Are your contracts underperforming while transient could easily take its place? Could you turn more doubles into singles or vice versa?

2. Be smarter about transient demand - 5-10%

The majority of your bookings come from public channels at public rates. This is where the most valuable low-hanging fruit can be found. We regularly see 5-10% revenue and RevPAR/RevPAB improvements by implementing our solution.

10 years ago revenue management would have been done with simple seasonal strategies or pricing by occupancy-level. Today machine learning gives you super-powers. The best hotels are changing their prices 100s of times ever day. They base their changes on real-time forecasting (which requires automation or notifications) and use open pricing.

3. Allow for over-bookings - 5% growth

In many cases fully-flexible rates represent more than half of a hotel’s bookings. We often see cancellations rates that are higher than 20%. If 50% of your bookings have a cancellation-rate of 20% your entire property will be suffering from 10% under-booking unless you compensate.

The solution is simple, review your historical cancellation rates and establish allowance for overbooking. This requires a process for the occasional times when you get it wrong and have to handle disappointed guests. But handled well these risks can be turned into an opportunities.

4. Reduce your OTA costs - 1-2% growth

Let’s assume OTAs take 20% commission (not unusual). That means, if you’re selling 10% percent of you inventory direct you’re saving 2% in fees. If you double your direct sales to 20% you’ve added 2% to your revenues.

Improving direct bookings requires a bit of work but is not rocket science. Firstly, you need a website which your loyal customers want to visit, and which represents you brand. Secondly, you need to give your guests a simple, intuitive booking-engine and best rate guarantees.

What else?

If you’ve covered these 5 areas we can assure you from experience that you are well ahead of the pack and likely to have captured 80% of your revenue management opportunity. So relax, give yourself a break and a treat!

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