Revenue Management Strategies for Hotels
In order to make assertive decisions that bring growth to the business and to carry out good revenue management, it is important for hoteliers to have reliable data and information on trends in the sector.
Changing rates according to the seasonality of the market is already a habit for hotels. However, Revenue Management goes beyond that. Revenue Management is a tool that helps hoteliers maximize revenue by optimizing prices and room availability according to demand.
To do this, it is important for hoteliers to be aware of market trends so that they can make decisions that maximize their revenue.
What's Revenue Management?
Revenue Management is a practice that strategically uses information to identify sales opportunities in consumer demand.
The methodology came about because the main business of the hotel sector, the rental of rooms, is perishable. In other words, a room that isn’t bought for a day represents a sale that can never be made again.
Not losing the opportunity to sell this product is the main purpose of this methodology. RM consists of fluctuating room rates based on analysis and metrics derived from data intelligence, in order to make the most of market trends and demands.
Data analysis will guide the hotelier’s actions in terms of pricing, thinking about supply and demand in order to maximize your hotel’s revenue. In short, Revenue Management is about selling the right room to the right customer, at the right time and at the right price for both parties. This methodology doesn’t just apply to the hotel industry.
Airlines, for example, have been applying the method for much longer, ever since they identified the perishability of their product.
What benefits does Revenue Management offer?
Understanding people’s consumption habits and current trends is essential for developing effective sales strategies and setting competitive prices.
Managing these aspects well can be decisive in ensuring that a hotel’s profits exceed its expenses at any time of the year. Due to the seasonal nature of the periods, RRP is useful in times of high and low demand.
Therefore, doing this data analysis is relevant for all times of the year. In high demand, it helps the hotelier to take advantage of periods such as holidays and the busiest times of the year for business, helping to define strategic actions that bring uniqueness to hotel rates, so that they stand out among competitors’ offers.
When demand is low, it gives the hotelier a broad view of the market’s sales opportunities, helping the hotel to adopt sales strategies that reach potential guests during these periods.
How does Revenue Management work?
For the method to work, you have to combine different forecast data to determine the ideal price for each moment.
The methodology can be used in any hotel establishment, regardless of size. That’s why it’s not only used by large hotels. So let’s use the example of a small establishment with 12 rooms.
Let’s say that this hotel charges an average rate of R$ 220.00 per day. In this case, 100% occupancy results in R$2,640.00 in daily revenue, right?
But what if it were possible to raise this figure to something around R$280.00? Note that it would only take 10 apartments, or 84% occupancy, to reach the previous daily revenue.
And that’s the purpose of RM: to strategically fluctuate rates, as in the example above, so that the hotel’s revenue increases.
The main points to analyze are:
- Demand forecast for the season;
- Current occupancy rate;
- The proximity of the booking date;
- Customer history;
- Cancellation fees;
- Noshow rates;
- RevPAR performance;
- GopPAR performance;
- Competitive basket monitoring.
Flexible Rates vs. Fixed Rates
The methodology should be applied using a combination of Fixed and Flexible Tariffs. Fixed Tariffs are made up of commercial agreements and specific negotiations.
Flexible Tariffs, on the other hand, are a reflection of tariff fluctuations, whether for B2B or B2C customers. This strategy of combining the two types of tariffs is fundamental to ensuring continued good results in performance indices.
The main loss of opportunity in using a Fixed Tariffs only strategy is the increase in the revenue contribution margin.
By using only flexible tariffs, the loyal customer base becomes scarce and therefore contributes less than its potential to the revenue generated in times of seasonality.