What Is Hotel Revenue Management?

February 23, 2022
What Is Hotel Revenue Management?

Effective revenue management is the foundation of a good hotel. At its core, revenue management is about using available information to understand your guests' behaviour, so you can forecast demand for your hotel and optimize your hotel's revenue.

A savvy hotel manager's approach to revenue management should be dynamic. Technology and tools have changed over time, and it's essential to evolve with these advances so your hotel can keep up with the competition.

This isn't a simple task.

It can be tough to keep up with wholesalers, metasearch, online travel agents (OTAs), and traditional travel agents. However, it is advantageous for hoteliers who set time aside to develop a strategy and plan out their revenue management. It's easier to have a plan and make adjustments along the way than to wing it altogether.

This article will review revenue management: the definition, what revenue managers do, elements of revenue management, and how the software you can use to maximize efficiency.

What Is Hotel Revenue Management?

Selling can be a lot about finding the right product for the right person at the right time.

This concept is the basis of hotel revenue management. Essentially, it's about your hotel's tactics and strategies to sell to guests and is dependent on supply and demand. Other ancillary revenue streams are also considered in your hotel's revenue management because it all comes down to what drives your hotel's profit.

Hotel revenue management has become more technical over time. Technology and more guest data have created a platform for businesses to be more precise in their behavior predictions.

Prospect Hotel CTA
Why Should You Care About Revenue Management?

In short, it takes the guesswork out of decision-making.

We've talked about making data-driven decisions in the past, and data is just as valuable for revenue management.

Analytics about your hotel's history helps forecast the future. It helps fill rooms and determine the strategies across multiple departments in your hotel.

For instance, if you have an annual sports event near your hotel, the marketing department will run smoother if it's working in a proactive environment where it knows what to expect. When the department understands the upcoming events schedule, they are prepared to post promotional material across different channels. Likewise, your on-site staff will want to be prepared for what to expect when there is a rush of guests, and your sales team may want to be ready with a plan to bring in repeat business so you can build your customer loyalty and the hotel's reputation. It's also helpful to think about the extra expenses your hotel may need to host guests during these kinds of market peaks. Are they worth the additional cost?

In summary, the thought that goes into the big picture of the revenue-generating process is helpful for cross-functional working processes and an overall successful team.

What Does A Revenue Manager Do, Exactly?

Unsurprisingly, a Revenue Manager oversees the big picture of a hotel's strategy and implementation process and how it will drive profits. Their job is to look at revenue management from a high level to liaise between marketing, sales, and operations.

Day-to-day, this could involve analyzing data from revenue management systems (RMS), identifying new revenue opportunities, and making other decisions impacting room revenue.

Elements Of Revenue Management

While revenue management is a broad concept, different variables feed into the big picture. Therefore, it's helpful to create strategies for these segments because the high-level system can sometimes be too daunting to tackle.

Market Segmentation

Wise hoteliers understand the different types of guests they host and how that affects their revenue stream. For example, sports teams, weddings, leisure travellers, and business travellers will all have a different kind of impact on your hotel.

By tracking these types of guests and the revenue they bring in, you can start to strategize which groups to focus on. For example, you may notice that some groups book more consistently while other groups are precarious.

For example, the wedding season is typically in the summer, giving your hotel time to prepare and promote weddings. As a result, the cancellation rate is lower, so you may find this fantastic revenue-generating event for your hotel and continue to put resources into it.

Additionally, you can be prepared to create sales and marketing strategies for other types of group events at your hotel when the season changes.


Using the principles of supply and demand, a good Revenue Manager will know how to set the prices of their rooms and hotel accommodations.

For instance, if there's a major sports event that happens annually near your hotel, it's fair to say that the demand for rooms will increase, and so should the room rates. This is pretty straightforward, but it can also be more nuanced. The summertime is a more typical time for people to travel with families because, of course, kids are out of school.

Increasing hotel rates to understand that there will be a high demand isn't just brilliant, and it's essential in maximizing your hotel's profits.

Variable Costs

Operation costs are either considered fixed or variable.

Fixed costs are stagnant and don't change despite having more guests. They can include property taxes or specific staff salaries, subscriptions, or fixed phone and internet plans.

Variable costs shift depending on how many rented out rooms there are. For example, you may need to hire more cleaning staff if your rooms are full.

When hosting group bookings, your variable costs are likely to change. Keeping track of data helps you determine which types of group bookings and events are most profitable for your hotel and, therefore, can help your team focus. For example, suppose the profit margin for hosting a wedding is lower than hosting business conferences. In that case, it's worth adjusting your sales and marketing strategies to cater to what makes the most money.

Forecasting Demand

The best predictor of the future is the past.

This is true when it comes to forecasting the demand for your hotel. Your history will need to be appropriately tracked and consistently to be usable. A few helpful tracking metrics could include:

  • Occupancy
  • The booking source (ex. OTAs, travel agents, website, promotion, email)
  • Revenue
  • Length of stay
  • Repeat bookings
  • Room rates
  • Events or holidays
  • Spend-per room
  • Market trends
Revenue Management And Sales & Catering Software

When it comes to your hotel's tech stack, revenue management software and sales & catering software are the ultimate pair. Both types of software help your hotel stay organized and ultimately succeed.

Integrating a CRM system into a hotel revenue stream can allow your team to

  • Understand how your sales and revenue streams are connected
  • Win proposals
  • Analyze your hotel's data
  • Improve your forecasting
  • Optimize standard operating processes
  • Streamline workloads
  • Drive more direct bookings
  • Capture higher rates
  • Provide a quality guest experience
Final Thoughts

Hotel technology should make your hotel run more simply and efficiently. It should guide your hotel through the dynamic nature of the hospitality industry and help navigate changes to the market.

Revenue management software is essential to your hotel's tech stack and complements hotel and catering software. It helps guide your hotel towards business objectives and is overall an essential concept to understand and lead you towards success.

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