In today’s competitive and constantly changing hospitality industry, managing a hotel that is successful requires more than simply great service and great rooms. In order to be successful, hotel operators must practice revenue management – the strategic art of successfully selling the right room to the right guest for the right price, at the right time, through the right channel in order to maximize profits.

Regardless if you are managing a boutique hotel, a luxury resort, or a hotel chain, your revenue management skills may determine if your business stands still or continues to grow. In this comprehensive guide, we will discuss the meaning of revenue management in the hotel industry, its importance, and how to practice it successfully to grow your business.

What Is Revenue Management in Hospitality?

Revenue Management (RM) refers to the ability to foresee guest behavior and utilize data to manage rates and availability. This includes the analysis of past booking patterns, forecasting future trends, identifying market seasonality and observing competitors’ rates to aid in making well-informed decisions that maximize Revenue Per Available Room (RevPAR). RM originated in the airline industry, but quickly became an important operational function for hotels and hospitality companies around the world. As a hotel room is perishable (once a night is over, the unsold room cannot be captured again), the goal of Revenue Management is to ensure hotels get the maximum revenue for every room available in the market, every night.

This is where Hotellix comes into play. Hotellix is a revenue management software or platform that provides hotel operators with smart tools to help automate pricing strategies, predict market demand, and use data to improve profitability across all distribution channels. By embedding a smart solution like Hotellix into your revenue management strategy, you can remove uncertainty from pricing and make informed, confident decisions to maintain a competitive edge while optimizing rates to improve profit performance.

Core Principles of Hotel Revenue Management

1. Customer Segmentation

Hotels always have a variety of guest stays: corporate travelers, pleasure travelers, groups, attendees of events, weekend stays, and last-minute staycationers. Each of these types of guests represent different booking tendencies and price sensitivities. Segmentation allows hotel operators to differentiate rates and packages for each segment.

2. Demand Forecasting

Demand forecasting is estimating future room demand based on past booking data. Historical booking data helps to identify demand-side influences such as holidays, events, and weather, that impact booking patterns and influences different distributions of inventory. Good demand forecasts will allow hotel operators the capability to develop pricing, effort for staff, and distribution of inventory.

3. Dynamic Pricing

Rates for rooms should change dynamically with real-time demand levels. For example if there is a music festival in town, room prices ideally will reflect the increase in demand levels, equally with discounts in low season (and mid-week) to encourage occupancy. 

4. Inventory Management

Rooms are a limited resource, if you sell too many rooms in the early stages of rate setting at a below market value, you can lose high paying booking opportunities. Balancing room types, stay restrictions, minimum stay restrictions are important to manage high value bookings. 

5. Channel Management

Guests book via many channels direct websites, OTAs (e.g., Booking.com), GDS, travel agents. Each one of those channels comes with its unique cost and audience/margins. Revenue management is about balancing the channels appropriately to maximize overall profit, while maintaining rate parity.