Best Practices in Hotel Revenue Management

Combining the use of traditional hotel management practices with a new wave of technology for optimum results

The Only Real-Time Revenue Management Software

A REVPAR GURU WHITEPAPER

Since then.Best Practices in Hotel Revenue Management Best Practices in Hotel Revenue Management Combining the use of traditional hotel management practices with a new wave of technology for optimum results The hotel industry. Sales can depend on a complex combination of factors that can be affected by anything from customer service to bad weather. just over 30 % of hoteliers indicated most of their business came from direct/phone reservations and just over 27% reported most of their business came from OTAs and online channels. in hotels is a practice that has evolved significantly in its rather short history. However. after the airline industry demonstrated great success using inventory. Because of this. it is crucial to the success of a property that its owner and managers remain completely attentive—not to mention. Because of this. The practice was first implemented by hotels in the late 1980s. capacity and pricing to ‘manage’ revenue. With the advancement of technology. the best methods for optimizing hotel revenue management now include much more than the traditional practices of hotels in the past. which was not the case several decades ago. In fact. adopting many stock market. in a recent industry survey undertaken by REVPAR GURU. Additionally. strategic—when it comes to hotel revenue management practices. stock market-influenced algorithms and changes in the general approach to pricing strategy. revenue management has become one of the most essential and identifiable aspects of the hotel operating strategy. channel management. This shows how the Internet is becoming an increasingly important channel when it comes to hotel bookings.based principles allows hoteliers to execute more effective revenue management. While strategies such as detailed historical analysis and emphasizing occupancy and ADR may have dominated revenue managers’ focus two decades ago. rate discipline. using a combination of traditional hotel revenue strategies combined with practices that involve sophisticated automated software. or even 10 years ago. Revenue management. automation and smart computing are also integral parts of a successful hotel revenue management strategy. also called yield management. A REVPAR GURU WHITEPAPER . it is apparent that today’s brand of hotel revenue management differs considerably from that of 20. inventory allocation and the use of information as pertains to revenue management have all greatly evolved. allows hoteliers to strategically use up-to-the-minute information to give their property a competitive edge among other hotels and resorts. like many businesses is full of uncertainty. Strategic pricing.

Today. Stock Market Pricing Best Practice #3 For many hotels. But in today’s economic climate. Like many approaches in revenue management.. How can a hotel revenue manager solve this problem? Currently. particularly because of technology and the ever-growing number of online channels. These hotels utilize a comprehensive . So. A REVPAR GURU WHITEPAPER . apply any rate discounts or increases to a predetermined rack rate. for a long time. Strategic Pricing Best Practice #2 There is no doubt that pricing has always played a significant role in driving both occupancy and RevPAR. particularly those who work with commodities. Coming up with the most favorable rate to offer a potential customer—one that will stimulate enough demand to stimulate occupancy while not leaving a too-low ADR—has arguably become the single most important aspect of revenue management.Best Practices in Hotel Revenue Management RevPAR Best Practice #1 In early revenue management practices. it has become increasingly difficult for a hotel revenue manager to manually keep up with all sales channels. A hotel would merely look at historical pricing and from there. rates have assumed an even greater role. the most effective revenue management systems actually rely on stock market principles to formulate complex algorithms that can generate with accuracy the optimal rate. RevPAR remains the only revenue management metric that a hotel can literally “take to the bank”. but there is no reason this should be so. mainly because of unprecedented price transparency. how does a hotelier determine what an optimal rate should be at any given time? Years ago.. These systems work in real time. With new metrics of the moment coming up every day—in fact. occupancy was key. fine-tuning rates at concise periods to sustain the best rate over time. Optimum pricing ideologies have been used by financial experts. the principle of optimum pricing is an unfamiliar concept. the answer would have been relatively simple.and as such keeping RevPAR at the forefront of any revenue management strategy is a best practice in the industry. The idea of more “heads in beds” was the main focus of hotel owners because it was believed that higher occupancy inevitably led to more revenue. this idea has changed significantly and continues to evolve. various analysts and experts are hyping ADR and even exotic constructions like GOPPAR (gross operating profit per available room) as the best yardstick for determining revenue management—RevPAR ultimately remains the best measure. High-performing hotels have more recently used these principles in developing strategies that mirror systems in place at financial companies.

Most RMSs leave such time consuming tasks. meanwhile. and makes adjustments to its processes accordingly. paying attention to account page positioning on online sales channels. Automation Best Practice #4 The innovative nature of algorithmic and computational systems would be wasted without a significant measure of automation. as well as other variables. This is flawed reasoning because it actually requires a great deal of speed and response in order to achieve optimal results. inventory availability. An automated system can distinguish when demand for a room is too low for a particular price and drop the rate to encourage more buyers. Automation is imperative to making up-to-the-minute. to be performed manually. even when the revenue manager is taking their well-deserved breaks. sometimes even overnight. And the best part is that it can happen overnight and on weekends. recognizing high demand and therefore an acceptance for a higher rate. truly demonstrating the advantage of applying stock market principles to hotel revenue management. Because the two programs work off of one another. the entire system becomes adaptive. giving it a wider range than that of more traditional pricing strategies. It can be that one factor that can take a hotel from 60% occupancy to 90% occupancy. yet few systems leverage automation to its fullest potential. demand-based adjustments in pricing. It is also perhaps the most visible advantage revenue management systems hold over the traditional approach to revenue management. an ability that any one person cannot attain simply because of their inability to work 24/7/365 days a year without breaks. Automation is the best practice that often makes or breaks a pricing strategy or the pricing aspect of a revenue management system. competitors’ rates. and then implements them across sales channels. A REVPAR GURU WHITEPAPER . The second program. like rate adjustments.Best Practices in Hotel Revenue Management revenue management system that sets prices based on both historical considerations and current market conditions. Just as most financial price-setting formulas use two decision makers for the highest level of effectiveness—with one system correcting and accounting for the other—sophisticated hotel revenue management programs do the same thing by offering a main program and a secondary program. monitors the first program in terms of effectiveness. Automated systems can also raise prices at the right time. enabling these types of revenue management systems to time and again surpass traditional revenue management techniques. under the justification that they are too important not to be managed under the complete control of a human being. The main program generates rates based on historical data. Automation allows a hotel to avoid leaving money on the table in the form of a room sold at a rate lower than a guest would ultimately be willing to pay.

Two decades ago. A truly automated system will make many adjustments an hour. Indeed. and helps a hotel increase occupancy and RevPAR even in tough times. where rates are modified subtly. Variable rates eliminate the predicament of whether or not to engage in across-the board discounting. however. in real-time. according to a 2002 Interbrand study. just because a hotel offers a particular rate doesn’t necessarily mean a consumer will take that rate. across multiple sales channels. most RMS usually only adjust once a day. Rate Discipline Best Practice #5 In today’s operating environment. If discounting is damaging to a hotel’s brand. and still. a rate discount negatively affects a hotel’s brand (unless. and maintaining one static rate is equally detrimental to RevPAR and occupancy. This is feasible through the use of a sophisticated revenue management system. algorithm-based computer program system of the appropriate sophistication. Rate discipline through dynamic pricing provides a workable solution to this truism. the concept is subject to wide interpretation and can sometimes be at odds with other revenue management aims. Brands have immense value. it includes the theory that implementing deep discounts to boost occupancy or stimulate demand—a common practice during the recession—can actually depreciate the hotel’s brand image. can recognize. without going too far in either direction. and that decision is best left to an automated system. then the solution lies in variable rate. administers room inventory. by quickly combing data and by analyzing trends with a little less raw input. And although many systems claim that they are automated. one that also manages multiple sales channels. one of the most visible aspects of revenue management is rate discipline. to avoid the pitfalls of wide-scale discounting. we must go back to the practice of automation. rate discipline and its effects on brand identity and future room sales was barely considered. So what exactly is rate discipline? This concept often comes up in reference to discounting or across-the-board rate cuts. So how does a hotelier practice strategic rate discipline? It is by dynamically adjusting rates based on demand. A REVPAR GURU WHITEPAPER . brand value accounts for approximately 38% of the value of the companies that own them. To maximize occupancy and rate. and optimizes page position on OTAs. Instead. which can make those decisions with less information than a human revenue manager.Best Practices in Hotel Revenue Management Determining which channel is selling inventory fastest is most often a minute-to-minute judgment. of course your hotel defines their brand by bargain prices). the highest rate likely to generate a sale is presented to the right customer at the right time. In fact. While sometimes hotels will have to lower rates based on demand—or. modified in real-time to best match demand conditions. shall we say lack of—rate can run contrary to other important aims because sacrificing occupancy to maintain strict rate discipline can be as financially irresponsible as deep discounting. assigning inventory there at the appropriate price to generate the most bookings and the most money for each booking. In the end. which channel is performing best. An automated.

is as much a commodity as a barrel of apples. A comprehensive revenue management system for hotels can set prices based on both historical considerations and current market conditions. they can act on it in a quick and decisive manner. especially as it is constantly changing. Predicting the direction of future prices may be a bit foreign to hotels. as a (relatively) uniform. a hotelier trusted a few dedicated individuals to keep track of competitors’ rates (call around). every hotel posts rates online through various sales portals and those rates can be monitored. At any rate. automated revenue management systems that can. Meanwhile. etc. which are most often found in a comprehensive. some revenue management systems use financial instruments to make predictions. demand levels and booking pace. Now. or leverage emerging techniques like crowdsourcing or artificial markets. the hotel industry has vastly changed over the course of a short time. among other things. because of the staggering percentage of room sales made through the online channels. they fail to leverage it effectively. which focus almost entirely on predicting what price the market will bear for a particular good in the near future. it has entered the information age. And like everything else. which often take a supply-side approach to rate setting. others integrate option pricing principles to help generate optimal room rates. it follows that any revenue management system will draw from other industries where prediction is at the core of their business. The reason this valuable information is now widely available is due to the arrival of internet sales. they can also make adjustments to the rate being offered based on this real-time information. hotels need the right tools. For instance. And because hotels have unfettered access to this information through the Web. For this simple reason. accurately predict movements in hotel room price.). most hotels fail to adequately access this information. demand levels can be assessed minute to minute. Now. hotels tend to subjectively assign a rack rate. the most strategic approach to price prediction goes back to borrowing basic stock market concepts principles. To keep track of this information effectively. Advanced revenue management system are not only capable of constantly consulting demand levels and monitoring competing hotels’ rates.Best Practices in Hotel Revenue Management Using Real-Time Information Best Practice #6 As previously mentioned. Price Prediction Best Practice #7 Any hotelier can tell you that revenue management involves a certain measure of prediction. However. giving it twice the range of more traditional pricing strategies. and modify the rate from there. Certainly things have changed since then. Unfortunately though. or if they do. the backwards-looking techniques currently in place at many hotels is fast becoming obsolete. But as financial markets have methods to determine the optimal price of a particular good or service (futures markets. A REVPAR GURU WHITEPAPER . Decades ago. The hotel room. highly perishable product.

The ability to change rates and inventory allocation to various third-party booking sites individually is crucial. Without automated channel management. then adjusting that rate or inventory allocation to maximize the revenue earned. These practices become achievable by a real-time RMS system that has fully-integrated channel management capabilities. However. A REVPAR GURU WHITEPAPER . The best approaches to revenue management in general are those that use RevPAR as the dominant metric. not reactively and focus more on optimizing processes and working with internal sales/marketing teams to develop and implement long-term pricing strategies that will complement the pricing updates handled by the RMS. that a task such as channel management is far too important to delegate to a system or software. In a sales environment that features more online channels than ever.Best Practices in Hotel Revenue Management Channel Management Best Practice #8 Channel management is an increasingly important practice as OTAs and third-party booking sites continue to thrive. they still require manual input. The problem lies in the idea. and those that emphasize the usage of revenue management systems to enhance revenue managers’ efficacy.5% of hoteliers still rely solely on a human being to manage all aspects of their revenue management tasks. These strategies integrate in real-time the automated distribution. the ability to manage rates across all OTAs is vital. Yet surprisingly. revenue managers think proactively. the only way to optimally manage the overwhelming number of sales channels is with the help of a comprehensive revenue management system that is capable of identifying demand levels on any one of hundreds of online portals where a hotel has inventory posted. those approaches that work best have distinguished themselves as a special sort of best practices. Adapting For a New Era As changes in approach to revenue management have flourished in the past few years. this would be virtually impossible for even a talented team of personnel. there is currently a wide array of channel management systems available on the market and these are great tools to save time for revenue managers. even in today’s fast paced industry. where information is changing every second. REVPAR GURU’s recent industry survey found an astounding 74. rather than making revenue managers take control of the minutiae of the never-ending calculations and pricing updates. But the truth is. as each sales channel may exhibit different demand levels. each one of these systems lacks on key function—none are automated or integrated into a property’s pricing. In hotels displaying revenue management best practices. which is still shared by many hoteliers. pricing and yielding. while benchmarking against all competing hotels in a destination. When it comes to the hotel industry. manual intervention and manual pricing decision to operate. allocation.

and their thoughts on new generation automated hotel revenue management systems. 1. REVPAR GURU set to find out how hoteliers are handling their revenue management. how they are being affected by today’s technological advances. Which business source(s) is most effective for your property? SALES A REVPAR GURU WHITEPAPER .Best Practices in Hotel Revenue Management Survey Sidebar By conducting an industry survey over the past few months. Here are some of the results.

How does your property handle revenue management? REVENUE MANAGEMENT A REVPAR GURU WHITEPAPER .Best Practices in Hotel Revenue Management 2.

what concerns you most about implementing an automated RMS? EXTERNAL RMS CONCERNS A REVPAR GURU WHITEPAPER . If you don't use an external RMS company.Best Practices in Hotel Revenue Management 3.

is maintaining RevPAR. leaving revenue managers time to do what they do best – develop strategy and oversee the system's operations. With Internet sales on the rise—34% reported the Internet as their most effective sales channel—it is more vital than ever to have an effective revenue management strategy to maintain business.have expressed that the most important factor of their revenue management efficacy. A REVPAR GURU WHITEPAPER .Best Practices in Hotel Revenue Management 4. Which metric do you feel is the most relevant to measure your RM efficacy? RM EFFICACY According to the survey results. automated system that can perform all the best hotel revenue management strategies. yet only 11% of hoteliers are even using external revenue management systems in their daily operations. Now is the time for hotels to become pioneers in the new age of the industry by implementing the use of a sophisticated. the majority of hoteliers .67% to be exact .

designed to deliver maximum bookings and profits. additional information can be found at www. Florida. Facebook. integrated internet and extranet yield channel management and GDS sales distribution. the REVPAR GURU software solution (and the stock market principles upon which it was based) just makes good (dollars and) sense.Best Practices in Hotel Revenue Management Did you know that the REVPAR GURU system is the only technology solution available in the market that fulfills all of these very important best practices. So whether a bull or a bear market.revparguru. Follow REVPAR GURU on Twitter. About REVPAR GURU REVPAR GURU provides hotels around the world with an alternative revenue management software solution. it meets the rapidly changing needs of hotels in a very demanding business environment. while maintaining rate integrity and automated rate parity. REVPAR GURU’s software solution has been used by hotels worldwide to increase occupancy and RevPAR. Headquartered in Miami. REVPAR GURU’s solution offers dynamic rate optimization.786. A REVPAR GURU WHITEPAPER . real-time pricing.3500. to increase a hotel's RevPAR intelligently and effectively. Since 2004. As REVPAR GURU's custom-designed Yield Dynamic Price Engine is the only real-time revenue management software available on the market. LinkedIn or YouTube.com or by calling +1.478.

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