10 Tried and true hotel Revenue Management strategies

Put simply, it’s a strategic, data-led approach to pricing rooms and services with the aim to maximize total revenue.

Factoring in variables such as demand, your comp set, customer segmentation, and distribution channels, hotel revenue management is critical to the commercial operation of a hotel for a number of reasons, such as:

• Providing a competitive advantage through the understanding of trends and market behavior, enabling you to outperform competitors

• Through the use of demand forecasting, helping you plan operations more efficiently, leading to cost savings and improved guest satisfaction

• Ensuring consistent occupancy; hotel rooms are a perishable commodity, so unsold rooms don’t generate revenue if empty

If you’re starting out in a revenue or yield management role, you’re on one hand looking to revitalize your strategy, or you work closely with revenue managers and want to contribute to their success, then these 10 tried and true revenue management strategies will be just the ticket.

1. Leverage real-time data to implement a dynamic pricing strategy

Dynamic pricing has evolved to become one of the hotel industry’s key pricing strategies, perhaps the key strategy. With the right tools, it’s easy to adopt and is increasingly popular as it’s highly flexible.

With dynamic pricing, room rates aren’t fixed and are instead adjusted based on market demand, competition, time of booking, customer behavior and other factors that influence booking patterns.

Compare it to other common pricing strategies, such as:

• Cost-plus pricing: this is the most traditional method, where you calculate all the fixed and variable costs of running your hotel, then place a mark-up on each room; it’s limited as it fails to account for demand and competition

• Market-based pricing: effectively a subset of dynamic pricing, this strategy is based on closely monitoring your competitors’ prices and setting yours to align with or slightly undercut them, but by putting too much emphasis on the competition, it can lead to price wars

• Open pricing: more complex than other pricing strategies, this requires frequent monitoring and adjustment, which is often automated with a sophisticated revenue management system (RMS)

By contrast, dynamic pricing generally provides the most balanced and effective strategy, helping to drive up bookings and revenue: prices change dynamically using real-time data to optimize your revenue and maximize occupancy rates; this delivers the most accurate room prices for any given time, delivering better ADR or occupancy.

Because it’s not feasible to collect, collate and analyze your data to deliver effective dynamic pricing before the data is outdated, a rate shopping tool can give you real-time access to your competitor’s past, current, and future rates.

This, in combination with market trends, local event data, and short-term rental data, gives you a complete view of the competition so you can confidently set your room rates with a few clicks, allowing you to maximize your bookings and revenue.

Start with the right techstack, set up your systems to accommodate your new strategy, and once it’s in place, monitor your efforts against your revenue management goals – with dynamic pricing, you can easily adjust if necessary and avoid common pricing mistakes.

2. Expand and diversify hotel revenue streams

Selling rooms isn’t the only way hoteliers make money. This much should be obvious. But the add-on services you offer should form part of a holistic and effective revenue management and marketing strategy – it’s all about total hotel revenue optimization. Such diversification and expansion of your basic offering will significantly boost your revenue and profit.

You can offer the likes of:

• An airport shuttle

• Parking and valet services

• A welcome drink

• A spa

• Dining (either with a restaurant or room service)

• Conferences and events

And don’t forget you can expand your hotel’s offerings to include more experience-based add-ons to help drive new revenue streams. If you understand the profile of your guests and why they’re visiting your town, you can tap into this insight to develop appropriate packages.

It’s all about upselling. There are two parts to this: we’ve looked at deciding what you want to offer; let’s explore how to promote it to see an uptick in your ancillary revenue.

Common strategies include:

• Promoting add-ons during the discovery and booking phase

• Showcasing additional services on booking pages or OTAs

• Recommending rooms with bigger beds, better views, and more

• Offering a virtual tour of rooms at your hotel

• Reminding guests about value adds before they check in through automated emails or SMS

• Promoting your services at check-in and with customer service engagement throughout the guest’s stay

3. Accommodate event planners with flexible booking options

Catering for events is likely to be a mainstay of your strategy, one in which you judiciously accept block bookings.

Since the pandemic, though, we’ve seen a rise in hybrid events, with event planners and travelers increasingly keen to benefit from flexibility, both in terms of dynamic (‘flexible’) pricing and accommodating virtual attendees.

Dynamic pricing and a diversified offering, as discussed above, are both bound up with this strategy.

The flexibility of this approach will support your overall revenue management goals without compromising current operational success – the clue is in the word ‘flexibility – but when considering large block bookings, make sure you perform displacement analysis if you’re in any doubt that you’ll risk having to turn down more lucrative bookings further down the line.

4. Follow best practices for forecasting

In the context of effective revenue management, your forecast is your expected revenue results based on a raft of insights and analytical data factoring in metrics such occupancy, average daily rate, pickup and pace, and predicted demand.

Overall budget – both for what you spend on marketing efforts, and what you have made/need to make – is arguably your most important forecasting metric.

Often going hand-in-hand with benchmarking, the data you use for forecasting can be historical and forward-looking, with time periods such as year-on-year (Y0Y) and same-time-last-year being common comparisons, and month-to-date or year-to-date being common indicators of what you’ve achieved and what you need to do.

Essentially, if you have the data, you’re confident that it’s reliable and complete, and you can access it in an easy-to-use medium, there’s a good chance you can draw useful inferences from it – and plan accordingly.

Forecasting accuracy is often expressed as a percentage, with a higher percentage indicating a more accurate forecast. For instance, if a hotel business forecasted that it would sell 100 rooms on a given night and it actually sold 95 rooms, the forecast accuracy would be 95%.

As a bare minimum, you should review your forecasts on a monthly basis. In so doing, you can:

• Adjust your rates in either direction if needed to land on the right price

• Guide your commercial activities, from simple social media activity all the way to full-scale marketing campaigns incorporating specific promotions

• Look into arrangements with your partners, such as OTAs and wholesalers, and consider updating your distribution strategy

5. Incentivize bookings with discounts for travelers who plan ahead

Helping immensely with the point above on forecasting, you can boost bookings and occupancy, and therefore drive revenue, by offering discounts to travelers who book their reservations in advance.

Clearly you’ll want to:

• Keep some of your inventory free for later bookings, some of which you can charge more for

• Avoid offering discounts that too significantly dent your profits

So the question isn’t really whether to adopt this practice in periods of lower demand when your future bookings are on the thin side; it’s how to get the balance on these two key considerations right.

The main questions to ask are:

• How far in advance do guests need to book to benefit from a discount?

• Do you want to factor in length-of-stay requirements (or additional discounts)?

• Should you offer refunds for cancellations and, if so, should you charge a cancellation fee?

• What percentages should you offer?

• When it comes to inventory management, how many hotel rooms should you set aside?

There are no right answers to these questions. You can set parameters – clearly you don’t want to sell rooms at a loss, for example. But the numbers will vary depending on your forecasts, how much demand you need to create and the economics of your operation.

Reputation is also a factor: even if you can, don’t price too low if you don’t want to look like a budget hotel when you’re not.

6. Tailor room rates for SMERFs and other groups

Often-neglected but one of the most important market segments is the SMERF – or social, military, educational, religious and fraternal groups.

The acronym is a handy one, the words it contains being fairly self-explanatory. But there’s a lot you can learn by looking at each group individually and as a whole, as we explore in a blog post about what SMERFs mean for hoteliers and the hospitality industry.

From a top-level revenue management strategy perspective, though, the most pertinent consideration is how you can capitalize on your knowledge of these groups’ needs to tailor packages and promotions that incentivize block bookings.

Key takehomes include:

• Targeting them in your off-season promotions to maximize bookings

• Capitalizing on their reliability – many of them will want to visit the same hotel year in, year out if it delivers for them

• Offering group booking discounts and promotions around events and special occasions

• Providing special amenities that cater for their needs

7. Don’t overlook the value of direct bookings

Good marketing almost always involves a wide mix of activities, and marketing for the hospitality industry is no different.

You might get a lot of business from wholesalers, online travel agents (OTAs) and other partners, and this is unlikely to change – the reach they offer is just too good to pass up. But this shouldn’t dissuade you from promoting direct bookings where you can.

The reasons are twofold: firstly, you’re more in control; but, more importantly, if you strike the right balance and are smart with your marketing budget, it’s usually more profitable, given that you don’t have to pay any fees or other associated expenses.

To drive direct bookings, consider these tips, many of which dovetail with the tactics you can deploy to reduce booking abandonment:

• Increasing the transparency of your pricing, ensuring that it is fair and it appears fair

• Upping your marketing game but also considering remarketing when visitors whose details you have or whose devices now contain one of your cookies don’t go on to book

• Creating and promoting loyalty programs

• Reviewing the set-up of your booking engine, channel manager and associated techstack

• Improving the booking experience on your website with such measures as reducing the number of click-throughs on your forms and improving the site for mobile, as well as your website as a whole… which brings us to the next strategy

8. Drive bookings and keep your hotel top of mind with strong SEO

Type “hotels in prague” into a search engine and you’ll recognise the experience we describe in this blog post on how to work with OTAs: most of the top results are for OTAs, and those that are for actual hotels don’t actually lead to those hotels’ websites, at least not directly.

Some of this is down to sponsorship with the search giants; the rest of it is down to good search engine optimization (SEO), the practice of tailoring content, metadata and bidirectional links to best serve the needs of people using search engines.

Now, with a very broad search term like the one above, you’re unlikely to fare that well when up against big players; they’re just too well connected digitally. But with slightly nicher – but not too niche – terms and the content to give them context, you could find a sweet spot for certain searches.

For example, if you cater only for adults, you offer sea views and you have a Michelin-starred chef in your restaurant, these are all things that you should include not just on the main pages on your website but in blog posts about why these things matter to some people and improve the guest experience – and make it fun to read!

If this doesn’t ring true, it’s because we’re not describing your hotel and its uniqueness. You know your property and what makes it special, so focus on that.

But to ensure your hotel’s performance is better on Google and the like, you could consider hiring a marketer with SEO and content marketing expertise, or partnering with an agency that specializes in digital marketing and SEO.

Done right, this will push you up the search result rankings, drive more leisure and business travelers to your own channels and boost your revenue – more profitable revenue – through direct bookings.

Don’t take our word for it; according to SEO specialists Backlinko.com, the #1 search engine result is ten times more likely to get a click than the page in the number 10 spot.

9. Monitor performance to learn from past mistakes and successes

We’ve looked at forecasting; the other side of that coin is monitoring past performance to learn from your past mistakes and successes. From this, you can identify the strategies that work and which you should deploy more, and which you can abandon or refine.

Much of your data analysis will focus on the same metrics, and these feed into these core key performance indicators (KPIs) to which you should pay attention:

• Occupancy rate – the most basic metric; if you’re not filling your rooms, something fundamental is wrong

• Average daily rate (ADR) – see Strategy #1 for the finer points of pricing; it’s a delicate art and you need to get it right to achieve a good ADR (that doesn’t reduce occupancy)

• Revenue per available room (RevPAR) – this is a function (and product) of the two KPIs above; the better they both are, the better your RevPAR will be, with a good RevPAR being one of the strongest indicators that you’re getting things right

• Total RevPAR (TrevPAR), which is equal to RevPAR + ancillaries – this ties in with our discussions on diversifying your offering and contributes to the bottom line

• Gross operating profit per available room (GOPPAR) – in business, of course, profit is the basic measure of viability

• Revenue per available seat hour (RevPASH) – applicable if you have a restaurant or bar and good to factor into your mix if so

10. Lean into the rise of AI with a robust revenue management tool

This whole blog post is about revenue management strategy and the software and data that support it, so why have we saved it till now to mention revenue management tools?

Well, while many of the tools we discuss above and in the conclusion below are designed to help with revenue management, business intelligence solutions are very specific solutions and deserve an entry in their own right – particularly now that providers are enhancing them with artificial intelligence (AI).

Business Intelligence leverages your PMS data into a user-friendly, dynamic dashboard to deliver insights into all of your commercial team business metrics. With almost instant clarity into your business performance you are empowered to make proactive data-driven decisions.

With Lighthouse Business Intelligence as your co-pilot, the heavy lifting of manually exporting and compiling data from your PMS is removed.

In fact, there is a 60% reduction in time spent on common revenue management tasks, such as report preparation and forecast validation. So your time is freed up to work on building high-value revenue strategies

Additionally, ‘Smart Summaries’ within Lighthouse Business Intelligence use the latest advancements in Generative AI to transform complex data sets into easy-to-read daily performance summaries for hoteliers.

‘Smart Summaries’ can encapsulate changes in pick-up, ADR, segmentation, and occupancy, a task that previously required hours to complete. This dramatically improves the quality and speed of quantitative data analysis to make revenue decisions.

Get better insight into your revenue strategies with software built for revenue managers

Few of the strategies we discuss would be possible without a top-notch techstack, and that’s where Lighthouse can play a big part - with the industry’s leading commercial platform for hoteliers.

Lighthouse Business Intelligence enables the agile revenue strategies necessary to succeed in today's challenging hospitality landscape.

If you want to move past your competition and seize more revenue opportunities, get in touch to see how Lighthouse Business Intelligence could benefit your hotel.