Quantifying the Benefit of Using Revenue Management Software

When potential clients reach out to Revenue Management Software (RMS) companies, they often have the same question: “How much extra revenue will I make?”. To which the only honest answer is “We don’t know, exactly”. You may come across companies promising 30% or 50% more than you are receiving now. But, in reality, it depends on so many factors; for example, location, competitor behaviour, what the current pricing is like, and whether the revenue management system is on auto-pilot.

Benefits of introducing an RMS

Although many factors play a role in the increase of revenue, it is possible to give an estimation depending on your circumstances, such as whether you are working with or without a revenue manager, or how strong the competition is.

If You Don’t Have a Revenue Manager

If you don’t have a revenue manager and are not following any strategy, then using revenue management software should make a big difference. An RMS will look 365 days into the future and continuously monitor in a way that a human can’t. Quieter days will be spotted earlier, prices adjusted accordingly, and a higher occupancy rate will be achieved. Similarly, busier days will be priced higher, and your average daily rate (ADR) will increase. An RMS can perform optimisations and hotel room price comparisons that are beyond a human brain.

From a revenue perspective, if you are a hotel without strong revenue management practices, you would expect to make around 20% more by using software. The return on investment here is enormous; this could go up to 50 times the cost of the system. With the latest software designed for smaller hotels, it is also much simpler to use than previous software. And of course it is also important not to stay behind when other competing hotels are using sophisticated revenue models.

If You Do Have a Revenue Manager

If you are a revenue manager, and you start using an RMS to crunch numbers and implement your strategy, you can still expect an increase. While you can better leverage your experience, forecasting and strategies, the RMS can do the repetitive and time-consuming calculations more efficiently than you could. The system can also provide valuable insights on your dashboard.

An RMS is an excellent time-saver, and for this alone, it is arguably worth the investment. However, it’s true value alongside a revenue manager lies with its ability to apply logics across a whole year repeatedly. The revenue management system will be able to spot dates that need amendments, adapt to new reservations and adjust according to competitor pricing far quicker than any person could. Perhaps more importantly, a machine can deliver a consistent implementation of your strategy. A human brain simply cannot work at the consistency levels of a computer, meaning your RMS could provide a near-flawless performance of your very own revenue management strategy.

For a hotel with a revenue manager in place, RMS can be expected to increase revenue by about 5-10%, given the consistent application of strategy and the repeated updates.

Strength of Competition

The more competition there is, the more important it is to have an RMS. For example, many hotels are competing with chain hotels that employ top-end revenue management strategies. The better a competitor’s revenue management tactics, the more your hotel will lose if you’re not implementing your own plan. In fact, hotels are often first prompted to look into getting an RMS when they see the effectiveness of such a system in a competitor’s business.

If your competition is intense and you’re trying to keep up, RMS is the perfect solution to ensure a competitive advantage. Apart from the financial benefit, it saves hours analysing competitor prices.

Results of a Case Study

An estimation of expected increased revenue is great, but data is better! To see exactly the difference using revenue management software can make, RoomPriceGenie conducted a Case Study with a selection of hotels using their system for an average of 5 months.

The case study included 9 hotels, with 4-55 rooms. It found an average increase of 22% in revenue compared to the same period last year (with increased ADR of 3-4%). The average increase was $309 in revenue per room per month.

An RMS can make a massive difference to the revenue of a property that is not using revenue management practices. The large improvement in competitiveness, that an RMS brings, can lead to substantial revenue increases. For revenue managers, who already have a high level of pricing skill, the RMS must work with them. If they are confident that the RMS does at least as good a job at pricing as they do, it can free them up to focus on strategy.