Profitable Forecasting: How to Boost Hotel Profitability with Revenue Management

Well-run and profitable hotels are like a symphony where talented performers play their parts within the framework of the score. Their skilled cooperation creates the business foundation for the hotel to meet or exceed its business goals.

Revenue management principles provide such a framework, with the revenue manager serving as the conductor.

The Strategic Framework Behind Profitable Hotel Revenue Management

Hoteliers can take multiple paths to profitable revenue management within this framework. It includes:

• Data
• Technology
• Competitive Analysis
• Brand Reputation
• Channel Management
• Starting and Dynamic Rates

These elements of revenue management may surprise some hoteliers since there’s a common misconception that revenue management focuses only on low rates. But that’s like saying the symphony is only about the horn section. Successful hoteliers realize revenue management touches every aspect of the hotel and provides the data for quicker and more strategic decision-making.

It’s Flexible and Powerful

In twenty years of hotel revenue management consulting, Franco Grasso’s team has worked with more than 2500 properties across 30+ countries. Many hoteliers resist the idea of a primary framework driving revenue and profits and prefer to rely on old-school sales techniques. Such hoteliers often complain about a lack of profits rather than adapting to new ways.

The revenue management framework uses data to drive sales and profitability, freeing hotel professionals to play with pricing, improve brand reputation, and focus on serving guests.

Revenue Management Past and Present

In the early days of revenue management, the goal was to speed up and make more reliable data interpretation for pricing rooms. The aim was to price correctly and transform rooms from goods sold at a single rate to services sold at the best rate.

Today’s revenue management uses Revenue Available Per Room (REVPAR) as a critical lever in the hotel profitability framework. REVPAR makes for more accurate forecasting so hotel professionals can make smarter and faster decisions.

Besides REVPAR, another underpinning of the revenue management framework is targeting the right market segment. “Everyone who travels” isn’t a market segment. Define the following elements:

• Demographics
• Travel purpose
• Hotel location
• Booking behavior

Once these are clear, tailoring marketing strategies and enhancing guest satisfaction is much easier.

By understanding the core target customer, hotel professionals can make constant micro-adjustments to stay relevant and optimize revenue with that audience.

5 Levers of a Successful Hotel Revenue Management Framework for Hotel Profitability

A successful revenue management symphony incorporates many elements. Here are five crucial elements.

1. Profitable Forecasting Considers the Weather

A good revenue manager reviews historical data to predict future results. This includes occupancy rates, competitor research, area events, and even the weather.

RMs are cautious about modifying an upward rate because they know the weather and other variables can impact reservations. For example, millions of religious visitors flock to Rome yearly at Easter. They want to pay their respects at the Vatican and glimpse the Pope. Yet, Easter weather can fluctuate from balmy to chilly and rainy, and evidence shows bad weather reduces visitors.

Additionally, a good revenue manager keeps an eye on the media. For example, if the media keeps repeating, people should expect unusually warm temperatures over New Year’s Eve; this impacts New Year’s Eve getaways. Many vacationers will opt for locations that don’t include ski slopes and instead opt for a country setting or maybe even seaside locations.

The RM analyzes internal property data and external influences to interpret appropriate rates.

2. Uncover Hidden Business By Increasing Online Visibility

Revenue management also helps properties uncover what Dr. Grasso calls “hidden business.”

He says, “hidden business, online and off-line word-of-mouth triggered by a favorable quality/price relationship and generated mainly directly or indirectly by online channels.”

Each hotel room represents an income opportunity and a business opportunity. With today’s revenue management tools and knowledge, making interesting offers to specific audiences online for a defined time period is possible. For example, a hotel can make attractive offers for only a week and target a specific group, like tour operators, who always ask for low rates anyway.

Hoteliers can offer such rates for a limited time and cover their variable costs. It’s a strategic decision that attracts business during the low season and uses the accompanying online visibility to attract great customers during the high season who pay top rates. Additionally, this method is far cheaper than sending salespeople to tradeshows.

Plus, this hidden business opportunity works for every hotel.

Imagine seasonal hotels. Such hotels are often open only a few weeks a year due to their location, yet this is a costly proposition. They discover new ways of making money when they incorporate the revenue management framework. Instead of opening for fewer weeks, they can open earlier, offering the rooms at strategic rates. This approach results in increased visibility and higher customer rates during peak season.

Many such properties lose thousands of euros annually because they ignore the strategic brand reputation and channel management elements of revenue management.

With proper revenue management implementation, summer resort hotels can be at least profitable from Easter to late October. Many can attract business travelers during winter and find another revenue opportunity.

Online visibility is at the heart of revenue management—otherwise, the property risks missing out on valuable customers and the profits they bring.

3. Imagine a Revenue Consortium

When all the hotels in an area practice revenue management, each hotel benefits. Revenue management is not a war to lower prices. It’s a way to trigger virtuous economic and social benefits for everyone.

Dr. Grasso experimented with a small group of hotels in the Marche district of Italy and other areas. These provincial areas are not known for their eagerness to change. Nonetheless, Dr. Grasso explored implementing revenue management principles in these properties:

• Guests could enjoy longer or more frequent stays
• Hotels can enjoy higher occupancy rates at a greater profit
• Services increased

When properties join forces by sharing data, insights, and destination trends, it helps the entire region. A group of area hotels can align themselves with one another and promote their destination while using revenue management best practices.

As the destination’s visibility increases and attracts more visitors, it’s easier to have more influence and contractual power towards institutions, DMOs, airlines, event organizers, and others.

This positive collaboration creates a ripple effect on the performance of each hotel because it expands the pie. More visitors create more opportunities. Additionally, the quality of services boosts revenue.

Revenue management is the foundation.

4. Harmonize Different Sectors

At one point, Dr. Grasso settled a dispute at a hotel in North Italy. The Meeting and Congress sector boss, the Room Division Manager, and the group’s boss had no clear divisions, and therefore, it was difficult to own specific invoices and profits.

A revenue manager coordinates these separate activities because they understand the whole. If the group boss exaggerated materializations for a future date and sold too many rooms at prices lower than the public individual market, the RM could stop this action. The RM evaluates the next right action, which could be allowing online and direct rates to take the lead.

The revenue manager acts as the conductor for the entire symphony. With everything working together, profits increase along with customer happiness.

5. Balance Short Term and Long Term Business

Spillage, spoilage, and overbooking are major profit eaters in the hotel industry. Revenue managers make frequent adjustments to inventory and room rates.

This requires cooperation among all teams. It doesn’t help hotel profits if sales overbook the hotel with lower-paying groups when working within a revenue management framework could have sold those rooms at a higher rate.

The revenue manager can help create packages, review allotment contracts, and use online channels to drive direct bookings.

The revenue manager guides the overall pricing and distribution strategy based on data and input from the different departments. The framework remains the same for each hotel, and implementation may vary based on specific factors.

Is There an Ideal Hotel for Revenue Management?

Hoteliers ask if some hotels are easier than others. Yes, there is an “ideal hotel” for revenue management. It’s

“A 4-star hotel, resort, or in an art city, possibly near the centers of interest (beach, ski slopes, historical center..), without a traditional restaurant but with a restaurant – bar, with around 70 rooms, without a mini-bar and with a floor distributor.” Franco Grasso

Such a hotel is well-placed for both leisure and business travelers. As revenue managers, we aim for a good balance of occupancy rates throughout the week and the year at the best rates for the current circumstances.

Free Guide: 10 Things To Know About Revenue Management