How to Measure The ROI of Your Revenue Management System?

The revenue management system (RMS) plays a vital role in the modern hotel technology stack, driving greater profitability and efficiency. Still, the demonstrating return on investment (ROI) in a hotel’s revenue management technology investment goes deeper than year-over-year RevPAR uplift measurements.

Understand the True Impact of Revenue Technology

The additional revenue from properly utilizing revenue management software and strategies directly impact a hotel’s bottom line, making it a valuable tool for increasing a hotel’s valuation – a keystone in any owner or asset manager’s lens. Increased revenue leads to higher cash flow, which has many benefits, from giving the hotel greater day-to-day liquidity, having money in the bank, generating interest, and leveraging return on the cap.

Additionally, the increased revenue generated by an advanced RMS makes further reinvestment in the hotel possible, which powers a positive cycle of higher revenues.

RM Tech Positively Impacts Efficiency & Improves Performance

When applied to its fullest potential, revenue management technology can positively impact efficiency and improve operational performance across an entire property, cluster or estate. Advanced forecasting tools provide powerful insights into business demand, which assists with project planning and staffing.

For example, suppose a hotel can anticipate accurate levels of guest occupancy. In that case, it can ensure the optimal amount of staff, avoid under or overstaffing, schedule maintenance appropriately to prevent displacement, and forecast and efficiently buy power and utilities.

While the benefits of revenue management technology appear apparent to many in the industry, some owners and investors are reluctant to invest in the technology due to cost concerns.

What’s the ROI of an RMS Investment?

With a wide range of revenue management tools available in the marketplace, from free to premium, the vital question should be: “What’s my ROI on this system investment?” After all, ROI has long been used in the hotel industry, whether for property investment, advertising spending, or capital expenditures. And when it comes to new or improved technology, many hotel owners tend to view cost rather than undertaking an ROI measurement to determine when the technology will pay for itself.

Most RMS providers should share the average ROI results their clients receive, but what sets certain vendors apart are their abilities to leverage an extensive database of results from properties implementing revenue solutions similar to your business. This insight helps estimate the benefits and ROI for a prospective property or chain with high accuracy.

This ROI calculation is a critical component when deciding to invest in an RMS—and it is essential to understand how this number has been calculated. Realistically, owners see a five percent or more increase in their room revenue, with some hotels reporting improvements as high as 15 percent.

Many often look to their performance over the previous year to ascertain ROI. But that number always has an asterisk next to it, or if it doesn’t, it should – as the past year has certainly proven.
The skepticism with this practice is that it attributes any positive growth back to the new technology. Despite any new technology, market conditions, business practice changes, economic climates, convention calendars, and more impact revenue. A better formula, called revenue opportunity uplift (ROU), provides a more authentic picture.

Measure Your Revenue Opportunity Uplift

ROU can be ascertained by using a sophisticated RMS and provides much more detail than year-over-year revenue growth. It calculates a hotel’s ROU with a refined, two-step process to measure the benefits of a fully automated revenue strategy. The first step involves monitoring a hotel’s performance over a typical 90-day window. Simultaneously, over this same 90-day period, a carbon copy of the hotel is made, except this clone does not have the RMS in place.

Therefore, when the hotel modeling removes automated pricing, inventory controls, and overbooking strategies, a comparative analysis measures the hotel’s actual performance against the simulated performance of the hotel working in a manual environment. This means, on days of high demand, the manual-environment property is more inclined to accept business on a first-come, first-served basis, lacking the flexibility of automated controls to manage demand.

Hotels discover additional revenue opportunities hiding in each of those automated decisions, both in pricing and inventory controls. It also illuminates how pricing controls, built from rules that dictate rate increases in lockstep with occupancy growth, miss significant revenue opportunities because they react to demand, not anticipating it.

Overall, ROU provides a better measurement of the incremental benefit of a hotel’s technology purchase rather than reflecting an improvement from favorable market conditions that would be included in regular year-on-year analysis.

Free Guide: The Hotelier’s Field Guide to Total Revenue Forecasting

In a competitive regional hotel environment, owners who want to maximise returns and improve their asset value should take an active interest in revenue management. By utilizing the ROU measure, hotel executives also have a powerful way to demonstrate the financial benefits of revenue management to owners and show a true ROI.