Revenue management is extremely important within the hotel industry because it allows owners to optimize how they do business, to improve financial results. However, it also requires specific skills and knowledge, which means that it can be more effective to outsource revenue management to a third party that specializes in this area. In this article, you will learn more about revenue management and the benefits of outsourcing.

Table of Contents:

What Is Revenue Management?

Revenue management uses data and analytics to anticipate demand, optimize product availability, and select the right pricing strategy to generate the best possible financial results. Within the hotel industry, it is best to think about revenue management using the following definition:

Revenue Management: “Selling the right room, to the right customer, at the right moment, for the right price, through the right distribution channel, with the best cost efficiency.”

Why Is Revenue Management Important?

For hotel owners and others in hospitality, revenue management is an important concept, because of the nature of the industry. With hotels, rates vary, and different customers are willing to pay different prices for the same product (i.e., a hotel room) depending on when they need it when they make the booking, and which channel they use.

At the same time, hotels only have a limited number of hotel rooms to allocate to guests at any time. Therefore, to maximize revenue and financial results, hotels need to make the right decisions in terms of pricing and distribution, ensuring they sell as many hotel rooms as possible at the best possible price.

Generally, hotels can charge more money when there is strong demand for hotel rooms but will need to charge less at times of low demand. Anticipating the level of demand and optimizing pricing requires careful analysis.

Table: Key Important Aspects of Hotel Revenue Management

Aspect Description Significance
Optimizing Revenue Utilizing strategies to maximize income from room sales, ancillary services, and other revenue streams. Essential for financial health, ensuring profitability and sustainable business growth.
Competitive Positioning Analyzing market trends, pricing strategies, and competitor actions to maintain a competitive edge. Critical for attracting guests and staying ahead in a dynamic and competitive hospitality landscape.
Guest Satisfaction Balancing pricing with perceived value, ensuring a positive guest experience while maximizing revenue. Directly impacts customer loyalty, reviews, and repeat business, contributing to long-term success.

What Is Outsourcing Revenue Management?

Outsourcing revenue management refers to the practice of turning to third-party specialists for revenue management skills and services. Instead of being handled by full-time employees, the responsibilities are assumed by a team of experienced revenue management professionals from outside your business.

The team will typically operate away from your hotel but may visit your property and occasionally work on-site too. Delegating responsibility to third-party specialists allows your hotel to gain fresh and unbiased perspectives from an experienced team. You only pay for the work rather than a salary and offer employee benefits. This can result in a greater ROI and may make revenue management viable for hotels with limited budgets.

Why Hotels Outsource Revenue Management

Revenue management is a proven concept for optimizing revenue and improving financial results. Therefore, a revenue management strategy is a necessity for modern hotel owners. Yet, effective hotel revenue management requires specialist knowledge, analytical skills, experience, and a working knowledge of the market.

Hotels are faced with two main choices. The first is to hire a full-time revenue manager to work internally. This usually also requires significant technological investment to allow them to perform the role effectively. The second involves outsourcing revenue management to a third party that specializes in this area and can work on demand.

Large hotel chains might have the financial capabilities to hire a full-time revenue manager and invest in technology, although it is not always necessary or financially prudent. However, the budget for hiring and retaining skilled revenue managers and investing in technology may not be there for independent hotel owners.

Outsourcing revenue management allows hotels to benefit from up-to-date knowledge, techniques, market insights, and technology, helping them to stay ahead of competitors. For independent hotels, outsourcing the revenue management strategy leads to better financial results, on average, than independent hotels that hire revenue managers or that do no revenue management at all. It also avoids issues surrounding replacing revenue managers when they leave.

Outsourcing Revenue Management - Why Hotels Outsource Revenue Management

4 Advantages of Outsourcing Revenue Management

Read about the key advantages of outsourcing revenue management for hotels.

1. Optimal Financial Results

The main advantage of a hotel outsourcing revenue management is the ability to optimize financial results. Indeed, when the work is outsourced to the right company, they will have the latest technology, the most up-to-date methods, a working knowledge of the hotel industry, and the ability to analyze data and identify trends.

Armed with this data – which may include past sales figures, current bookings, information about local events, and wider industry information – a company that specializes in revenue management can help a hotel to set the right prices, focus on the right distribution channels, and generate the best financial results possible.

2. Alternative to Hiring a Revenue Manager

Another advantage of outsourcing revenue management is that it is a viable alternative to hiring a permanent revenue manager. In particular, this is beneficial for smaller hotels or those operating on a tighter budget because work can be outsourced when it is needed, and the hotel does not need to invest in related technology.

It also prevents issues associated with having a permanent revenue manager, such as paying them sufficiently to retain them and recruiting a replacement if they leave. Companies specializing in revenue management also have an experience advantage over internal candidates trained to become revenue managers.

3. Beating the Competition

When revenue management is outsourced to a third party with the right expertise, hotels can gain a significant advantage over competitors. This is especially true of competitors who do not have a revenue management strategy or those who try to carry out revenue management independently.

Outsourcing revenue management can also provide an advantage over many hotels that employ a full-time revenue manager. After all, many hotel owners lack revenue management skills and have never done the job, which makes them ineffective at managing the revenue manager they have employed. This then leads to some inevitable inefficiencies along the way.

4. More Focus on Sales and Operations

Finally, running a hotel is complicated and involves managing and dealing with the needs and challenges associated with several departments, ranging from sales & marketing, reception, and housekeeping, to the restaurant and bar staff. Therefore, outsourcing responsibility for revenue management can reduce the workload significantly.Outsourcing Revenue Management - More Focus on Sales and Operations

As a result, managers can juggle their responsibilities more effectively, focusing on attracting the right customers, delivering the right level of customer experience to generate loyalty, and optimizing the products and services they provide.

Outsourcing Revenue Management FAQs

A revenue management system, or RMS for short, is a software application that assists with revenue management efforts. The technology can be used by hotels to forecast demand using available data, manage hotel inventory, adjust pricing across various distribution channels and optimize earnings.

In financial management, outsourcing describes the process of using external experts to assist with financial activities, practices, and strategies. This may include accounting, tax planning, payroll and more.

Companies may choose to outsource revenue management activities to acquire expert assistance and reduce workloads for existing staff. Outsourced revenue management can also allow for a dispassionate and unbiased assessment of the current state of revenue management activities and the use of the skills and knowledge of experienced professionals.

A great example of revenue management outsourcing is using a specialist company to assess current performance and oversee hotel revenue management strategy for a set period. The external company may then be responsible for forecasting, pricing strategies and managing distribution channels.

When used to good effect, outsourcing can leverage the expertise of professionals to increase revenue. The best revenue management experts will have access to the latest technology and market trends while possessing significant experience. This can then be used to optimize pricing and find new revenue streams.

The practice of outsourcing revenue management to third-party experts is becoming more commonplace for a variety of reasons. Revenue management is now an essential part of the hotel industry, and when it is outsourced, many associated costs are eliminated. Moreover, hiring experienced professionals guarantees the right level of expertise and industry knowledge, improving the chances of success.

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This article is written by:

Martijn Barten

Hi, I am Martijn Barten, founder of Revfine.com. With 20 years of experience in the hospitality industry, I specialize in optimizing revenue by combining revenue management with marketing strategies. I have successfully developed, implemented, and managed revenue management and marketing strategies for individual properties and multi-property portfolios.