Propose the most profitable prices with hotel revenue management

Understanding the theme of hotel revenue management represents the first step in applying the most performing strategies, capable of increasing the turnover of your accommodation facility.

Let’s get started right away.

What is revenue management?

Revenue management is a component of business management, specifically the one that deals with revenue management. It is used to optimize pricing and occupancy with the ultimate aim of increasing turnover.

Its usefulness comes from one element in particular. The aim is to sell the right product (in this case your rooms) at the right price, at the right time and to the right customer.

In other words, it means finding a meeting point between the demand of your customers and the offer of your accommodation. The goal is to sell the rooms at the most suitable and profitable price (always taking into account your market and your context).

This is a process driven by the natural laws of economics. In fact, the more a good is desired on the market, the more its price will rise and the less a good is desired, the more its price will fall.

Taking this law into account, you are able to raise prices when demand rises, or when visits to your location increase, due to certain factors (the presence of an event, the weekend and so on).

There are certain conditions for which revenue management is considered valid, here are which ones.

1. The fixed capacity

An aircraft or accommodation facility has a certain fixed capacity. That is, beyond a certain limit, it is not possible to sell other places/rooms. In this case, revenue management comes to your aid. In fact, by optimally managing your rates, you can get more profitability from each customer.

2. High fixed costs and low variable costs

We invite you to think about these questions: How much would it cost you to build a new hotel?

The answer is obvious, very much.

Instead, how much would it cost you to sell an extra room in your facility?

You already have the room and your staff available, the only costs to cover are the variable ones which are relatively low.

3. A perishable inventory

If you don’t sell one of your rooms tonight, it becomes lost. In fact, it is not possible to add today’s room for sale to tomorrow’s inventory.

4. Advance reservations

If your reservations arrive early, you can afford to accept or decline them. Always with a view to maximizing the revenue of your structure.

5. The variability of demand

Your property can have the high season in the summer months and the low season in the winter months, or it can also be the other way around!

Not only that, the variability of demand can occur during the same week or during the same hours of the day. Only by following this flexibility, you can optimize your turnover.

After this brief introduction it is legitimate to ask a question:

Why is it important today to do revenue management?

The answer lies in the context in which accommodation facilities currently operate.

The watchword in the next few lines will be unpredictability.

In fact, after the health emergency, traveler habits have changed drastically.

If, for example, in the past, tourists booked their holidays well in advance, now the facilities receive bookings with a much narrower booking window. We remind you that the booking window is the time window that elapses from the moment a customer books a room, to the moment he arrives at your facility to start his stay.

Not only.

Tourists are looking for increasingly flexible travel solutions, so that they can change or cancel a reservation even on the same day.

It is understandable that in this context, the demand for rooms can change several times and very quickly during the same season.

Precisely for this reason, setting a single price valid for the entire period (the classic fixed price list) is no longer enough. On the contrary, it is counterproductive, because it makes you lose valuable income.

The most effective alternative is certainly revenue management.

Revenue management means adopting dynamic price management, i.e. allowing prices to follow the natural trend of demand.

Simply put, dynamic prices rise when there is greater demand for rooms in a given location and fall when demand is lower. This process is used to intercept sudden changes in demand and above all to maximize your income (up to +30%) in unpredictable moments.

The last few lines you read represent the main benefits of dynamic pricing, as you continue reading you will discover more.

The benefits you can get with revenue management and dynamic pricing

In the points below you will find the reasons why dynamic prices are a positive revolution for your structure, in fact thanks to them you will be able to:

• Get the most profitable price for your rooms at all times;
• Eliminate stress and all other negative emotions about pricing and fear of losing money;
• Maximize the turnover of your accommodation facility by a minimum of 15%
• Increase the number of rooms sold and consequently the visibility of the advertisements on the booking portals.

To close the circle, we now need to answer a very important question.

“How can I do revenue management in my facility?”

Essentially you can do this in three ways.

1. Make revenue individually

Is it really possible to make revenue alone? Yup…

The only problem is that to do this you need a large dose of study and experience, not to mention the fact that several hours a day are needed to be dedicated solely to tariff management.

In summary, we can summarize this method as follows:

Pros: No cash investment is required

Cons: It’s really time consuming and energy consuming (no hotelier can afford to spend a whole day managing their rates).

2. Rely on a revenue manager

This figure is fully involved in managing the prices of the accommodation facilities.

It is certainly an excellent alternative, but unfortunately, its high cost makes it inaccessible for most accommodation facilities.

Pros: You will get positive results with a good saving of time

Cons: the cost too high

3. Use revenue management software

This method is the most convenient for medium-small hotel and non-hotel accommodation facilities.

Thanks to the use of revenue management software, the whole process, from calculating the price to its publication on your website and the various sales channels, is automatic.

These software require only a little intervention on your part, in order to get a better result. For example by applying a maximum or minimum limit within which the software must not publish your prices.

The power of this methodology is given by the use of advanced technology, which analyzes thousands of data, to allow you to always have the most profitable price in line with your market.

Pros: zero cost compared to the figure of a revenue management

Cons: Requires a little customization to get high quality results

Currently the most used software in Europe and above all in Italy is Smartpricing.

With its more than 1,500 customers, Smartpricing helps hotel and non-hotel entrepreneurs find the right prices, increase the turnover of their structure and reduce uncertainty.

You can find out more about this software by clicking the button below.