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Do you need automated or manual revenue management?

22 July 2021
It is time to re-hire people to the commercial team to capture the demand during the recovery. There are different options for revenue management, and it depends on which type of hotel you want to become.

Many owners, CEOs, and general managers are a little bit intimidated by revenue management. One of the reasons is a lack of knowledge and skills in revenue management. Revenue management is super simple, so get some basic understanding of what revenue management is and why a hotel needs this. There is nothing within the revenue management discipline that is difficult, but there are many variables to handle, making it complex.

The investment case

An investor in hotel real estate would like to maximize the return on investment. Therefore, the operations should produce a healthy annual profit over many years. Profit is the difference between revenue and costs. To increase the profits, you have two options, increase the revenue or decrease the costs. Since most costs in hotels are fixed costs, reducing costs is extremely difficult, so that is why the profit heavily depends on how hotels capture revenue.

The primary business idea of hotels is to provide rooms for overnight stays. To make it easier to sell more rooms, hotels add products and services. So, in theory, all additional facilities in a hotel help sell the rooms. Therefore, revenue management is all about capturing demand for overnight stays (rooms). In recent years this responsibility has been extended to maximize total revenue from all facilities.

Two options for success

The bigger question is how to maximize total revenue. The owner/CEO must evaluate different options, make a decision and stick to that decision for many years. Here are two totally different options.

The generic hotel

A generic hotel is an ordinary hotel that provides a good room and good service in a city location. This hotel is very similar to many other hotels in the destination. Therefore, the only differentiator and the way to compete is with the price. In this case, a fully automated revenue management system is the best way to maximize revenue. The system will use market data and try to optimize revenue on the fixed capacity. Thus, in the best case, the hotel will get its fair share of the market, provided that the competition also uses revenue management systems. However, there is no point in having a revenue manager since the cost will be difficult to motivate. A better way is to get some help from the system vendor to learn how to set up and use the revenue system.

The unique hotel

The owner created the hotel with its facilities, products, and services with a specific target group in mind. This targeted audience is also an essential part of the concept. People want to hang out with like-minded, so the guest mix is critical to charge a premium rate and thereby capture more revenue than the fair share. Several differentiators will help the hotel to maximize revenue from many revenue sources. In this case, revenue management systems do not understand the complexity in taste, guest preferences, and who wants to hang out with whom. A revenue management system would still be beneficial but needs to be well managed and definitely, not left alone to make its own decisions. In this type of hotel, a revenue manager will make a huge difference and generate a high return on investment.

Reaching a decision

Most hotels are somewhere between the generic hotel and the unique hotel. Being in the middle is never a good position, so the decision should be about moving in one or the other direction. Then, based on the decision, take appropriate action. For example, become more generic, go for revenue management automation, or become more differentiated and hire a revenue manager.

For more ideas, download the white paper "Create a High-Performance Commercial Team."

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