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The power of simplicity in revenue management

02 February 2023
Revenue management in hotels has come a long way since its inception in the late 1980s. What started as a simple concept has become a sophisticated system for maximizing hotel revenue. Unfortunately, despite technological advancements and data analysis, many revenue managers have created an overly complicated process that can overwhelm others working in hotels.

This blog post will explore how simplifying revenue management can lead to better hotel results. The purpose of this post is to demonstrate the power of simplicity in revenue management and how it can help hotels achieve their financial goals while providing a better experience for guests.

The benefits of simplicity

Teamwork improves decision-making

By simplifying the revenue management process, hotels can improve decision-making by fostering closer collaboration between revenue management, marketing, and sales teams. By working together, these teams can make more informed decisions based on a shared understanding of market trends and customer preferences. A simple revenue management process enables hotel managers to make more informed and timely decisions. With fewer variables, managers can focus on the most critical factors affecting revenue and make decisions quickly and confidently. In addition, by eliminating unnecessary complexity, hotels can identify the key drivers of revenue and make decisions based on data and insights rather than intuition or guesswork. As a result, better decision-making can lead to more accurate pricing strategies and better revenue performance.

Increased transparency makes information available

Simplifying the revenue management process can increase transparency by collecting and storing all data in one system and making the information available to all stakeholders. One system eliminates the need for the revenue manager to act as a gatekeeper of information, improving collaboration and communication between revenue managers and other departments within the hotel. With a centralized data system, hotels can ensure that all relevant information is easily accessible, leading to more informed decision-making and increased transparency throughout the organization. In addition, this can build trust and credibility with all stakeholders, including owners, top management, the commercial team, employees, and guests.

Maximizing efficiency through automation

By reducing the complexity of the revenue management process, hotels can make better use of technology to automate routine tasks and provide real-time data and insights. Automation can save significant time by eliminating manual processes and saving time and resources for more strategic tasks. In addition, hotels can increase efficiency and accuracy by streamlining tasks such as rate updates, inventory management, and data analysis and reduce the risk of errors or delays. Simplifying the revenue management process can also make finding and integrating technology solutions into the existing system easier. Automation will lead to more streamlined processes and improved data analysis, enabling hotels to make informed decisions quickly and confidently.

Enhanced customer experience

By simplifying the revenue management process, hotels can offer a more straightforward and consistent pricing structure that is easy for guests to understand. Easy-to-understand pricing can reduce guest frustration and confusion, leading to a more positive guest experience. A simple revenue management process can also allow hotels to offer more flexible and personalized pricing options, tailoring packages and promotions to individual guests and their preferences. By reducing complexity, hotels can also improve their ability to respond to market changes and offer more competitive pricing, enhancing their appeal to potential guests and retaining existing ones. Higher responsiveness can help to drive repeat business and build a loyal customer base.

The financial impact of simplicity

Simplicity profoundly impacts hotels, positively affecting various aspects of the business and driving growth. All these benefits will make life easier for revenue management, the commercial team, and everyone working in the hotel. First, however, it would be interesting to try to quantify the financial impact of simplicity. A simplified example of a 100-room hotel with 70 % occupancy, an ADR of $230, and 30 employees.

Streamlining processes

The generally positive impact of streamlining processes:
  • By reducing complexity, hotels can streamline their operations and processes, improving efficiency and reducing the risk of errors or delays.
  • With a simple revenue management process, hotels can quickly respond to market changes and changing customer preferences, allowing them to stay competitive and adapt to the evolving landscape.
  • Automation and technology can streamline revenue management, free resources for more strategic tasks, and improve data analysis.

Streamlining processes would reduce manual work

Let's assume the commercial team consists of 3 people, each working 8 hours a day, 5 days a week, for 50 weeks a year. So each person works for 2,000 hours a year.
If streamlining processes and operations saves 10% of working hours, each person saves 200 hours yearly, or 600 hours for the team. Let's use an average hourly rate of $35 for each team member. The total savings from reduced working hours would be 600 hours x $35/hour = $21,000.

Increased productivity leads to increased revenue

Assuming an increase in productivity by 2 % due to simplification would increase 2% in revenue. Total room revenue is 100 rooms x 365 x 70 % x $230 = $5,876,500. A 2% increase is $117,530.

Improving communication and collaboration

The generally positive impact of streamlining processes:
  • Hotels can improve communication and collaboration between different departments and stakeholders by simplifying the revenue management process. In addition, encouraging teamwork can help to foster a more integrated approach to decision-making and enhance the overall guest experience.
  • Improved communication can lead to better alignment of goals and objectives, reducing confusion and ensuring everyone is working towards the same outcome.

Collaboration minimizes errors

Errors anywhere in the hotel create more work when management and employees must correct mistakes. Therefore, reducing errors leads to less guest compensation and fewer working hours. Let's assume that the hotel can save 15 minutes per employee daily. That is more than one full-time employee per year, which is $50,000 annually.

Collaboration increases average revenue per guest

Excellent communication will help all employees offer more products and services to each guest. An increase of $2.00 per room would increase total revenue by $25,550.

Enhancing customer experience

Enhancing the customer experience will increase customer satisfaction and willingness to pay. As a result, it will attract new guests and increase the average revenue per guest.
  • By reducing complexity and offering a more straightforward pricing structure, hotels can enhance the guest experience and reduce guest frustration and confusion.
  • Improved communication and collaboration can also lead to more flexible and personalized pricing options, tailoring packages and promotions to individual guests and their preferences.

Attracting more guests

The hotel attracts more guests and sells 500 additional rooms at $230, which creates additional revenue of $115,000.

Selling more to each guest

In addition, let's assume the guests would pay $5.00 more per room night, generating additional revenue of $185,000.

Driving business growth

By improving efficiency, accuracy, and collaboration, simplicity can drive business growth by contributing to increased revenue and a better guest experience. A simple revenue management process can also help hotels to make informed decisions quickly and confidently, enabling them to respond more effectively to market changes and changing customer preferences. In conclusion, the impact of simplicity on business and hotels is significant and far-reaching. By reducing complexity and focusing on the key drivers of revenue, hotels can drive growth, improve the guest experience, and position themselves for long-term success.
All the small numbers add up. For example, streamlining processes could add $138,530, improving collaboration by an additional $75,550, and finally enhancing the customer experience could bring in $300,000, in total $514,080.

Final thoughts

Am I too optimistic about how I quantify the financial impact? You can recalculate all the examples with lower numbers. The point is that all the small numbers add up since most of them accumulate every day, 365 days per year. The point is also that cost savings are marginal, while revenue increases have a more significant impact. That is why revenue management is essential for hotels and why hotels should focus on revenue.