April 03, 2024
By Kim Campbell

Hotel revenue management is an incredibly complex machine. It's perpetually in motion, requiring routine maintenance and replacement parts on occasion. While operating the machine may seem overwhelming, especially to those new to the hotel revenue management space, understanding why and how each piece works can go a long way.

In this post, we take a deep dive into hotel revenue management: What it is, how it works, and the vital role it plays in a hotel’s overall success. Then, we discuss resources, best practices, ideas, and strategies that revenue management professionals from all over the world can use to reinvent their revenue management strategy and increase hotel profits.

What is hotel revenue management?

The term hotel revenue management refers to a variety of principles and practices that help hotel professionals predict what customers are going to do in the future. While specific goals may vary from one property to the next, some primary objectives of hotel revenue management are to optimize prices to match travel demand, outperform the comp set, increase profits, and improve hotel performance year-over-year.

By using performance data and other hotel analytics, revenue managers make rate decisions, determine distribution strategies, and work to increase the amount of revenue the property generates — all without hindering guest satisfaction.

The importance of hotel revenue management

Failing to effectively manage hotel revenue can negatively affect every aspect of hotel performance. Revenue managers and directors who do not diligently track, analyze, and utilize revenue reporting could:

  • Push business to competing hotels
  • Harm the hotel’s reputation
  • Hurt guest loyalty
  • Lead to missed rate opportunities

Additionally, sales and revenue directors may earn a portion of their salary from meeting revenue goals, and missing those goals could have a significant impact on their annual earnings.

Hotel revenue management strategies

Implement revenue management strategies that are in line with your hotel’s revenue goals and budget. See which strategies work best in your market and adjust as needed.

1. Start with an honest inventory.

Creating a successful revenue management strategy should start by taking a hard look at the way the hotel’s revenue is being managed right now. Before making any major changes, ask the following questions to help assess your hotel’s current position:

  • What is your current revenue management strategy?
  • What are your revenue management goals or objectives?
  • Is your revenue management style proactive or reactive?
  • What is your group pricing strategy?
  • Are you knowledgeable about area events and attractions?
  • Do you know what your demand generators are?
  • Do you keep a close eye on competitor pricing?
  • Do you know what your market mix is? Is it balanced?
  • Are your leads and proposals turning into actual business?
  • Can you identify the cause of demand changes or rate anomalies at your hotel?

Once you have a firm and fair understanding of your revenue strengths and weaknesses, you can identify opportunities for improvement and create an informed hotel revenue management strategy.

Tap into the power of data with our exclusive guide

2. Become an expert in your market.

A profitable revenue management strategy factors in seasonal changes and demand fluctuations. Identify the major demand generators in your area, review planner sourcing behavior, and analyze travel patterns in your market. Determine your hotel’s peak, off-peak, and shoulder seasons to help maximize rates and fill future need dates.

Create a calendar of special events, restrict blackout dates, and sign up for Google Alerts. Stay up-to-speed on area events, community projects, and what the businesses in your area are doing.

Strive to know more about your market than revenue managers at competing hotels. The more information you have, the more comprehensive your hotel revenue management strategy can be.

3. Use future forecasting data to establish your budget.

While unexpected hiccups can throw a wrench in the most thorough hotel budgets, proper budgeting and forecasting can help prevent revenue managers from depleting their financial reserves too early or too often. When preparing a budget, hoteliers and revenue managers should review historical data, hotel rate reporting, and competitive set performance tracking to identify revenue opportunities that will have an impact on budgeting decisions.

When establishing a budget, gather data that tracks how your hotel performed over different seasons, during special events, holidays, and other notable dates. Gaining a comprehensive understanding of a hotel’s performance history will help revenue managers identify past market trends, as well as better predict future trends.

Regularly review hotel data tracking and revenue reporting to identify:

  • Sudden demand changes
  • Unexpected shifts in occupancy
  • Unusually high/low ADR
  • RevPAR fluctuations
  • Booking patterns
  • Missed RFP opportunities

Analyze the strategies used in the past and evaluate how well the hotel performed as a result of those strategies. Identify which strategies worked best, which could be improved, and which should be eliminated; use detailed analysis to inform your next budget.

Discover the potential increase in annual profit by your hotel

4. Use variable pricing strategies to optimize hotel revenue.

When it comes to hotel revenue and pricing management, there is no one-rate-fits-all solution. Successful hotel revenue managers consistently optimize room rates to match what's happening in their market. They use dynamic pricing strategies that are based on past performance, current demand, future forecasting, and changes in the comp set. With this information, revenue managers are able to optimize room rates and drive more revenue.

Hotel rate and pricing strategies can be influenced by:

  • Travel demand
  • Special events
  • Room availability
  • Market conditions
  • Booking windows
  • Competitor pricing
  • Market segment mix
  • Target market trends
  • Service level
  • Available amenities

Revenue managers keep a close eye on what's happening in their market to sell guest rooms at an optimal rate. They anticipate future demand changes, track room night pickup, and adjust rates accordingly.

Hotels that offer superior services and amenities may be able to charge higher rates during high-demand periods than area hotels with less to offer. If your property offers services comparable to nearby competing hotels, however, selling higher rates than the competition can lead to displaced occupancy, sending travelers to the comp set.

5. Keep a close eye on the competition.

All revenue managers need to know what their hotel offers compared to the competition. What room types are available at each hotel? Which properties are full-service and which are select-select service? Which hotels have event space? What rates are competing hotels in the area offering? Which properties are pet friendly?

Is your hotel receiving its fair share business in the market? If not, dig deeper into competitive set data. Review reporting and performance index changes to identify the reason.

6. Increase repeat bookings using guest segmentation.

Many hotel professionals characterize distinct groups of travelers by their reason for travel in a process called “guest segmentation.” Travelers may be segmented by a variety of travel types: 

  • Leisure travel
  • Business transient travel
  • Corporate negotiated travel
  • Group travel
  • Weddings
  • Event attendees
  • SMERF: Social, military, education, religious, and fraternal travel

Analyze the travel habits displayed by different segments to better understand your customers. Review stay patterns, room type preferences, and purchase habits to get an idea of what sets your transient travelers apart from your leisure guests, or your weekday mix from your weekend mix.

By developing a deep understanding of different market segments and the types of guests who visit your hotel, hotels can construct exclusive offers and promotions that appeal to specific traveler types  for example, 48% of customers who identify as loyal expect personalized experiences from businesses they interact with. Entice loyal customers to return to your property by creating targeted promotions and running more personalized marketing campaigns.

Confirm which segments are bringing in the most business and which are underperforming. Pinpoint market segments that need targeting and develop a plan of action.

7. Manage your RFPs efficiently.

A vital part of hotel revenue management, especially in high-demand areas, is effectively managing RFPs. Stop wasting valuable time writing lengthy proposals for leads that end up being a bad fit for your business. Evaluate and rank the leads that your hotel receives to quickly identify the best pieces of potential business. Prioritize the RFPs that fit your hotel’s availability, size, and revenue goals; rank RFPs ill-suited for your hotel the lowest.

Instead of spending hours reviewing lead after lead, optimize your RFP management system’s response settings to work for you. Update your settings to automatically turn down groups or events that your hotel can't accommodate. Small adjustments that maximize efficiency will allow you to spend more time focused on converting prime leads and winning more business.

Even with so many travel planners booking business online, major decision makers can still be difficult to access. Market to hard-to-reach planners by telling your hotel’s unique story. Add personalized touches to your proposals that will help planners make a memorable connection to the hotel.

8. Widen your audience reach.

Guests can't book a room at your hotel if they don't know that it exists. Widen your reach and improve your hotel’s search rankings by:

  • Responding to guest reviews
  • Advertising on social media
  • Creating a Google Business profile
  • Using geo-location services
  • Ensuring accuracy across OTAs
  • Managing hotel branding
  • Creating valuable content
  • Publishing a hotel directory listing

Online hotel directories make your hotel visible to travel and event planners from all over the world. Listing in a directory can help hotels generate more group, transient, corporate, and event business by dramatically expanding their audience reach.

Is your hotel also a wedding venue? Reach wedding planners and engaged couples by listing your hotel in a wedding venue directory.

MORE: 14 tips to maximize your hotel's SEO

How can Cvent help with hotel revenue management? 

Hotel revenue professionals rely on a variety of tools, resources, reports, and software systems for comprehensive management. Whether you're a new revenue manager looking to grow your skillset or an experienced hotel professional looking for new ways to get an edge on the competition, you can benefit from Cvent’s extensive collection of hotel revenue management solutions.

Cvent provides a variety of solutions and innovative systems that can help:

  • Drive more direct bookings
  • Capture higher rates
  • Optimize pricing strategies
  • Improve year-over-year profits
  • Outperform competitors
  • Analyze hotel performance
  • Track demand for improved forecasting
  • Win more RFPs
  • Reach more planners
  • Improve your market mix
  • And so much more

Bookmark this guide to find the hotel revenue management tools you need when you need them!

You now have tools and resources to help build a profitable revenue strategy. Next, work to improve hotel occupancy with these proven strategies.

Headshot of Cvent writer Kimberly Campbell

Kim Campbell

Kim is a full-time copy and content writer with many years of experience in the hospitality industry. She entered the hotel world in 2013 as a housekeeping team member and worked her way through various departments before being appointed to Director of Sales. Kim has championed numerous successful sales efforts, revenue strategies, and marketing campaigns — all of which landed her a spot on Hotel Management Magazine’s “Thirty Under 30” list.

Don’t be fooled though; she’s not all business! An avid forest forager, post-apocalyptic fiction fan, and free-sample-fiend, Kim prides herself on being well-rounded.

5 Tips to Stay Ahead in Meetings and Events in 2024 correct image
5 Tips to Stay Ahead in 2024
Capture more group business in 2024 with our ultimate checklist

Subscribe to our newsletter