The Revenue Management Cycle: 6 steps to optimise your income

Revenue management is a long-term management strategy with immediate results that optimise the income of a hotel establishment during periods of high and low demand.

As such, revenue management could be defined as a demand behaviour prediction technique, the aim of which is to increase a hotel’s income. More specifically, revenue management can be considered a formula that enables a room to be sold today at a specific price, with the certainty demand at higher prices does not exist.

In this regard, revenue management enables us to segment the market, adapting our service to the needs of the client in terms of time, price and distribution.

Revenue management is founded on six steps defined below:

(1) Data collection

Correct revenue management should be based on the collection of a series of data that enables decision making, which translates into price and distribution strategies. Consequently, all the information obtained related to clients and their purchasing habits becomes essential for any revenue manager.

Booking dates, rates, available rooms, no-shows, cancellations, room types, etc. are some of this essential data. This means a good booking integrated with the hotel’s property management system (PMS) and channel manager can be the difference between optimising income long term and surviving in the short term without future guarantees.

Likewise, the competition can’t be left to one side. Information about the target market is basic. Correctly defining competitors is a “must-have” feature, with the use of a rate comparison tool being essential in this area. This is a technological tool that will enable you to find out, in real time, what your competitors are doing and what trends there are in terms of setting rates.

Finally, don’t forget that the internet has changed the decision making process of tourists. Today, online reputation is one of the most helpful features in achieving a “no vacancies” sign, which is why it is important to use tools that enable you to know what people are saying about your establishment at all times.

(2) Interpretation of information

Interpreting the data collected is the basis for the production of the sales forecast as well as pricing and distribution strategies.

A revenue manager has a complicated task and must focus on the segmentation of the market, or focus on the creation of homogeneous groups of clients that are, within each group, heterogeneous. The client is equal to demand.

Associating variables and establishing variations depending on the distribution channel chosen for the formalisation of a booking, according to the time of year and room rate, can be a good starting point.

However, other variables related to the concepts of booking pace and pick up can’t be forgotten.

Booking pace refers to the time between the date the client makes their booking and their arrival at the hotel, while pick up refers to the number of bookings obtained between two specific dates.

(3) Preparation of the hotel forecast

When preparing the sales or hotel forecast, precision is decisive in obtaining a measurement of demand, which includes periods of peaks and troughs in activity. This forecast enables you to react when faced with periods of low demand, design different rate levels, and choose the optimal distribution channels for the management of bookings.

(4) Pricing and distribution strategy

Defining your pricing and optimal distribution channels strategy is the step prior to fully engaging in revenue management. As such, you must consider concepts such as parity and value, given that positioning a price is not simple.

Likewise, consider that direct sales optimise income, but market presence means reaching different targets, which is why, depending on the target public, you must choose a healthy balance.

Consequently, OTAs become a means to access certain groups of tourists as, if dealing with a same price, they believe the purchasing experience to be much more satisfactory with OTAs, but you won’t lose control of your sales, product or service.

(5) Implementation

Putting the designed strategy into practise will also require time and planning in particular. Two essential issues are raised:

(5.1.) Technological development and solutions. Currently, new technologies offer solutions that enable us to easily implement our revenue strategy. These developments gather data from the PMS and, depending on your needs, offer the chance to perform different analyses that facilitate the decision making process.

Revenue Management Systems (RMSs) are an option. However, when trying to set prices in accordance with competitors, distribution channels, pick up or booking pace and, in addition, you are the one who sets your own business rules, there are other solutions that better adapt to your hotel’s needs.

This is the case with a Distribution Manager System (DMS), a new revenue management solution that Paraty Tech will present at FITUR.

(5.2.) Training of employees. Revenue management must involve every staff member at the hotel, which is why training becomes a powerful ally.

(6) Results analysis

Monitoring results through completing periodic reports that enable comparisons to be made is another key point in revenue management.

Without an exhaustive analysis of results, it is impossible to establish corrective measures that allow you to optimise revenue management.

 

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