strategies to increase hotel revenue
Channel Optimization involves strategically driving revenue through different distribution channels
From the initial success of "yield management" in the commercial airline industry down to more recent successes of markdown management and dynamic pricing, the application of mathematical analysis to optimize pricing has become increasingly important across many different industries. But, since pricing and revenue optimization has involved the use of sophisticated mathematical techniques, the topic has remained largely inaccessible to managers.
What are the basic revenue management strategies for hotels? A General Opinion :-
In the recent times it is always a vital challenges for the hotel owners to have how to manage their hotel room and create a road-map of revenue generations . Hotel industry demand has changed from time to time a right pricing strategies will help managing bookings in high demand and increase revenue to the bottom line. Online Travel market conditions has helped in long term hotel business in order to maximize revenue by having optimal hotel revenue management strategies. Yield Management system is playing a key role to the hospitality industry by applying the science of the data management and appropriate yielding by room rates.
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Hotel Revenue Management is about becoming the architect of your fortune. A hotel room is a perishable product since the number of hotel rooms is limited. As a result, customer satisfaction and pricing remain the most important dynamic variables, which are subject to Hotel Revenue Management. It is all about balancing demand and capacity by forecasting prices to maximize the effectiveness of hotels’ resources.
Originating from a mathematical sales model within the airline industry, the concept made its way into the hospitality industry as Hotel Revenue Management in the 1990s. Marriott International was one of the first major players to draw large earnings by introducing the concept into its business strategies. Hotel Revenue Management has grown in importance ever since.
As there are many aspects that must be taken into consideration, it is impossible to effectively apply the concept of Hotel Revenue Management overnight. You need to carefully analyze and evaluate big data sets about your property and its business environment.
This includes information about basic factors like:
Analytical Market Segmentation - A rule-based process used to create optimal revenue management segmentation from reservation data to support both the best basis for forecast and optimization and key organizational reporting and business intelligence requirements.
Average Daily Rate (ADR) -Average Daily Rate = Actual daily room revenue / total rooms Sold.
Average Room Rate -An alternative term for Average Daily Rate (ADR).
Best Available Rate (BAR) - The lowest non-restricted rate bookable by all guests. This rate can change several times a week and up to several times a day.
Booking Pace -The speed at which bookings materialize over a period from the booking date to the arrival date. Booking pace is expressed as a fraction of bookings received on certain days in advance.
Business Mix -The blend of different market segments that occupy a hotel, measured as a value or percent of occupancy.
Business Type - A market segment description of either Group or Transient. The system’s analytics need to understand what business type the market segment belongs to in order to know if bookings are expected all at once or one by one.
Channel Management (CM) - Provides a way for hotels to control the allocation of hotel inventory and rates across all distribution channels including websites, third parties and the GDS.
Competitive Set - Comparable hotels in a hotel’s vicinity that compete for guests.
Constrained Demand -The quantity of rooms that are expected to be sold for a date. Considers limitations such as a hotel’s capacity or restrictions on bookings.
Cost of Walk (COW) -The cost of turning away a guest when the hotel is unable to provide the promised accommodation, which may include the cost of a hotel room, complimentary gifts, and probable lost future business.
Day Parts -Practice of dividing the day into several parts, in which a different meeting or event can be accommodated in a function space (morning, lunch, afternoon, evening, etc.).
Days to Arrival -The number of days prior to an Arrival Date, used to measure information such as a booking pace, hotel performance and forecast performance.
Demand -The business that the system anticipates for future days.
Displacement - Analysis An analysis of business (primarily Group) that is based on the total value of the business versus the value of the transient business that would be displaced if the business were accepted.
Fenced- Rates that a hotel uses to provide a series of options to guests. The rate is determined by which fences a guest accepts, which might include non-refundable and non-cancellable reservations, advanced purchase reservations, and staying over a weekend.
Forecast Group - occupancy that is anticipated by the system.
Forecast Transient -Transient occupancy that is anticipated by the system.
Forecasting Model -The statistical patterns used for predicting demand, occupancy and revenue.
Free Sell – A Function Only Business restrictions or Event-Only Business restrictions are guidelines put in place at the hotel to ensure space is available for groups within their typical booking window.
Full Pattern Length of Stay (FPLOS)- A pattern indicating whether a rate is open (available) for the arrival date and length of stay.
Global Distribution System (GDS) -Comprehensive travel shopping and reservation platforms that travel agents use to book airline, car, hotel and other travel arrangements for their customers.
Group Demand - The group business expected for an occupancy date.
Group Pricing Evaluation -A system tool that allows users to enter details about a potential group booking, generate an analysis, and use the resulting data to select the best arrival date and rate that will provide the highest benefit to the hotel.
Group Wash -The difference between the final occupancy from a group and the maximum value of the block pace or the pickup pace.
Group Wash by Group -A system feature that provides group business data, including occupancy date, blocked rooms and expected wash, and is also the location from which users can override the system-generated group wash.
KPI -Key Performance Indicators, for example: Average Daily Rate (ADR), Revenue per Available Room (RevPAR), Occupancy rate, Profits per Available Space Time (ProPAST), Profits per Occupied Space Time (ProPOST) and Function Space Utilization Percentage.
Last Room Value (LRV)-The maximum amount of room revenue that a hotel can expect to make from the last room available for sale. The system uses the Last Room Value as a restriction control for low value rates during busy periods and opens all rates during slow times.
Length of Stay (LOS)-The number of nights that a guest stays at a hotel. This value is also the difference between the departure date and the arrival date.
Market Segment (MS) -A portion of the customers who possess a common set of motivations as well as a combination of unique purchasing (e.g., advance purchase vs. walk-in) and usage patterns (e.g., single night vs. weekly).
Market Segment Group (MSG) -Market segments that are grouped together by pattern and rate.
Maximum Length of Stay (Max LOS) -A room inventory control function that limits the number of nights a reservation can stay when arriving on a certain date.
MICE-Acronym used in S&C/Function Space for Meetings, Incentives, Conference & Exhibitions.
Minimum Acceptable Rate (MAR)-The lowest acceptable amount that a group can be charged, used to calculate the suggested group rate.
Minimum Length of Stay (Min LOS)-A room inventory control function that requires a reservation to meet or exceed a certain length of stay in order to complete the reservation.
No-Show -The case where some customers with a reservation do not show up to use the room(s) reserved for them, without explicit cancellation.
Occupancy -The “fill” measure of a hotel. Occupancy = total number of rooms occupied / total number of rooms available x 100 (e.g., 75% occupancy).
Occupancy Forecast -The constrained occupancy that the hotel is expected to achieve for a specified period. This value may be expressed either as a specific number of rooms or as a percentage of available rooms.
Optimization -The use of forecast information, property inventory information, rate information, configuration information, and user interaction to calculate the best pricing and control decisions for a hotel. BAR pricing, Last Room Value, forecasts and overbooking are the result of the optimization process.
Overbooking -The practice of selling more rooms than are physically present in the hotel to account for cancellations and no-shows. The goal of overbooking is to maximize revenue by achieving as close to 100% occupancy as possible on any given day.
ProPAST -Profit per AVAILABLE space time (or meal period).
ProPOST-Profit per OCCUPIED space time (or meal period).
Qualified Rate -A rate that the guest must qualify for: a corporate rate for the guest’s company, a rate available due to an affiliation such as AARP, a promotional package rate with specific booking conditions, etc.
Remaining Demand -The system-calculated remaining unconstrained demand for an arrival date in the future, as of the processing date.
Reputation Integration -Data feed received from online reputation management providers for a hotel’s online reputation performance, in a certain market.
Reputation Pricing-Pricing science that integrates a hotel’s online reputation, guest reviews and ratings into its revenue management strategy.
Revenue Generated Index-An index that measures a hotel’s revenue share in its market.
Revenue Management System-The software application that hotels use to control the supply and price of their inventory in order to achieve maximum revenue or profit, by managing availability, room types, stay patterns (future and historical), etc.
Revenue Optimization-A business discipline and culture that focuses on balancing supply and demand in a rational and systematic way to maximize revenue and profit while managing risk under current and anticipated market conditions.
Revenue per Available Room (RevPAR) -RevPar = daily room revenue / total rooms available.
Room Block-A group of rooms that may be created to organize rooms to aid in planning, sales or other management tasks. Examples include associating rooms with a single fixed price, a single guest, a channel, a group or a single team of staff members that manage or maintain the rooms in the block.
Room Class-Categories that are used to group room types with similar values.
Room Nights- Room Nights = rooms blocked or occupied multiplied by the number of nights each room is reserved or occupied.
Room Type- A collection of rooms sharing a common element at the hotel. A Room Type might be a suite or a single room with a double bed, poolside or ocean-side. A room may belong to multiple Room Types.
Semi-Yieldable Rates-Rates that can be closed but only when the same room type or length of stay is closed for BAR for example, Last Room Available accounts.
Shoulder Nights -Nights of less occupancy on either side of peak nights.
Special Event-A date or set of contiguous dates for which the hotel data cannot be forecasted in the normal fashion, or period(s) where the transient business pattern is different than normal.
System Override-A user-selected value that replaces the demand value calculated by the system.
Total Revenue Performance -The intelligent calibration of demand across all hotel functions to meet overall business objectives. It is always the ability to instantly and systematically decide which business to accept across multiple revenue streams, based on greatest overall value to the asset.
Transient Business - Guests who book individually rather than with a group.
Transient Demand-The anticipated volume of business from transient market segment groups.
Unconstrained Demand- Demand that is not constrained by the capacity or restrictions of the hotel and could be sold if the hotel had an unlimited number of rooms available to sell. Also called True Demand.
Unqualified Rates-Rates that are offered by the hotel to guests who do not have an agreed contract rate and that have no restrictions or booking conditions attached to them.
Utilization (Function Space) - Calculated by multiplying the available area by the number of day parts being evaluated.
Wash-The difference between the group block and what the hotel expects it will actually pick up.
Web BAR-An enhanced BAR outcome that considers competitive rate data in the calculation of Best Available Rate.
Web Rate Competitor-A hotel’s defined competitors for which rates are supplied by an Internet-based rate shopping service and whose rates impact Web BAR.
Web Rate Shopping-An Internet-based service that supplies competitor rate data to hotels.
Yield Management -Set of strategies that help realize optimal revenues for capacity-constrained resources. The core concept of yield management is to provide the right service to the right customer at the right time for the right price – by understanding, anticipating and influencing consumer behaviour.
What is revenue management in hospitality? -Revenue management refers to the strategic distribution and pricing tactics you use to sell your property's perishable inventory to the right guests at the right time, to boost revenue growth. Effective hotel revenue management strategies can also help hoteliers: Better manage resources.
How is hotel Revenue Management calculated? - Average Daily Rate (ADR) - A measure of the average rate paid for rooms sold; calculated by dividing room revenue by rooms sold. Average Length of Stay (ALOS)– The total room nights in a hotel or segment divided by the number of reservations in the hotel or segment. Formula: Total occupied room nights / Total bookings.
What are the elements of revenue management? - Here an overview of the basic elements and ingredients you need to apply effective hotel revenue management: Market Segmentation. Historical Demand and Booking Patterns. Demand Forecast and Displacement Analysis.
What is the GOP in the hotel industry? - GOP stands for Gross Operating Profit. It is a KPI which refers to the Hotels profits after subtracting all of their operating expenses. It illustrates the level of the operational profitability of a hotel.
What are revenue management strategies? - Revenue Management is the application of analytics that predicts consumer behavior at the micro-market level to optimize product availability and price to maximize revenue growth. The primary aim of a revenue management strategy is selling the right product to the right customer at the right time for the right price.
What is revenue optimization? - Revenue optimization is the strategic management of pricing, inventory, demand and distribution channels to maximize revenue growth over the long term.
What is a Cluster Revenue Manager? - Cluster Revenue Manager will be responsible to maximize revenue, market share and profits for multiple hotels through the strategic coordination of revenue management processes and procedures.
What are the challenges of revenue management for the hotel? How to overcome them? - Since the hotel revenue management is a very vast topic, hotels struggle to practice it in the right way. There's a lot of things that counts as a part of hotel revenue management. However, if it is broke down into simple sections and guided with proper actionable steps.
Do I need to apply all the described hotel revenue management strategies? - No, you don't have to. You have to consider a few parameters such as your property type, property size, and your feasibility. Not all the strategies will be applicable to yours. You have to explore and then select a few strategies as per your convenience.
Besides, some strategies such as adopting a uniform distribution method will be a long term revenue management strategies whereas strategies like yield management will give you desired results during the peak season. So you can select accordingly.
How long should I practice these strategies? - Well, I would recommend that you should practice the selected strategies for at least one month to at most 3 months. Then you can measure their performance and continue strategies that are giving you desired results.
I don't have a hotel website. What should I do? - I would recommend getting your website designed from a professional hotel website design provider. Having a hotel website is as important as having a front office at your hotel. you may also check SEO Tools in order to fix basic SEO challenges.
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Revenue Management Blog