Hotel revenue management rules and supporting reports

While some big hotel chains or franchise enterprises may have the opportunity to hire a skilled and experienced revenue manager, or even a whole team, many smaller and independent properties need to assign this job to an existing employee. Usually, this is the general or the front office manager, or probably the head of sales where such position is available. The person in question has to quickly develop the skills for the task and start delivering results.

At the same time, there are still hotel managers and owners that do not understand or underestimate the importance of revenue management and how it can affect the business. We live in the era of online sales, OTAs, meta search and increasing last-minute bookings, where the time period between making the reservation and the real stay is constantly shrinking. These factors all result in more dynamic occupancy rates and the emerging necessity to closely monitor the trends and adjust the pricing policy accordingly in order to get the most from each deal. The volume of missed revenue that the absence of revenue management might cause will probably transcend your worst assumptions. The good news is that the task does not need to be so complex and hard to accomplish.

What exactly is revenue management?

Basically, revenue management means to dynamically adjust your rates based upon demand and occupancy. In other words, it means to sell at a higher price when most of your rooms are sold and the demand is still high. And vice versa. This task involves some monitoring and analysis, a bit of predicting and requires some skills that improve with practice. Revenue management is also referred to as yield management or dynamic pricing, recently even as one to one pricing.

Why hotels need a revenue manager?

The main goal of the person in question is to reach the optimal ratio between rates and occupancy, i.e. to sell as many rooms as possible at the best possible price. And here is the trick. Sometimes it is better to sell less rooms but at a higher price. Because less rooms mean less costs for cleaning and maintenance and more availability for future sales. So it is better to sell 80% of your rooms at the highest price instead of selling 100% of your inventory at a strongly discounted rate. When the perfect balance is reached, the increase in your bottom line will answer definitively why. This balance could look like: 50% occupancy - all rates are available, 70% occupancy - deep discounts are closed, 85% occupancy - only the rack rates remain bookable. You might have to experiment a little to find your best ratio.

Now, how can the hotel software help?

If you have invested in a good hotel management system or hotel PMS, it should be able to support your revenue manager in several ways. Here is what Clock PMS delivers to make the job easier and more efficient:

  1. 1. Reports

    The occupancy forecast is one single overview of your future bookings for a chosen period. You could, for example, withdraw the data for a month, for three months and for a year to recognise the trends in fluctuation, find some patterns and use this information when setting your rate plans.

    The booking pace report compares the current booking trend towards a future period for the same lead period in the past. For example you can see the current trend of bookings for the next St. Valentine’s day and compare it with the trend from last year. This way you can know that 10 days before that holiday you had less bookings than this year and thus decide to trigger higher rates, impose longer required length of stay and hence increase your potential revenue. This is considered Revenue manager’s most useful ‘prediction’ tool.

    The charge segmentation report is a tool that helps you analyse and recognise your top customer segments, which helps you to identify your strengths and focus on developing adequate pricing policy.

    The bednights report also helps to analyse your customers' behaviour and preferences. For example, here you can see which lengths of stay are most popular and bring you most revenue.

  2. 2. Rate plans and derived rates

    First, you need to set up your rate plans and the separate rates in them. It is a good idea to start with a standard rate like Rack rate or BAR (best available rate). Then, using the derived rates option, you can easily create copies of these rates that you will use in the different situations - discounted rates, agents rates, deep discounts and so on. The convenience here is that you just have to define a percentage or fixed amount to be added/subtracted to/from the basic rate. And each time you change the basic rate, all others derived from it will change, too. Automatically.

  3. 3. Advanced rate restrictions

    The basic principle of revenue management is to close lower rates for sale whenever demand is high and remaining availability is low and vice versa. Therefore this is probably the feature that saves the most efforts. When you add special restrictions to your rates (and they can be individual for each rate, even vary from basic to derived ones), the system does automatically close or open some rates according to the given parameters. Such restrictions include seasons, special dates, "closed for sale", "minimum days in advance", "minimum free rooms left", "number of guests allowed" and so on. With this you can reflect all of the long term patterns in occupancy and booking pace in your rates and only watch for short term fluctuations that need manual adjustments. In other words, you can automate the process of revenue management to a large extent.

  4. 4. Distribution

    Clock PMS works with one single inventory synchronised across all channels. This means that the hotel management system works with actual real-time availability that reflects your online sales through the own website and the channel manager and offline sales in the reservation office. With this and the rate restrictions in action, rates get closed or open for sale immediately and on all channels upon meeting a particular condition, e.g. reaching a number of minimum free rooms available.

If you are making your first steps as a revenue manager or the job has been assigned to you in addition to your other duties, this little guide could help you to make your way to success. By following the above steps you can enjoy a highly automated revenue management process and achieve significant increase in your financial results, without dedicating all of your time to the task.