Find out the hotel revenue management cycle and its fundamental role in maximizing revenue. Learn the key stages and strategies for revenue management. Revenue Management is an ongoing, long-term management strategy for hoteliers to receive immediate results in terms of growth and sales.
Simply put, having a sound Revenue Management Cycle optimizes the income flow and strategy of a property during low and high demand.
It takes into account several aspects of business, including competitive analysis, pricing, inventory controls, constant performance review, etc. Basically, it focuses on demand behavior prediction, building of strategies based on forecasts, and enables a property to sell rooms at the right price to the right audience.
The Revenue Management Cycle also takes into account various market segments and competitors, and adapts the service as per the changing trends in terms of distribution, price, etc.
What is Revenue Management Cycle (RMC)?
The Revenue Management Cycle is a five-step guide that simplifies the revenue management process.
By familiarizing yourself with these steps, you will cover the fundamentals of revenue management, which are crucial in order to sell the right product to the right customer at the right time for the right price.
Understanding the Revenue Management Cycle also helps you figure out the best distribution channels for your hotel. Following these steps sets you up for success!
1. Competitive Analysis
Competitive Analysis is the foundation of the process. It helps you understand your main competitors, what they’re doing best, and what makes them stand apart from the competition.
It’s important to check if the direct competitors are selling or offering something that your hotel doesn’t and decide if it can be adapted or utilized. It’s good to keep an eye on emerging players as well, who might have similar products and targets. You should identify them and think if they’d be threats in your market moving forward.
In our article: How to create your hotel competitive set analysis?, we have a tool you can use to create your own Competitor Matrix – check it out!
Furthermore, it’s important to identify the key segments that drive the performance of the hotel:
- Are they domestic or international?
- Do they change for different market segments?
- Are there any customers that you are not tapping into but could bring a revenue opportunity?
- What are the most used channels that your customers use?
By answering all these questions, you will get a better idea about consumer behaviour and competitor set, giving you a clear picture to move forward.
2. Forecasting
The next step is Forecasting, which is important for understanding your expectations regarding realistic goals and targets. It also gives a good idea about setting up a clear strategy on how to reach those forecasted targets. Forecasting can be done by conducting various business analysis.
To get a good understanding of what is forecasting and learn more modeling and discover the best forecasting practices, read: What is Hotel Forecasting – Models and Best Practices.
It may include looking into the business aspects and comparing current results with last year’s growth or downfall, or against plan/budge, or by checking the customer lead time to understand booking patterns and behaviors. You could also compare everything against the competitor set with market share.
You can also look into upgrades vs upsells to see how the products are performing, and review price points, distribution channels and groups.
Understanding the business and its behaviour is key for good forecasting.
3. Pricing
Once you have a good understanding about competitors and forecasting, you can focus on the next important thing, which is pricing.
Setting up the correct seasonal rates (high season/low season based on market demand and competitor pricing), and supplements (person supplement, breakfast supplement, etc) based on the previous analysis will help you achieve your forecast targets.
When setting up the correct pricing, utilizing all the previous analysis conducted in step one and two is necessary to come up with the right pricing strategy that can be sustained in the market.
4. Inventory Control
Once the pricing has been set up, it’s beneficial to monitor the inventory, making sure the products on the shelf are supporting the strategy, and hence, are in line with the forecast.
Make sure the availability set and restriction (minimum length of stay, Closed to Arrival, Closed, lead time restriction, etc.) placed on these products are sound, and are supporting the desired outcome.
Here’s a complete guide on Inventory controls and how to use them at your hotel.
5. Performance Review
Once everything has been set up correctly, the last step is to continuously monitor and review the performance.
This can be done by reviewing the results against the forecast, budget, last year’s data or competitors. It will help pinpoint areas that need further improvement and highlight the necessary changes that are needed to be made in order to meet the right targets.
It will also show what worked in the strategy and what can be further utilized to have even better results.
The Revenue Management Cycle (RMC) is an Ongoing Process
The Revenue Management Cycle, as its name suggests, is an ongoing process.
It needs to be done over and over to fine tune the strategy, understand the market, customers and competitors in order to maximize revenue and growth.
It is crucial to follow all the five steps considering the ever changing market segments, customer behaviors, and trends.
Tools like PMS (Property Management System) and CM (Channel Manager) only assist lodging establishments in operating more simply, saving time, and being more efficient compared to not using them. However, that is not the root of growth or the challenges faced in the accommodation business. If you want to effectively manage OTA channels and create stable growth, you should have a clear understanding of how OTA platforms operate, such as their nature, operational models, and how they display, calculate displayed prices, and collect prices (after deducting commissions). Of course, larger hotels that want to approach it systematically will do it synchronously from the beginning, but smaller lodging establishments wanting to reduce operational costs should overlook it and focus on optimizing display and providing outstanding customer care.
Synthesized by: OTA Lyst
