Hotel Revenue Management: Strategies to Increase Profitability

Imagine yourself walking through the lobby of your hotel, the hum of activity around you—guests chatting in the lounge, the soft clink of glasses at the bar, and the distant chatter of the restaurant. Everything looks and feels perfect. But, as a hotel manager you know that, behind the scenes, there’s a world of numbers, strategies, and decision-making that keeps this place peaceful and profitable.

Here’s a wake-up call for you. Last year, 387 hotels in the US closed down for good. That’s way less than during the pandemic, when closures were double that. Still, it’s a stark reminder of the fragility of the hospitality industry. So, what sets successful hotels apart from those that struggle? It’s often a finely-tuned revenue management strategy.

In this blog, we’ll break down what revenue management is all about. We’ll cover how to fill more rooms, set better prices, and make the most of technology. Whether you’re experienced or just starting out, we’ve got practical tips to help your hotel not just stay afloat, but flourish! Let’s get into it.

What is hotel revenue management?

Hotel revenue management is all about figuring out the best way to price and sell your rooms to make the most money. It’s like finding the sweet spot for when and how much to charge so you get the most out of every booking. It’s not just about rooms, though—it's also about making the most of things like hotel amenities and food.

The idea is to understand what different guests are willing to pay and how the supply and demand for rooms change. This means keeping a close eye on how many rooms you have and how much people are willing to spend. You use this historical data to predict what guests will do.

With this data, you can make smart choices about which rooms to promote, when to offer them, and how much to charge. Basically, it helps you match the right room with the right guest at the right time through the best booking channels.

Now more than ever, hotel revenue management is key to running a successful hospitality business. But with all the data and tools we have, there are tons of ways to boost your profits.

The best hoteliers are always learning and tweaking their strategies to stay ahead. Surprisingly, many independent hotels don’t use revenue management strategies and miss out on extra cash.

Indicators in a revenue management strategy

When it comes to managing hotel revenue, there are a few key numbers you're going to need to keep an eye on:

• Occupancy and average daily rate (ADR): Occupancy is all about how many of your rooms are filled. For example, if half of your rooms have guests in them, you'll have a 50% occupancy. ADR, on the other hand, tells you the average price guests are paying for a room. Together, they give you a snapshot of how well you’re doing with bookings and pricing.
• Revenue per available room (RevPAR): This number shows how much money you’re making for each room you have, whether it’s booked or not.
• Total revenue per available room (TRevPAR): TRevPAR goes a step further. It includes not just room revenue but also money from things like food and drinks. It shows you how much you’re making from each room, all in.
• Gross operating profit per available room (GOPPAR): This one’s about profit. It tells you how much money you’re making per room after covering operating costs. It’s a good way to see how profitable each room really is.

Keeping track of these numbers helps you see what’s working and where you can improve to boost your hotel’s revenue.

5 strategies to help revenue managers increase hotel bookings 

Check out these hotel revenue management techniques you can use to help increase hotel bookings. From dynamic pricing strategies to upselling services, we have them all.

Segment your hotel’s target market

To fill more rooms, you’ve got to know who’s checking in and what they’re after. Think of it like matchmaking—finding the perfect guest for your room. You might have business travelers who live for Wi-Fi and quiet, families looking for fun, or couples who want a cozy romantic retreat (yes, they want that fluffy robe and champagne).

Once you figure out these groups, you can tailor your offers to each one. For business travelers, promote those sweet office amenities. For families, show off your pool and kid-friendly activities. And for couples? Highlight those romantic getaways or your serene, adults-only suites.

Also, craft special promotions for each crowd. Maybe a discount for corporate bookings or a family fun package with local attractions. The better you know your guests, the easier it is to make them feel like you’ve got exactly what they’re looking for.

Establish a strong distribution channel strategy

Where you sell your rooms is as important as how you sell them. Think of your distribution channels like the different routes to your hotel. You've got your own website (where you’re the boss and save on fees), OTAs like Booking.com or Expedia (which help you reach a ton of potential guests), and travel agents (who can find you clients who prefer a personal touch).

Here’s a stat that might make you rethink your strategy: 80% percent of global travelers say it’s crucial to book their trips entirely online. And get this—86% of millennials and 83% of Gen Zers are leading the charge in this preference. That’s a huge chunk of your potential guests!

Start with your website. Make sure it’s easy to use and shows off all the best parts of your hotel. Direct bookings from your site are awesome because they save you money on commission fees. Then, list your hotel on OTAs. They’re great for getting in front of a wider audience. Just make sure your listings are up-to-date with great photos and accurate info. Choose OTAs that fit your hotel’s style and audience.

And don’t forget travel agents. They’re still a thing and can help you reach guests who like booking through a person. A good mix of these channels means more eyes on your rooms and more bookings in your pocket.

Add upselling to your hotel services 

This is a really successful revenue management strategy that's all about offering guests a little extra cherry on top of their stay. It’s an easy way to boost your revenue without needing to fill more rooms (because who doesn’t love a good upgrade?).

Train your staff to suggest extras during the booking process or check-in. Maybe offer an upgrade to a swankier room at a special rate, or pitch them on anything from breakfast to parking, to a relaxing spa treatment.

You can also promote these extras on your website. Put together package deals that include meals or activities. Think romantic dinner packages or family fun bundles.

The trick is to make these offers feel like a bonus, not a hard sell. If guests see the extra options as adding value to their stay, they’re more likely to go for it. Upselling can boost your revenue and make your guests’ experiences even better.

Cross-match forecasted demand with room types 

Matching the right rooms with what guests want can make a huge difference. It’s like playing chess—predicting moves and adjusting your strategy (but without the pressure of a checkmate).

Look at past booking market trends and upcoming events to figure out what types of rooms will be in high demand. If you know suites are popular during certain times, make sure they’re available and priced right. If certain rooms are in hot demand, you might want to adjust rates accordingly.

Be ready to switch things up if needed. If your forecasts aren’t matching up with actual bookings, offer promotions or adjust prices to fill those empty rooms.

Using data to predict what guests want and adjusting your room offerings helps you stay ahead of the game. It’s about staying flexible and tuned in to guest preferences to make the most out of every booking opportunity.

Choose a suitable pricing strategy

Setting the right price is like finding the sweet spot on a seesaw. Get it right, and you balance bookings and revenue like a pro.

One popular approach is dynamic pricing. This means adjusting your room rates based on demand, seasons, or special events. You'd use demand forecasting to do this. For example, if you see from historical data that demand for your rooms goes up during the holidays, crank up the prices. Then, you can lower them when things are slow to attract more guests.

Another option is value-based pricing. This means setting prices based on what your room or service is worth. If you’ve got a room with a killer view or extra perks, you can charge more for that. After all, a lot of people will fork out more for that stunning sea-view villa you offer in Malibu, or that luxury city penthouse you've got in NYC.

Also, think about promotional pricing. Offer discounts or special deals during off-peak times to fill rooms that might otherwise stay empty.

Pick a pricing strategy that suits your hotel’s needs and market conditions. Adjusting your rates smartly helps you stay competitive and fill more rooms.

7 Tips to enhance a revenue management strategy

Stay up to date with your competitors 

Ever wonder how your competitors are doing? (Hint: It’s worth knowing!) Keeping tabs on what other hotels are up to can give you a huge edge. Check their prices (so you can do some awesome competitor pricing), promotions, and guest reviews.

Are they offering any special packages or cool perks? If they’re doing something that’s getting a lot of attention, consider if you can do something similar or even better. Don't just copy them, though. Be unique! For example, if you notice that all your competitors are offering discounted spa services, you could do something similar like offer a buy-one-get-one-free offer on massages or facials.

By regularly checking on your competition helps you stay competitive and make smarter decisions about your own hotel.

Implement the latest tech to your hotel operations

Imagine running your hotel with tools from the '90s. Everythings slow and clunky. It takes forever to check in guests and you make tons of manual mistakes. Not great, right? The latest tech can transform your operations.

Here’s a cool stat for you. 21% of hoteliers say the top tech goal right now is transforming business processes and operating models. After that, 19% are focused on driving revenue, and 18% each are aiming for better customer experiences and improving efficiency. Only 11% are looking at cutting operational costs, but hey, every bit helps! Embracing new technology helps you manage your hotel better and stay ahead of the curve.

So, invest in tools like a hotel revenue management system, hotel POS systems, customer relationship management (CRM) systems, and hotel revenue management software. These tools can help you track bookings, adjust prices, and analyze data more effectively. And let’s be honest, who doesn’t love a bit of tech magic to simplify things? 

Analyze effectively booking trends 

Let’s get into booking trends. Think of it as your hotel’s way of predicting what guests are up to. (Forget fortune tellers—data is where it’s at!) By looking at these trends, you can figure out what’s working and what needs tweaking.

Start with when people book. Do guests usually book weeks ahead, or are they more last-minute planners? Knowing this helps you set up your pricing and booking rules. If last-minute bookings are common, consider running specials to encourage earlier reservations.

Next, check out how long guests stay. Are they just popping in for a weekend or sticking around for a week? This info is gold for setting minimum stay rules and creating packages. For example, if long stays are popular, offer discounts for extended bookings.

Look at preferred room types too. Are guests mostly going for suites, or are standard rooms the hit? This helps you manage room availability and set prices. If suites are the favorite, you might want to adjust their rates during busy times or push deals for standard rooms.

Booking lead times matter, too. If most people book far in advance, try offering early bird specials. If last-minute deals are more common, adjust your pricing to fill those rooms fast.

Also, look at who’s booking. Are families, couples, or solo travelers making the most reservations? This lets you tailor your offers and promotions. If families are booking more, highlight your kid-friendly amenities and packages. If honeymooners frequent your hotel, offer the lovebirds some couple-friendly amenities like spa services or free bubbles.

Optimize inventory management for your distribution channels 

Think of your rooms as a hot commodity (Because they are!). Keeping track of them across different booking channels can make or break your business. If a room is snapped up on one site, it’s super important that it’s marked as unavailable on all others immediately.

Managing inventory across multiple platforms can get complicated fast. But with the right tools, you can make it much simpler. How, you ask? By investing in Hotel Property Management Systems (PMS) and Point of Sale (POS) systems. These are like your hotel’s control center for all things booking and inventory.

Here’s the deal: A good PMS integrates with your POS solution and booking channels. This means when a guest books a room, your PMS updates the availability on all your distribution channels in real-time. This prevents double bookings and ensures you don’t miss out on potential guests because a room was still showing as available somewhere it wasn’t.

Boost yield management for the overall gross operating profit 

Think of yield management as your hotel revenue growth hack. (It’s like having the secret key to maximizing profits!) Adjust your room rates based on demand and booking trends.

Raise prices when things are busy and drop them when you need a boost. (It’s pricing for the win!) This approach helps you make the most out of every booking and maximize your overall profit.

Create special packages for different hotel guests

Want to make your hotel stand out? Special packages are your ticket! Create unique deals that cater to different types of guests.

For couples, offer romantic getaway packages. For families, create fun bundles with local attractions. (Think of it as giving your guests a little extra love!) Special packages add extra appeal and can boost bookings by offering something your competition might not.

Market your hotel efficiently to maximize room occupancy

Want to fill your rooms? It’s all about getting your hotel noticed and looking great online. One key factor in attracting guests is your online reputation.

81% of travelers always or often read reviews before booking their accommodations. That’s a big deal compared to 72% who check reviews before booking restaurants or tour tickets. (Yep, your hotel’s reviews matter more than you might think!)

So, make sure you’re encouraging happy guests to leave glowing reviews. Keep an eye on what people are saying and make sure you respond to feedback—both good and bad. Positive reviews can be a game-changer, making your hotel stand out and helping you book more rooms.

You can also use social media, email campaigns, and online ads to shout about your hotel business from the rooftops.

Show off what makes your hotel special—stunning views, top-notch amenities, or exclusive deals. A well-placed photo can be worth a thousand words! So, be sure to include a ton of images.