What is Revenue Management for Hotels?

Revenue management for hotels refers to the strategic process of optimizing a property's profitability by selling the right room to the right guest at the right time and for the right price. It involves using data analytics to forecast demand, adjust pricing, and manage inventory to maximize revenue.

This practice takes into account factors such as market demand, competitor pricing, booking trends, and seasonal fluctuations. By employing revenue management strategies, hotels can enhance occupancy rates and ensure that every room is sold at the most profitable rate possible, ultimately boosting the hotel’s financial performance.

What is a Hotel Revenue Management System?

A Hotel Revenue Management System (RMS) is a software solution that automates the revenue management process by analyzing data and providing actionable insights. Revenue management software helps hotels sell the right product to the right customer at the right price, solving for variables like price, channel, and timing to maximize profitability.

Hospitality revenue management systems like IDeaS factor in historical and market data with demand forecasts and predictive analytics to recommend rates for each customer segment and room type across each of the major distribution channels to tailor to each channel on which your hotel is selling.

New innovations like real time pricing and total revenue management are making hotel revenue management software smarter than ever. Hotels that switch to using a revenue management system experience an average increase in RevPAR increase between 7-20% – the result of optimized automatic price-setting per room type. Sophisticated revenue management tools like IDeaS G3 offer insightful data and time-saving productivity tools, allowing hoteliers to increase profit, forecast more accurately, and run more efficiently.

Benefits of a Hotel Revenue Management System (RMS)

A hotel revenue management system (RMS) offers a wide array of benefits that can dramatically improve a hotel's financial performance, operational efficiency, and guest satisfaction. Below are the key advantages of implementing a modern RMS.

1. Optimized Pricing and Revenue Growth

An RMS helps hotels set the right price for each room by analyzing real-time supply and demand data. It balances occupancy rates with the Average Daily Rate (ADR), ensuring dynamic pricing based on market conditions, booking channels, and customer segments. This leads to an increase in key metrics such as RevPAR (Revenue per Available Room), Net RevPAR (RevPAR after deducting costs), and the RevPAR Index (which compares your revenue against competitors in the market). Accurately pricing rooms boosts overall revenue and profitability.

2. Accurate Forecasting for Smarter Operations

Hotels that implement an RMS gain access to sophisticated forecasting tools that combine historical data with future market trends. These forecasts can predict demand for up to a year, helping hotels optimize occupancy rates and avoid overbooking. Additionally, accurate demand predictions allow hotels to make better decisions regarding operational, sales, and marketing strategies. For instance, during high-demand events like the Super Bowl, a hotel RMS can alert hotel staff to prepare their services, such as food and beverage offerings or shuttle services, for the influx of guests.

3. Streamlined Workflows and Time Savings

One of the major benefits of a hotel RMS is the automation of manual tasks such as data entry and report generation. This saves revenue managers from having to create and maintain spreadsheets, freeing up time for more strategic tasks. A robust hotel RMS like IDeaS G3 RMS can process millions of revenue-related decisions daily, allowing hotels to save between 20 to 40 hours per month. By reducing administrative burdens, hotel teams can focus on high-impact activities like market positioning and guest services.

4. Real-Time and Open Pricing Flexibility

Innovations such as real-time and open pricing give hotels the ability to respond to market conditions dynamically. Open pricing allows revenue managers to set different prices for room types, customer segments, and distribution channels independently. For example, when there’s a surge in demand for a specific room type, the system can increase the price of that room without affecting the pricing of other room types. This level of flexibility goes beyond traditional seasonal pricing, enabling hotels to make more targeted, data-driven pricing decisions.

5. Personalization and Automation of Guest Offers

The latest hotel RMS systems also enhance the guest experience by personalizing rates and packages based on each guest’s total value to the hotel. By leveraging machine learning and artificial intelligence, these systems continuously refine pricing strategies and forecasts. As a result, guests receive tailored offers that align with their preferences and spending patterns, driving higher levels of satisfaction and increasing the likelihood of repeat business. Personalized pricing also leads to higher overall revenue by offering rates that meet both guest needs and hotel profit targets.

6. Enhanced Flexibility with Cloud-Based Solutions

As hotel technology continues to evolve, more RMS solutions are adopting cloud-based architecture, allowing users to access the system from any device, anywhere in the world. This flexibility ensures that hotels always have the most current version of the software, complete with real-time updates and feature enhancements. Cloud-based systems also make it easier for hotels to integrate their RMS with other technology platforms, such as property management systems (PMS), which improves data sharing and operational efficiency.

7. Strategic Focus for Revenue Managers

By automating repetitive tasks and handling complex data analysis, a hotel RMS empowers revenue managers to focus on more strategic aspects of revenue optimization. Rather than spending time on manual data entry or pricing calculations, hotel revenue managers can use the RMS to develop long-term strategies and make high-level decisions that influence the hotel’s market positioning. The best revenue managers work closely with their hotel RMS provider to fully understand the system’s capabilities, ensuring they are getting the most out of the technology to maximize revenue potential.

Key Hotel RMS Integrations

Adding a revenue management system to your hotel tech stack basically leads to straight profit: there’s no additional cost to acquire or service the guest, and you’ve optimized your pricing in a way that improves occupancy and revenue. 

Get a revenue management system that integrates with the other core hotel industry software like: Property Management System, Central Reservations System, Channel Manager, CRM, and booking engine. A PMS that works with your hotel RMS provides historical information on hotel rooms, rates and revenue. As available rooms get blocked in your PMS, the RMS will increase rates to maximize bottom line NOI.

The hotel RMS can then analyze the data and return an accurate matrix of pricing recommendations for each market segment and room type providing real time business intelligence. Syncing your central reservation tool with your revenue management platform leads to fewer failed updates, lost reservations, or bad reports - ultimately laying the foundation for a strong pricing strategy.

And, your revenue management system can offer personalized rates by using data from your CRM to price based on loyalty or past purchase behavior.  Each bell and whistle should be easy to use and easy to understand so your revenue managers can focus on price optimization and decision making to boost your most important KPIs (key performance indicators).

What to Consider When Choosing a Revenue Management System for Your Hotel Property

Selecting the right Revenue Management System (RMS) for your hotel is a critical decision that can significantly impact your hotel's profitability and operational efficiency. Here are the key factors to consider when choosing a hotel RMS for your property:

• Automated recommendations: get price recommendations instantly reflected in your PMS. 

• Price sensitivity chart: this graph illustrates the current optimal room price in relation to change in revenue and occupancy rate to make sure your price points are accurate.

• Open pricing: price room types and channels independently of each other

• Pacing reports: know your pace, down to pacing at a room type level. 

• Data visualization and intelligent reporting: visualize your data in graphical form to spot trends and patterns in data. 

• Cloud technology: find a platform that runs on multi-tenant cloud architecture to integrate and share data more seamlessly, and allows developers to push updates to your software. 

• Group booking pricing module: get both the current optimal group pricing, but also a secondary price – the lowest price point you should accept before you’re better off selling inventory on the open market instead.

• Integration with Existing Systems: A fully integrated RMS allows for real-time data sharing across platforms, ensuring that room rates, availability, and booking data are updated automatically.

To see the benefits of an RMS tool, you must find a platform that allows your property to change rates and discounts based on demand. On high-demand days, your property should be able to lower a discount channel to 1% or even 0% without lowering your BAR rate.

Find a tool that automates much of the busy work by enabling you to set up rule based automations while still being flexible enough to let you override rate recommendations when you know something about the market the system doesn’t or suspect an error. An RMS that has a dedicated mobile app or mobile web version is best for making rate yield management changes on the go.

And, lastly, learn more about the data that shapes the revenue management tool’s rate pricing. All revenue management systems will pull in historical data, plus factor in pace and pickup. More advanced systems are able to react quickly to changes in market conditions with real-time pricing data: website activity, competitive rates, reputation scores, and air traffic can all factor into RMS rate changes. It’s up to the revenue manager to understand the supply and demand dynamics of each segment and room type independently so the tool can provide forecasting for these variables.