What is Revenue Management?
Revenue Management (RM) is a methodology that applies statistical analysis to predict consumer behavior at the micro-market levels and optimizes product availability and price to maximize revenue growth. Whoever tells you that Revenue Management is: “Selling the right room, to the right client, at the right time, for the right price, through the right distribution channel, with the best cost efficiency” is describing you a basic/generic sales process and most commonly has no clue what Revenue Management is about.
The Three Approaches to Revenue Management
Philosophy is “The more nights sold, the better.”
Focusing on occupancy shifts emphasis to selling as many nights as possible.
Without restrictions, the volume of lower-ADR nights sold generally increases.
Revenue Per Available Room
Sell the number of nights at each ADR level to maximize revenue.
Sold nights volume may be less than under the Occupancy approach.
Average Daily Rate (ADR) may be less than under the Yield approach.
Emphasis on Average Daily Rate (ADR) rather than volume results in lower occupancy.
The yield approach primarily focuses on selling high-ADR nights.
Accomplish this goal by limiting the number of lower-ADR nights available for sale.
Hack #1 – Automate Your Business
⚙️ Why is Automation important?
How long does it take you to respond to a booking confirmation? Nowadays, most tasks can be automated, such as guest communication and messaging. Automation helps drive increased message reply rate, inquiry to booking conversion, and conversion rate. Automation enables you to keep the cost down and gives you time to focus on growing and optimizing your operation.
Hack #2 – Using Your Data to Optimize your Business
🗺 You can’t drive to a destination without knowing where you are and where you are headed.
In the same way, you can’t work without data since it is the decision-making foundation for Revenue Management. Overall, the short-term vacation rental sector stands on a massive pile of data. But that data is not all equally valuable nor reliable. Most of the data available for analytics is collected off the internet using robots and is not reliable. Luckily as a property owner/manager, you already have the most reliable data source you need, your reservations. If you need help accessing or using your data, get in touch with us at email@example.com, we are always here to help!
Hack #3 – Build a Forecast
💡 What is Forecasting?
A forecast is a prediction of a probability of a future event given specific inputs and circumstances. In the short-term and vacation rental industry, forecasting helps you understand how much revenue a property might generate. Complex forecasting models require 100’s unique inputs and 1,000’s of data points to create a prediction. All it takes is a little experience in spreadsheets plus the data you already own (your reservations data). You can build a good forecast! Without a forecast, you are driving with no clear direction. You won’t be able to react until it is too late.
Why is Forecasting important?
Simulations have shown that a 25% improvement in Forecasting, a target that is well within reach of many revenue managers, will result in an approximate increase in revenue of 1–2% (Weatherford and Belobaba, 2002).
Hack #4 – Implement Dynamic Pricing
🚀 What is Dynamic Pricing?
Dynamic pricing is a pricing strategy applied in which flexible rates are set and optimized based on current market conditions and demand. Many companies in the travel, tourism, and hospitality industries rely on dynamic pricing to maximize their revenue potential. Suppose you aren’t ready to use a system yet. Still, scheduling time weekly to review performance and update pricing manually is worth the effort.
🤓 Role of the Revenue Analyst
No software is perfect. Even airlines, after 40+ years of RM dedication, haven’t figured out the ideal RM software. You will always need a dedicated revenue management professional to optimize the forecast output. Humans have intuition and bring unique market perspectives often in real-time, enabling you to catch revenue opportunities quicker. Any property has 365 unique price points per year. It is the revenue manager’s responsibility to detect opportunities to drive incremental revenue.
Hack #5 – Channel Distribution
☝️ Too dependent on a sole revenue source is not healthy for your business.
What if your listings get penalized and turned off, or get deprioritized from search ranking? Then suddenly, your revenue evaporates…
The more eyes looking, the more impression counts. Distribution helps RM by increasing the impression count on the property. Each distribution channel has its user profile (young professionals, families, seniors). Channel Distribution helps you cast a wider guest pool, which is an excellent lever to increase occupancy. The broad distribution also helps brand awareness, which typically leads to higher conversion rates. With an expanded channel distribution, occupancy will increase, making it possible to price segment your properties further, thus increasing RevPAR.
Hack #6 – Get the Best Reviews
👾 Hack your way through the review
People often consider reviews to be low-hanging fruit in the hospitality industry. Although things will happen throughout your journey in this industry, there is a driver of best practices that foster good customer reviews, such as exemplary customer service. The fact of the matter is that such practices lead us to generate goodwill with customers to such a degree that you should follow up with a quick quality survey or requesting them to review your property. Nowadays, reviews are the validation of product quality, and it’s the best way to increase the chances of a new customer choosing your property for their next vacation stay.