What is Revenue Management?

  • 22/06/2021

Revenue management is mostly defined as “Selling the right room, to the right client, at the right time, for the right price, on the right distribution channel, with the best cost efficiency”.

It helps in predicting and understanding the consumer demand, and knowing when to sell the right room at a lower price if we do not expect a higher demand.

But what is really Revenue Management? Well, it is known as the use of analytics, which help to predict the behavior of customers, so that the price and the availability of a product can be optimized to generate the maximum amount of revenue possible.

Within the hospitality industry, the main purpose is to increase revenue while selling the same number of hotel rooms. In essence it is mainly about matching supply and demand. Successful revenue management basically involves the understanding of what the customer’s thoughts and perceptions of value are. This sometimes can mean refusing to sell a room today, because you are hoping to sell it for a higher price tomorrow. However, it might also mean recognizing when we are facing a lower demand and that we should sell at a discounted price. And if we manage to create an effective hotel revenue management, we can easily see if by chance we are paying too many staff members during slow time periods, or if we should hire more people during the busiest times of the year.

Revenue management is the most useful tool within the hotel industry that is available to managers because it allows them to generate more revenue from the guests. And it is defined by these 4 components as following:

  1. Customer segmentation
    This component is very important because through it we segment the customers according to their age, gender, trip’s purpose, spending habits or their interests.
  2. Demand forecasting
    Through Demand forecasting we analyze the information with regard to the past demand across all the consumer segments and by that we can predict whether the demand will increase or decrease. It is important because through demand revenue we set prices and create promotions through which more guests will engage.
  3. Yield management
    The component of Yield management is mainly focused on the price and the volume of sales. It defines what would be the perfect price to sell the product, through which we would maximize our profit.
  4. Dynamic pricing
    Dynamic pricing as an approach allows retailers to change the price of their product according to market demand. These dynamic pricing strategies allow hotels to keep up with the market and to maximize the rate of occupancy.

As we can see a Revenue Management would be useful in each industry, but it is essential to the hotel industry.