ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Revenue Management in an Hotel

Updated on June 12, 2015

Ever wondered why the Hotels can sell their rooms at many different prices? The answer is simple, it is their revenue management department trying to increase the total revenue by managing the prices per room.

The way revenue management is done worldwide can be very different, each Hotel (or Hotel group) has its own system to manage the rooms and pricing. In this Hub I will write some of the methods that the Hotels use to increase their revenues.

Revenue management is about room price, room occupancy and amenities prices. The main Hotels have specialized revenue management professionals in order to have better results, they have to predict the future and guarantee the most costumers at the best price, a decision that will influence the hotel destiny.

One of the main goals for the Hotel's owners is Profit. To achieve the maximization of Profit, the Hotel Manager will want to maximize revenues and to have the lowest costs possible. However, these "secondary goals" have to guarantee that the quality of the service and the future of the Hotel is not compromised.

Higher or Lower?

One of the main questions for a Revenue Manager is if it is possible to sell a higher fare.

That simple question is an analysis to know if there are enough clients available to pay more, or if the price already available is high enough to guarantee the highest revenue on the end of the day.

You can see more similar information about this problem on the "Laffer Curve" hub. Like the Gov. Revenues the Hotel revenues have also an optimal point, that is very difficult to reach and can change everyday.

Have in mind, resorts have a different management than hotels.

Source

Different Prices - Same Product

Sometimes you may find different prices for the exact same night at the same Hotel in different places. This is a way to differentiate costumers and because of the previous agreements.

Example: If the Hotel is selling a night for $100, and the others for $90, it is probably because the Hotel benefits not selling directly so it does not require a big "Reservations Department".

Hotels usually have the lowest prices online instead the reception prices, since the clients that buy online can easily do a price comparison.

Selling Methods

There are several ways for an Hotel to have the rooms booked. The rooms (Hotel's product) can be sold by three main ways, directly, agencies or online.

Directly - The rooms can be sold at the reception, by phone or in the Hotel's website.

Agencies - These method requires an intermediate that sells the Hotel's product but also can do advertising for the Hotel.

Online - The online method is using websites like Booking and Hotels, these websites work like agencies but they normally just inform the website viewers of the available Hotels. They don't advertise Hotels like agencies, and they normally just sell "nights", not like agencies that sell "packages" that include night and flights.

Depending on the agreement that the Hotel has with the "Seller", the Hotel receives 100% of the value if they sell directly. If it is an agency selling, the Hotel will receive the price paid by the client minus the commission.

Older/Antique Hotels

Brussels - Hotel / Hôtel van Eetvelde
Brussels - Hotel / Hôtel van Eetvelde

New vs Old Hotels

The main touristic cities have many different Hotels, one of them is the "age" of the Hotel and its interior. However it is not the "age" of an Hotel what determines the level of pricing, it is how it looks.

"Old" hotels are not always the cheapest, when they reach the status of "antique" the revenue manager can increase its price, so the clients pay an extra value for a unique experience.

"New" hotels have the advantage of having everything new and look shining in the pictures, but to attract costumers they will have to rely only on new costumers and lowering the pricing may be a way to attract the clients.

In conclusion, when doing revenue management and years go by, the prices may vary in many different ways, there is not a tendency for the price evolution.

Hotels "on" the road

The Grange Hotel, Keynsham An Hotel on the side of the road is not expected to have many extra services.
The Grange Hotel, Keynsham An Hotel on the side of the road is not expected to have many extra services.

Different Services - Different Prices

Sometimes to increase revenues, costs have also to be increased. That happens when the Hotel offers service like "Mini-bar", gym, swimming pool and many others.

Hotels that are next to Highways or on national roads normally do not offer such services since their clients are just looking for a night sleeping in a bed. Also there is not much you can do to attract more clients and the competition is not much or none, since there are not enough clients.

If you see Hotels in cities like Paris and London there are Hotels that offer every service possible in order to attract clients, and more important to revenue management, there is no decrease in the price to attract those clients. In order to fight competition the Hotel manager guarantees the revenue at a cost of an increase in costs, and if possible it can increase revenues by increasing price or charging for the extra-service.

Detailed Explanation of Overbooking

Booking Limits

An Hotel has booking limits since they can not book more rooms than they have, if they have 100 rooms, the basis rule states they will sell 100 rooms per night.

However, to increase revenue and best management of the Hotel, the booking limit can vary. Assuming that the 100 rooms are available all year, there are physical factors and economic factors that affect the booking limit. For example:

Reasons for an increase in the Booking Limit

  • No-Shows.
  • Last-Minute Cancellations or Modification

Reasons for a decrease in the Booking Limit

  • Room not ready(lack of cleaning, electricity...)
  • Room does not meet standards that the Hotel guarantees (Hair dryer blew)

These factors may vary the booking limit by more than 5%, but the over bookings are normally made only if the Hotel can offer a plan B for its clients, because an unsatisfied client is a risk for future clients, specially now with websites like Facebook and TripAdvisor.

Seasonility

Seasonality is one of the main factors for the different prices in an Hotel. The best example are beach destinations that if you look at the price in July and January the prices will be very different and in the high season can be more than the double of the price during the low season.

This is related with the basic economics, when demand is high, the prices rise, if the demand lowers, the price also lowers. If you look at Hotel prices during July and August, these are normally much higher than February or November.

There are also other seasons that can increase prices in the different countries, one of the most important is Christmas.

Landscape

Surroundings

The Landscape around the Hotel can be a way to adapt the price.

Other value adding places around an Hotel are Golf camps, beaches and many others. The clients tend to prefer staying in an Hotel near what they want, even if they have to pay more.

For example if the Hotel spends money taking care of the gardens around it, then the price will reflect and will be slightly higher. That way the hotel revenue manager will try to charge the customers for the added value of having gardens surrounding the Hotel.

Revenue Management Software

Revenue Management Software

There are several companies investing in software for Revenue Management in Hotels.

The software will help to manage and helps you to make the right decisions.

Understanding Hotel Systems

Comments

    0 of 8192 characters used
    Post Comment
    • James McCullough profile image

      James McCullough 

      9 years ago from Kelowna, British Columbia

      This is a great introduction to revenue management for people who aren't involved in the hotel industry.

    • saitam profile imageAUTHOR

      MPanta 

      9 years ago from Lisbon

      Thank you for your comment. Places where seasonal tourism is important can even have big fluctuations in unemployment or salaries.

    • YogaKat profile image

      YogaKat 

      9 years ago from Oahu Hawaii

      Thanks for this well written, easy to understand hub. I live in Hawaii and tourism is our biggest income sector. I have seen a major fluctuation up in room rates and assume our local economy is growing stronger.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://corp.maven.io/privacy-policy

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
    ClickscoThis is a data management platform studying reader behavior (Privacy Policy)