Revenue Management 101 – Part 2

By Ira Vouk, September 26, 2018

In the first part of our series, we walked through a high-level overview of what revenue management means for hospitality professionals and why it is so important. Now, let’s jump into the first of five actionable steps that you can get started on today to maximize profit. The steps are listed in the order of importance, beginning with the one that will have the most significant impact on your projected revenue potential. In your daily practice, I recommend that you start with this step and proceed to the next as you become more comfortable with the routine.

STEP 1: DYNAMIC PRICING
It’s time to get out of your comfort zone. Think about the next 365 days, and chart out your approximate demand. It’s important that you proactively think about what demand will because this reflects different levels of revenue potential. Seriously, just go for it, your predictions are probably more accurate than you might expect. Don’t fret if you aren’t sure, your predictions and ability to estimate demand will get better over time. The important part is that you must start somewhere.

The next part is more fun, take your anticipated demand and use it to adjust your daily rate. The basic concept behind Dynamic Pricing in Revenue Management is simple: a hotel room (or hostel bed) should be priced based on supply and demand (your equilibrium price). In general, room rates should be increased when demand exceeds supply (to capitalize on ADR) and lowered when demand is weak (to increase occupancy). Note that this exercise is not about maximizing occupancy. That’s because the ultimate goal of any Revenue Manager should not be increasing your occupancy, but rather maximizing your profits, the bottom line. If you’re losing more in your ADR by chasing occupancy growth – this means you’re leaving money on the table because this ultimately drives your profits down.

Believe it or not, some revenue managers update their pricing daily – even hourly. How much time you invest, should be based on the size of the opportunity. Regardless of your size, you should revisit your pricing decisions and occupancy estimates regularly (preferably daily). Demand constantly fluctuates, and so should your prices. You need to be flexible enough to be able to adapt to the ever-changing market conditions and react accordingly, by updating your prices on a regular basis.

A little bit of research and knowledge of upcoming events will help your estimates become even better and enable you to reach your revenue potential. It also doesn’t hurt to keep tabs on competitor pricing – this can help you better predict demand and give you an edge when deciding how you are adjusting your price.

There are tools available that can help you with making dynamic pricing choices. We might be a little biased, but If you are looking for an easy-to-use tool to help you with pricing, Cloudbeds’ Pricing Intelligence Engine (PIE), gathers and displays market data in real-time. With competitive intelligence and an all-in-one dashboard, PIE can streamline complicated pricing decisions. Learn more.

About Ira Vouk

Ira is Pricing Intelligence Product Manager for Cloudbeds. Ira is also the co-founder of iRates. She was selected as Top 5 Revenue Managers in the country in 2013 by HSMAI. With a background in sociology and marketing research, she has been able to apply her knowledge and experience to the hotel industry and develop many innovative ideas.

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