Your introduction to Hotel Revenue Management: Strategies, Salaries, and Best Practices

December 14, 2022 | Hailey Friedman

Hotel revenue management, or the process of analyzing, forecasting, and adjusting pricing, is one of the most critical processes within the hospitality industry. 

For successful hotel revenue management, revenue managers use dynamic pricing strategies, understand and track key revenue metrics, and implement management changes. 

This blog post will explore the foundations of hotel revenue management, important metrics and KPIs to track, strategies to know, and job opportunities in the revenue management market.

What is Hotel Revenue Management?

Hotel revenue management is the strategic pricing of rooms and ancillary services for increased profitability. It considers holidays, seasonality, market trends, events, and more to determine the right distribution and pricing of a property’s rooms, facilities, and amenities to the right demographic at the right time.

Why is hotel revenue management important?

Implementing hotel revenue management strategies can make a huge difference in profitability and revenue. 

Revenue management uses performance data, consumer behavior analysis, and market trends to inform pricing and distribution to maximize revenue. 

The concept originated in the airline industry. We all know booking a flight to Florida for a week from now will be much more expensive than a few months away. 

Since businesses know consumers will pay more for the same product under certain conditions, like time of year, availability, and more, there’s an opportunity to implement dynamic pricing strategies. 

Whether it’s lowering prices during the week or hiking them on holidays, prices are optimized to improve revenue without turning away your customers.

Revenue management is essential to profitability in short-term rental or hotel management businesses. It helps property managers:

  • Prepare mitigation strategies for low seasons (i.e. discounts and deals)

  • Boost revenue through upsells and dynamic pricing

  • Target the right customers

  • Maximize occupancy and attract customers

  • Address costs

To do this, today’s hotel or property revenue managers look at:

  • Historical trends and booking history

  • Guest spending habits and activities

  • Guest profiles and buyer personas

  • Competitor analysis

  • Guest feedback and satisfaction surveys

  • Neighborhood events and holiday activities

How has hotel revenue management changed?

While keeping tabs on hotel revenue management hasn’t always necessarily been simple, it’s become additionally complicated in the post-COVID landscape. It’s more challenging than ever to make accurate predictions about future revenue based on past results. 

Hotel management must also contend with reduced occupancy, greater competition, and more vacation travelers (versus corporate stays). Because of this, a shift to using dynamic pricing strategies and software is imperative to thrive in the highly competitive market.

Hotel Revenue Management Terminology, Metrics, & KPIs

KPIs and metrics are vital to outline, conduct, and track your revenue strategy.

Allotment

Allotment is setting a pre-negotiated number of rooms apart for partner businesses that help with the upselling of the rooms. This is done with a discount more often than not.

RevPAR

Revenue per available room (RevPAR) is the amount of revenue generated per available hotel room – both unoccupied and sold. It’s measured by selecting a specified period of time, usually less than a year.

Average Daily Rate

Average daily rate (ADR) is the average price paid for every occupied room (except those occupied by employees). It’s also measured across a specific time like a month or a year.

Total Revenue Per Available Room

The total revenue per available room (TrevPAR) measures the revenue obtained from not only the current room availability but also additional services like food, spa, parking, etc. This trans-departmental metric is usually measured on a monthly or yearly basis.

GOPPAR

Gross operating profit per available room (GOPPAR) is the revenue generated by every department of a hotel – restaurant, bar, etc. – apart from the rooms. It’s usually measured per month and year.

GOP

Gross operating profit (GOP) considers a hotel’s total revenue after subtracting its operating costs. It implies a more comprehensive view of hotel performance. Besides the rooms, It takes into account all sources of revenue and the overall operational costs across all departments. It is usually measured monthly or yearly.

ARPAR

ARPAR means adjusted revenue per available room and it’s just that: an adjustment. It’s calculated by taking the average daily rate (total revenue from rooms/number of rooms sold) and subtracting variable costs like toiletries, cleaning supplies, breakfast, and any other expense directly related to hosting your guests. 

Then, any additional revenue (from upsells or ancillary services) will be added. This total number is then multiplied by the occupancy rate.

Average Length of Stay

The average length of stay (ALOS) is the median of days that a guest stays over a certain period. More bookings at one time mean less profitability for the costs of amenities that need to be renewed after every vacancy. It is often calculated monthly.

Hotel Revenue Management Strategies to Know

hotel room

If you’re looking to increase your bookings and profitability, then it’s important to be aware of everything that can affect your revenue. These proven strategies can help you secure your corner of the hospitality industry, ensuring that you remain solvent year after year.

1. Customer Segmentation

Customer segmentation is the process of breaking down your guests into smaller subgroups based on demographics. For instance, you can break them down by age, income, career, or work – traditional worker or digital nomad – to help you target higher-paying guests to stay at your property.

2. Demand Forecasting

Demand forecasting is the use of historical data to predict how much a guest will want a particular item or service while staying at your property. It allows hotel managers to estimate potential revenue and sales for a specific time frame with greater accuracy, allowing you to create a more custom-tailored experience for customers.

3. Online Convenience

Today’s guests don’t want to be held back by antiquated methods of handling bookings via phone or in person. A modern hotel must take advantage of modern communications in an interconnected world. 

Offering an online portal for making reservations, cancellations, transportation arrangements, and payments is extremely convenient for both guests and managers. Hotel staff can spend time on more complex tasks and customers can quickly manage their reservations.

4. Yield Management

Yield management is a dynamic pricing strategy used to get the most profit out of each room sold. Since hotels have a finite number of rooms available, yield management strategies use historical data to predict demand and adjust prices accordingly. 

For example, if you’re trying to profit on Valentine’s Day bookings, then you’ll want to price this limited window of time at a higher rate in comparison to a different weeknight later in the month.

5. Inventory or Distribution Management

Optimal hotel distribution or inventory management works occur when revenue managers use a variety of channels to book rooms. 

Hotel or revenue managers can use a variety of methods to do this. Whether your hotel offers direct bookings online or you have availability for your rooms through third-party websites, accurate (and dynamic) can help you achieve full room occupancy and maximize GOPPAR. 

6. Dynamic Pricing Strategies

dynamic pricing

It’s safe to say that the goal of any hotel is to have your guests find the best room at the best price for the duration of their stay. Figuring out how to set the rate for the rooms each night, therefore, is of the utmost importance. 

Dynamic pricing is the practice of using the current market demands to inform your pricing. That means keeping prices flexible to change with competition and the market. 

Behind every dynamic pricing tool are machine learning mechanisms that assess market data and competitor behavior. The result of those insights? New prices are optimized to improve revenue without turning away your customers. 

The goal? Improve revenue and lower costs with popular dynamic pricing strategies like: 

  • Discounted pricing: Lower price for first-time clients, first units rented, or first chunk of time in the year. Also known as “penetration pricing,” sometimes used when a new business wants to “penetrate” the market.

  • Bundled pricing: Packaged deal for a product or service

  • Performance-based pricing: Pricing based on a product’s utility and market demand rather than the value

7. Data Analysis and Predictive Analytics

Data and predictive analytics are essential for accurate forecasting and profitability benchmarking across all industries, and this is especially true for hospitality. By analyzing historical numbers pertaining to cancellations, no-shows, and even your guests’ spending habits while at your property, you’ll be able to anticipate both occupancy and room rates with better precision. 

Revenue management software are tools that fully automate rental properties’ pricing.

These platforms collect real-time market data and then use AI and powerful algorithms to generate the optimal price for you to let your rooms and properties out for.

These tools are capable of collecting and analyzing billions of market data points beyond what any revenue manager could do on their own.

8. Direct Bookings

While the rise of third-party booking websites has certainly made it easier to sell rooms for the night, it doesn’t change the fact that they also take a sizable percentage of your profits in the process. 

Rather than letting them cut into your revenue, turn your focus toward increasing direct bookings. Not only will you earn more in the long run, but you’ll also be able to foster a healthy and ongoing relationship with these valued guests, too.

9. Ancillary Revenue

It would be an oversight to assume that all of your profits are generated only through bookings. Taking the time to promote ancillary add-ons to upsell your guests can help make sure you earn even more revenue from them while they stay at your property. 

Options like spa packages, pet care services, shuttle and travel to local destinations with secure transportation, and even mini bars can make a difference in your bottom line.

Hotel Revenue Management Software and Solutions

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1. Dynamic Pricing

Creating and implementing a dynamic pricing strategy requires the right dynamic pricing software. 

Dynamic pricing software tools analyze historical numbers, industry trends, and even competitor data to help hotels set prices more accurately. Dynamic pricing is now the norm across hotels, hostels, Airbnbs, and other properties. 

Wheelhouse is a pricing tool for every type of hotel or other property management. The software includes an adaptable pricing tool, market insights, competition data monitoring, and ultimate customization capabilities. With Wheelhouse’s highly adaptable pricing engine and detailed market reports, Wheelhouse can help you make faster and more informed decisions that can help boost revenue and efficiency. 

Simply enter details about your portfolio and watch the magic happen with easily adjustable pricing. Customers love the platform’s intuitive interface and endless customization capabilities, including far-future predictions and risk tolerance.

usewheelhouse dynamic pricing

2. Property Management Software

Property management software are programs, systems, apps, software, and other online tools that help property managers automate business tasks and better manage their rental properties.

There are many moving parts involved in managing a portfolio of rental properties.

Such as:

  • Setting up seamless checking in and checking out processes for guests.

  • Managing bookings and availability (across multiple platforms)

  • Scheduling property maintenance teams to clean and prep properties

  • Managing compliance, insurance, and other regulations

  • And most importantly, ensuring your guests have the best possible experience.

There are software and tools to help manage and automate each of these elements. Some even help you manage all of them from one central platform.

3. AI and Chatbots

The true power of artificial intelligence lies in its automation: the more manual processes that can be automated, the more efficient and productive a hotel management team can be.

For example, chatbots can answer simple questions about checking in, or room amenities, or hotel policies.

4. Mobile-Driven Booking

Hotel and other hospitality websites must be optimized for mobile experience. With many of their clients constantly on the go, it has to be simple to book and manage reservations right from a smartphone. This requires a complete, end-to-end service including choosing room specifications, payment, and check-in.

Hotel Revenue Management Jobs & Salaries

hotel lobby

3. Revenue Analysts

Revenue analysts are the base of hotel revenue management. Analysts review historical data to help grow the hotel’s revenue. Revenue analysts should have a finance background, an excellent grasp of working in spreadsheet programs and revenue management software, and interest in working within a team.

Revenue Manager

Revenue managers are decision-makers in rental management businesses (hotels, property management teams, and more) that:

  • Gather business intelligence

  • Visualize and communicate data

  • Persuade and advise on sales strategies

  • Analyze performance data

  • Stay up-to-date on industry trends

The main goal? To strategically manage and optimize revenue. 

Depending on a rental business’s size, revenue managers can be one-person shows or managers that lead entire revenue teams. They also handle communications with internal and external stakeholders to improve revenue strategies. 

Revenue managers aren’t just responsible for setting price points: they also work to optimize revenue in other areas of the business to result in greater profit.

Revenue Management Director

Handling a multi-hotel portfolio requires a different set of tools. Directors oversee sales and revenue to optimize efficiency and profits. The responsibilities for directors of revenue management at hotels vary depending on company size, but generally include planning budgets, developing strategies for growth, mentoring employees, and more.

Vice President of Revenue Management

The vice president of revenue management will be responsible for the development, deployment, and measurement of company-wide revenue management initiatives. Responsibilities include developing and communicating strategic initiatives, managing and reporting performance indicators, training and mentoring revenue analysts, managers, and directors, and escalating current hotel operations.

Chief Revenue Officers

Chief revenue officers create all-encompassing strategies to implement throughout a hospitality group and have experience delivering rapid growth. Due to the extensiveness of this position’s duties, it’s often divided by region, country, or even subcontinent.

Hotel Revenue Management Salaries

The salary of these roles varies depending on the position of each job, work experience, and hotel location. 

According to sites like Indeed, and Glassdoor, the salary scale breaks down as follows:

  • Revenue Analyst: The average salary is around $70,000.

  • Revenue Manager: The average salary is around $80,000. 

  • Director of Revenue Management: The average base salary for these positions is around $95,000, but can range above $200,000.  

  • Vice-president of Revenue Management: The average salary at this level is around $170,000 but can range to a high $200,000. 

  • Chief Revenue Officer: The average salary is around $180,000, but bonuses can make this reach over 100% more, and many CROs make more than $300,000 a year. 

Hotel Revenue Management Training & Education

In addition to interpersonal and leadership skills, a hotel revenue manager will need to be attuned to the administrative aspect of the handling of a business. Years of experience working in the hospitality industry can be enough to get hired – even without a specific degree. However, you may have to begin at a small-scale hotel, learn the ropes of the lodging industry, have a great performance, and later transition to a larger-scale hotel.

For those who lack work experience, getting a degree in finance, accounting, and hospitality is critical. 

In addition to degrees, hotel revenue managers might consider getting an advanced degree. 

Improve Your Hotel Revenue Management

As a hotelier, you already understand the value of creating a memorable and enjoyable experience for your guests. You offer the best in amenities, you strive to provide unmatched customer service, and you greet each guest with a smile and an inviting place to lay their heads down at night. 

However, success isn’t defined so much by getting every room booked out for the night. It also includes maximizing your profits while minimizing your overhead and expenses.

This is where having a solid hotel revenue management system in place shines. Using carefully collated data about all profit and loss benchmarking parameters, and applying it directly to your property, you can help ensure that you’re meeting your financial goals each quarter – and beyond.

With Wheelhouse, you can do just that, allowing you to enjoy the results of your hard work. Their software gives you the competitive edge you need to not only stay afloat but also be profitable year after year. To learn more about how Wheelhouse can help improve your bottom line, why not get started with them for free today?

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