From groceries to gas, we continue to see prices rise. As everyday expenses increase, so do hotel operating costs. As of October 2023, CoStar data shows that average hotel operating expenses per available room increased 9.4% year over year. With the trend expected to continue, many hotels have found it challenging to increase hotel revenue or keep up with ballooning prices.
If we said you could manage rising costs and increase hotel revenue at the same time, would you believe it? Although it may sound too good to be true, revenue growth is still attainable—even in the most challenging markets—for hotels with the right action plans.
Increase hotel revenue with strategies that work—even as expenses grow
Don’t let creeping costs get you down. In this post, you’ll unlock various strategies, systems, and sources your property can use to increase hotel revenue in 2024 and beyond. From shifting your focus to implementing innovative technology, here are 10 things your hotel can do to drive profits this year.
Manage rising costs
Rising energy, insurance, and labor expenses—amidst continuing inflation—have put many hotels in a revenue bind. To cut costs, some properties have cut or reduced services, eliminated activities, or attempted to minimize their consumption drastically. Other hotels have tried to offset increased expenses by passing the cost onto consumers.
Rising costs are also a significant concern for planners, travel agents, corporations, and tourists. While 77% of procurement managers expect their negotiated hotel rates to increase about 10% year over year (2023 to 2024), 48% of planners responding to Cvent’s Annual Planner Sourcing Survey said rising costs would play a major role in their event planning priorities this year.
Instead of limiting amenities or hiking rates, consider implementing a cost management control system to address rising prices. Cost management systems monitor hotel expenses, tracking and analyzing costs in each department. They can pinpoint increasing costs, identify patterns, and help revenue teams determine when intervention is needed. Using integrated software, hotels can implement immediate changes in their cost management strategy and make better, data-backed decisions. This not only helps in managing rising costs but also opens up avenues for increased revenue.
Implement dynamic pricing
The economy fluctuates frequently, and travel trends constantly evolve. Although predicting demand isn’t always easy, dynamic pricing helps hotels remain profitable and competitive in ever-changing market conditions.
Unlike a fixed (or static) pricing structure, which sells rooms at pre-determined rates, a dynamic pricing structure is based on real-time data, like travel demand. Hotels with fixed pricing keep rates the same for a while; they do not frequently adjust prices based on shifting demand or similar fluctuations. Conversely, dynamic pricing promotes raising room rates during high-demand periods and dropping prices when demand is low, sometimes changing rates numerous times over a brief period.
Hotels that employ dynamic pricing allow smart revenue and inventory systems to update room rates to optimize revenue. The software analyzes valuable market data points, such as minute-to-minute demand updates and occupancy levels. Using real-time information and data insights, hotels can sell the right room to the right customer at the right rate—at the right time.
Practice yield management
Yield management is part of a successful dynamic pricing strategy. It involves determining how much hotel inventory is allotted to various booking channels. For example, if your hotel has 100 rooms, you may allocate 25% of those rooms to be sold on third-party sites during mid-to-high demand periods. This would limit the number of rooms sold at steep discounts or with attached commission fees, increasing the property’s likelihood of selling the remaining inventory at higher, more optimal rates.
Optimize hotel distribution channels to increase profit margins, even as the hospitality industry faces rising costs. Assess various data points to establish how well each channel performs.
- How much does selling a room on each channel cost your hotel?
- What price are customers willing to pay on each channel?
- When is the prime booking window for each channel?
Consider investing in yield management software, which uses historical data and real-time trend analysis to predict demand and determine optimal inventory allocation. Revenue managers also use yield management software to identify which booking channels generate more business, which poor performers to cut, and which channels to try.
Open new lines of communication
Diversify hotel communication channels to appeal to consumers with various communication needs. By incorporating innovative technology, like AI-driven chatbots and hotel text messaging services, hotels can reach guests where they feel most comfortable, improving the booking experience and driving customer conversions.
Drive direct bookings
Although they increase hotel visibility by pushing affordable room rates to a broad audience, indirect booking channels and third-party services come at a cost. Online travel agencies (OTAs), tour operators, travel wholesalers, and global distribution systems (GDSs) charge a fee for their services. By making reservations on behalf of a hotel, they can help the property fill rooms, boost occupancy, and drive rate. However, fees are attached to each indirect booking generated—fees that can add up quickly.
The most successful hotels have a healthy booking mix from direct and indirect channels. Direct channels lead consumers to make a reservation with the hotel directly. They include:
- Hotel websites
- Brand.com sites
- Reservation lines
- Chatbot booking agents
- Hotel mobile apps
Any direct channel or link that drives travelers to the hotel’s booking engine avoids accumulating fee or commission expenses during the booking process. Drive direct bookings by streamlining the reservation process and making booking easier for individuals, groups, and event planners. If you don’t already have one, create a customer loyalty program that offers extra bonuses and discounts for direct bookings.
Optimize conversion points
Conversion rate is a valuable metric used to assess how well a business website achieves one of its primary goals: converting visitors into customers. For hotels, “conversion rate” typically refers to the relationship (i.e., ratio) between the number of website sessions customers complete and the total resulting reservations. For example, if 100 people visit your website, but only one completes a reservation, the conversion rate would be 1%. According to Hotel Benchmark analysis, the average conversion rate for two and three-star hotels is 2.35%.
Hotels utilize various conversion points to drive bookings, including their website, review pages, and even social media platforms. Focus on increasing the number of conversion points you own that are designed to drive direct bookings. The more direct-driving conversion points you operate, the fewer fees you pay to indirect channels.
Strengthening your hotel’s online presence can optimize each conversion point, helping it drive a broader audience to book. To better manage your online reputation, read and respond to customer reviews, update photographs, incorporate engaging online tools (e.g., live polling), and embrace virtual tourism (e.g., virtual hotel tours). We also recommend adding captivating visuals and engaging content at early conversion points to capture consumer attention and hold it throughout the booking process.
Sell more unique, authentic experiences
Consumers’ growing desire for authentic, meaningful travel experiences tops our list of the most important trends impacting hotels in 2024. Because costs are higher, consumers want to spend their money on travel that matters. They seek unique, memorable experiences and opportunities to connect with the local culture and environment. However, this trend doesn’t impact solo travelers alone; groups, event planners, and organizations seek the same.
Drive revenue by catering to travelers and travel planners seeking more authentic, meaningful hotel stays. Identify your unique selling points—the traits that make your hotel or destination stand out—such as:
- One-of-a-kind amenities
- Eco-friendly hotel features
- Top-quality guestrooms
- A unique ownership or brand backstory
- Stunning landmarks or rich biodiversity
- Unbeatable recreation opportunities
- Authentic cultural experiences
- Noteworthy local history
Share content highlighting the features and characteristics that set your property apart from the competition. Collaborate with local travel-based businesses to increase cross-promotional opportunities throughout the area. Partner with destination marketing organizations (DMOs), tourism directors, and other travel marketers in your area to create wide-reaching campaigns that incentivize business and leisure visits.
Speed up the booking process
Cvent offers a robust suite of tools that streamline the booking process for everyone: hotel teams, event planners, and group decision-makers. Drive hotel revenue by speeding up the sourcing process with—
Automated RFP responses
Hotels can become more operationally efficient by streamlining and automating time-consuming tasks, like responding to proposal requests. With Cvent's Response Automation, you can quickly view ranked leads, automatically turn down ill-fitting groups, and submit responses quickly using attractive pre-populating proposal templates—reaching planners before the comp set does.
Instant-book simple meetings
Make it easy for planners to book simple meetings and events quickly, even same-day. With Cvent’s Instant Book software, your hotel can capture revenue for simple meetings without the hassle of negotiating an RFP. Upload A/V equipment options, food and beverage packages, and other event add-ons for planners to view.
Rooming list management tools
Cvent Passkey is an integrated and easy-to-use room block management software that puts planners in control of rooming lists. It eliminates time-consuming manual entry and the constant back and forth. Passkey gives planners the power to make changes as needed, empowering your sales team with more time to focus their attention where it matters most: finding new business.
Increase spending with creative upselling
Although primary products or principal offerings (e.g., lodging and boarding) make up the bulk of hotel revenue, they should not be the sole focus of a robust, well-rounded revenue strategy. Ancillary revenue, which accounts for all the revenue a property captures outside its principal offerings, has more power to drive profit than many hoteliers consider. Generating more ancillary revenue helps increase and maintain steady revenue growth.
Assess your in-hotel ancillary offerings to determine which services target audiences might find the most appealing, such as:
- Shuttle service or airport shuttle
- Complimentary or valet parking
- Spa services
- Guided destination tours
- Concierge services
- Dining (e.g., on-the-go, free buffet, or fine dining)
Incorporate upselling techniques in the booking process, but don’t overdo it and drive consumers away. Instead, make the most out of onsite interactions, as selling services to guests is more achievable once they're already at your hotel.
Offering early check-in and late checkout can increase overall revenue and average spend per customer by creating more opportunities to upsell. Granting early check-ins may expand the time the front desk can spend with each arrival, giving them more time to promote ancillary services. Additionally, many guests are willing to pay for the convenience of a late checkout.
Implement stay restrictions
By restricting reservation criteria, properties can maximize revenue, daily rate, and hotel RevPAR—three of the most important metrics used to monitor revenue management success. Common hotel stay restrictions, like a minimum length of stay (MinLOS), dictate how many nights guests must book based on the desired arrival date. Other helpful restrictions include—
- Maximum length of stay (MaxLOS): MaxLOS establishes the maximum number of consecutive nights guests can book. It helps prevent fraudulent bookings and other issues, such as low-rate bookings that extend over high-demand dates.
- Closed to arrival (CTA): Guests cannot arrive on dates that are restricted as CTA. However, their stays may extend through CTA dates.
- Minimum price: A minimum price restriction sets the lowest rate at which rooms can be sold, ensuring no bookings are made below the hotel’s pre-determined price.
Strategically restricting guest stays helps guarantee steady profit and occupancy levels instead of spiking performance rates. Consider instituting restrictions during high-demand periods, such as special events like tournaments or concerts. For example, if a major event is scheduled for Saturday, requiring guests to book Friday and Saturday nights will maximize occupancy and revenue potential for the entire weekend. Extensive cancellation policies and steep deposit requirements can also help protect revenue during blackout dates and peak travel times.
Don’t let rising costs stop you from increasing hotel revenue
Now that you know how shifting industry trends could affect your market this year, you can identify revenue management strategies that will work for your property. Look for opportunities to increase hotel revenue without negatively impacting the guest or employee experience.
Want more timely tidbits? We’re covering 14 essential tips hoteliers need to know to boost sales in 2024 and beyond.
Kim Campbell
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