Running a hotel is no easy task. High costs, seasonal demand, regulatory compliance, and changing economic factors all play a part in hotel profitability. With so many variables to consider, most hotels need someone to make sure the business is making as much money as possible. That job falls to a revenue manager.
A hotel revenue manager is responsible for maximising profitability and securing long-term financial success. In this post, we’ll explore the duties and responsibilities of a revenue manager and why they’re so essential.
What is a hotel revenue manager?
A hotel revenue manager is the person responsible for figuring out the best ways to make a hotel profitable. They use strategic revenue management strategies to make informed decisions about pricing, inventory allocation, and distribution channel management.
Put simply: a revenue manager’s primary obentjective is to ensure rooms are sold at the right price to the right customers, at the right time. They do this by conducting competitor analysis, collaborating with various departments, and continuously refining revenue strategies.
But it’s not just about selling rooms. Revenue managers must also think about distribution strategy and finding value wherever possible. That could mean, for example, finding new ways to upsell and earn auxiliary revenue.
The importance of a hotel revenue manager
Hotel rooms are perishable inventory. Each day, a hotel has a number of available rooms to sell. If these rooms aren’t sold by the end of that night, the revenue opportunity associated with those rooms is lost. This is why revenue managers are important. Their job is to sell those rooms for the right price depending on high and low seasons.
Getting this right requires revenue managers to think ahead. They must anticipate trends that could influence demand. Things like local events, seasonality, and economic shifts all have an impact on hotel occupancy rates. Revenue managers who do not manage revenue properly could:
Push business to competing hotels
Harm the hotel’s reputation
Hurt guest loyalty
Lead to missed rate opportunities
The KPIs of a hotel revenue manager
Revenue per available room (RevPAR)
RevPAR measures the average revenue generated per available room over a specific period. This metric provides insights into both occupancy and average room rate performance.
Formula: Total Room Revenue / Total Available Rooms
Average daily rate (ADR)
ADR calculates the average room rate achieved by the hotel over a specific period. It indicates the pricing effectiveness and revenue potential of room sales.
Formula: ADR = Total Room Revenue / Total Occupied Rooms
Occupancy rate
Occupancy rate expresses the percentage of available rooms that are occupied during a specific period, reflecting demand and utilisation of hotel inventory.
Formula: Occupancy Rate = (Total Occupied Rooms / Total Available Rooms) * 100
Gross operating profit per available room (GOPPAR)
GOPPAR evaluates the hotel's profitability by considering both revenue and operating expenses on a per-room basis. This metric provides a comprehensive view of financial performance.
Formula: GOPPAR = (Total Revenue - Total Operating Expenses) / Total Available Rooms
Total revenue per available room (TRevPAR)
TRevPAR calculates the total revenue generated per available room, including revenue from rooms, food and beverage, and other hotel services. It offers a holistic view of revenue performance.
Formula: TRevPAR = Total Revenue / Total Available Rooms
Market penetration index (MPI)
MPI compares the hotel's occupancy rate to the average occupancy rate of its competitive set or market, indicating the hotel's market share in terms of occupancy.
Formula: MPI = (Hotel's Occupancy / Market Occupancy) * 100
Revenue conversion index (RCI)
Revenue conversion index reflects the effectiveness of sales and marketing efforts. It does this by measuring the hotel's ability to convert revenue potential from inquiries into actual revenue.
RCI = (Total Revenue / Total Inquiry Revenue Potential) * 100
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7 crucial duties of a hotel revenue manager
By now we’ve established that revenue managers are critical to the running of a hotel business. But what do they actually do? Here are nine duties of a typical revenue manager:
Pricing strategy development
First and foremost, revenue managers are in charge of pricing strategy. This means developing and implementing pricing that reflects market demand, competitor pricing, and revenue goals.
This is a task that requires knowledge of market dynamics, consumer behaviour, and revenue management principles. Here are a few ways that revenue managers develop pricing strategies:
Market analysis: Thorough market analysis is an essential part of understanding the demand and supply dynamics within a market.
Segmentation: Segmentation means dividing the market by factors like customer demographics, booking behaviours, and willingness to pay.
Dynamic pricing: Dynamic pricing means adjusting room rates in real-time based on factors such as occupancy levels, booking trends, and seasonality.
Inventory management
Inventory management means optimising availability across different distribution channels to maximise revenue potential. These channels include direct bookings, online travel agencies (OTAs), and global distribution systems (GDS). Inventory management is vital as it prevents the risk of over or underbooking. Inventory management involves:
Assessing the demand for different room types and adjusting inventory allocations accordingly.
Managing inventory for different lengths of stay. For example, they may implement minimum length of stay restrictions during high-demand periods.
Negotiating MICE rates, allocating inventory to MICE bookings, and monitoring MICE performance.
Using forecasting models and analytics to predict future demand fluctuations.
Demand forecasting
Revenue managers don’t have a crystal ball (yet), but they do have the skills and technology to predict what is likely to happen in the future. Part of demand forecasting is looking at data and historical booking patterns to forecast future demand for hotel rooms. Understanding this demand helps them more accurately price and manage inventory.
Here are a few ways revenue managers predict future demand:
Data analysis: Revenue managers analyse historical booking data, market trends, and external factors like economic indicators, seasonal patterns, and local events.
Forecasting models: Forecasting models and algorithms use historical data and market dynamics to generate accurate demand forecasts.
Booking pace: Revenue managers track the pace of bookings and reservation patterns over time.
Competitive analysis
The hotel industry is competitive. This is why understanding your competitors' pricing strategies, market positioning, and performance metrics is so vital. Doing so helps hotels stay competitive and agile. So, how do revenue managers do this?
Identify competitors: The first step for a revenue manager is to identify hotels that are competitors and those that are not. This is an important step as a 3-star limited-service hotel shouldn’t compare itself to a 5-star resort, for example.
Assess pricing strategies: They then analyse competitors' room rates, promotions, discounts, and packages to identify pricing opportunities or threats.
Analyse market positioning: Revenue managers analyse competitors' market positioning, brand reputation, and unique selling propositions (USPs). This helps them understand their competitors’ strengths and weaknesses.
Benchmark performance metrics: They then benchmark their competitors’ key performance indicators (KPIs) against their own.
Revenue performance monitoring
Cast your mind back to the KPIs we talked about in the previous section. Revenue managers track a number of KPIs such as RevPAR, ADR, and occupancy rate. They do this to identify trends, opportunities, and areas for improvement. A key part of revenue performance monitoring is benchmarking the hotel’s performance against:
Industry averages
Competitive benchmarks
Historical performance
Experimentation is also important. Revenue managers continuously look for new ways to increase revenue, save money, and drive sustainable growth over time.
Distribution channel management
Managing the hotel’s inventory on various distribution channels and developing relationships with them is vital. These may include online travel agencies, wholesalers, and corporate booking platforms. Here’s what goes into distribution channel management:
Channel selection: Revenue managers evaluate and select distribution channels that align with the hotel's revenue goals, target market, and brand positioning.
Inventory allocation: When allocating room inventory across different channels, revenue managers take into consideration factors like channel performance, booking trends, commission rates, and distribution costs.
Rate parity management: Rate discrepancies could undermine the hotel's brand reputation and competitiveness. Maintaining consistent pricing is key.
Sales and marketing collaboration
Revenue managers don’t work alone. On the contrary: they collaborate with sales and marketing teams to develop promotional campaigns and packages that drive revenue and occupancy. Aligning revenue strategies with marketing and sales initiatives helps develop robust pricing strategies.
Collaboration with sales and marketing is all about sharing knowledge. Here’s how they do it:
Data sharing: Revenue managers hold a wealth of information. They share actionable insights and recommendations based on revenue analysis to optimise pricing, inventory management, and promotional efforts.
Campaign planning and execution: Revenue managers collaborate with marketing teams to develop promotional campaigns, advertising strategies, and marketing initiatives.
Target market identification: Revenue managers help sales and marketing identify target market segments, consumer demographics, and customer preferences.
Creative ideas for better hotel revenue management
Package dynamically
Create bundled packages that combine room stays with additional services or experiences, such as dining credits, spa treatments, local tours, or entertainment tickets. Dynamic packaging encourages guests to book higher-value packages, increasing revenue per booking and enhancing the overall guest experience.
Use an integrated CRM to simplify hotel revenue management
Most revenue managers would agree that manual data entry is tiresome, time-consuming, and at times, unreliable. Mistakes will be made – it’s only human! Instead, integrate data from multiple systems and manage it all in one place using a customer relationship management system (CRM).
Keep an eye on MICE competition
Use a competitive set dashboard specifically for MICE business. These business intelligence dashboards benchmark a hotel’s performance against nearby, comparable properties. BI gives revenue managers the ability to view the “big picture” or drill down into specific performance metrics.
Think SEO
Search engine optimisation (SEO) is the process of optimising your website or search listings so they appear higher in searches. For revenue managers, this is a simple way to boost online visibility so guests and event planners can find you more easily. Consider which keywords you include in your copy and update it regularly to reflect the latest information.
Now you know the all-important duties of a revenue manager
The job of a revenue manager isn’t so simple or easy. But one thing is clear: it’s absolutely necessary for the long-term financial health of a hotel.
Next up, discover 12 Hotel Marketing Trends to Watch in 2024
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