Why is Revenue Management so Difficult?

We were recently approached by a training company who asked us for assistance to construct a Revenue Management training program. Although not actually in the Hospitality Industry, the training company had identified that 'Revenue Management is the biggest challenge the hotel industry is facing'. With the overview that we have from 350 hotels, we would tend to agree with that sentiment. In some instances we have very similar customers next door to each other, and whilst one may be doing 25,000€ per month direct through their own website, the other may only be doing 5000€....so the difference is unlikely to be in the software tools, but how they are used.

Lets start with our definition of Revenue Management - Basically... 'the practise of selling the maximum amount of rooms at the best possible price through the lowest cost channel'. ie Putting up your rates on a busy day, dropping them on a quiet day, and closing out the OTA's.... particularly the more expensive ones, on days when you know you can sell them yourself.

Strangely enough the smaller 'one-man-band' properties have an advantage here....quite possibly because the owner is also the person managing the rates....they will not sit in an empty guesthouse for the weekend, they will look at their reservations and adjust the rates to guarantee they get somebody into the beds and help pay the heating bill. Likewise the larger hotels seem to be relatively switched on in this area as they have the luxury of being able to employ a trained Revenue Manager. However in the middle ground there seems to be a fairly large group of hotels that are not practising Revenue Management, they put up fixed rates that never change and even on busy days dont attempt to sell direct only.

Demand ManagementHere is a graph of room rates versus demand for a 65 room London Hotel, showing clearly that the rates are never changed, even though demand is fluctuating wildly. The difference that a bit of 'Revenue Management' would make in this hotel can only be guessed at, but it must run in to 6 figures.

To check if Revenue Management is in place at a hotel, even at a simple level, we often ask receptionists a few simple questions.
  • What is the highest room price you can go to?
  • What is the lowest room price you can go to?
  • When do you decide to sell rooms direct only?
If we get blank stares we know that Revenue Management in that hotel is not in place. And this really is the crux of the matter. Most people understand Revenue Management, but many hotels need to communicate clear guidelines to their key reception staff to carry this out.

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