Dear WuBookers, anyone who manages a hotel or property – or is about to do so – cannot avoid taking up the practice of Revenue Management. To better understand what it is and why it is important, we interviewed Jean Patrick Thiry, Founder and Chief Executive Officer of Blue sarl: here is what he told us.

What is revenue management and how is it measured

Revenue Management is the management of hotel revenue or profitability, or the rate optimization strategy that each property adopts to increase its revenue per available room (the RevPAR, Revenue Per Available Room) in a given period. “Revenue management simply consists of adjusting the daily room rate to actual market demand,” Thiry explains. “The problem is that we do not know in advance the rate at which the market will be willing to buy. In technical terms, we don’t know the price of the potential customer.”

It is therefore necessary to carry out constant, in-depth and up-to-date demand analysis to understand what is the right rate for the property to focus on to be attractive to the greatest number of customers. “The analysis actually allows you to measure the demand every day, considering that every day the demand varies, because who is in the market to win the room today is not there tomorrow, so this data re-initializes every day,” he adds.
Therein lies one of the main difficulties of revenue management: the ability to read data and predict trends in demand in order to derive the greatest possible benefit in terms of higher profits. 

But – within such a complex business – what is the main parameter to keep an eye on to understand how things are going? As anticipated, the essential KPI (Key Performance Indicator) to monitor is RevPAR, which combines occupancy rate with average sales revenue into a single value, according to the formula: Net Room Revenue / Available Rooms. “This is the main metric in our work; at the revenue level, it is the most important one,” stresses Thiry, who recommends, however, also considering the marginal cost per room, i.e., what you pay each time you sell a room (such as OTA commission costs, but also housekeeping services, etc.); and the minimum rate below which not to go for image and sustainability issues.

Why revenue management is essential

If we simply created a price list without adapting it to daily fluctuations in demand, we would miss important sales and profit opportunities.

Let’s take an example. Suppose we had 10 rooms and as many customers willing to pay 100 euros per room: we would have 100 percent of the rooms sold at the maximum price. “We would be overjoyed, but this is a situation that does not exist,” warns Jean Patrick Thiry.

“For this we need to vary the rate for each customer we want to recover, that is, to optimize as many customers at the highest possible rate.”

In other words, if we do not find 10 customers willing to pay exactly 100 euros but have only 5, we need to find more customers willing to pay 90 or 80 euros. 

“We need to take advantage of different rates to increase the customer base considering that each customer has a different price elasticity,” that is, the maximum price at which they want to buy the good/service. Therefore, if a person’s elasticity is 90 euros, at 91 he will not buy, but will do it for 90 or less.
“The strategy then is to increase the number of rooms sold by adopting for each customer the maximum price at which they are willing to buy, knowing that in the end what the customer buys is not so much a product or a rate but a relationship between the two.”

What customers really buy

According to Thiry, in fact, there are 3 different types of people, and therefore types of behavior, found at the reservation stage: 

• the product-oriented customer: a segment of the market ready to pay any amount for a given room or service;  
• the price-oriented customers: that is, those who buy only on the basis of price (the product must be within a certain amount); 
• the relationship-oriented customer between (perceived) quality and price: this is the most important segment and one on which it pays to focus on. Obviously, the use of revenue management strategies only makes sense for the latter category. 

In all cases, and especially in the last one where qualitative assessment also comes into play, it must be remembered that a guest purchasing a hotel room from a distance cannot verify it in a tangible and concrete way. Reservations are made because of the idea they have, the perception of the property derived from photos, layout and furnishings, style and description.
In this sense, the success of revenue management activities also depends on another set of factors, such as communication and marketing. 

In Thiry’s experience, “a property that implements revenue management strategies realizes a revenue increase of at least 10 percent.” 

How to generate revenue in hotels: necessary tools

Having clarified what it is and why it is important, what are the tools needed to start with revenue management?
An RMS (Revenue Management System) is certainly essential, especially for performing complex analyses and actions. However, an RMS cannot do without a PMS (Property Management System), because it needs current, real-time updated, and historical data on room occupancy; and because it is the PMS that, through booking engines and channel managers, publishes online the prices set by the Revenue software.
Therefore, it is essential that PMS and RMS integrate and transmit information and data to each other. 

Zak, WuBook’s hotel management software, is connectable via API with all major Revenue software and thus allows the property to be governed comprehensively and in all aspects. Jean Patrick Thiry specifically mentions some specific features of Zak that streamlined the task of managers and property managers engaged in Revenue management. “Thanks to the accuracy and versatility of the statistics module in the PMS by WuBook, we have all the tools we need to define demand” and, consequently, supply. 

“Dynamic rates, managed by Zak, vary over time to adapt to changes in demand,” he continues. Rates that can be distributed, along with promotions and special offers, directly from the PMS to the various sales channels through the integrated Channel Manager and Booking Engine. 

“Each segment has a different buying behavior,” Thiry finally reminds, ”and therefore requires a suitable Revenue Management strategy. The PMS by WuBook allows both Product-level and Rate-level segmentation.”
WuBook therefore offers all the tools to control and analyze one’s target market: operations essential to Revenue Management.

The Revenue Management of Tomorrow: tips and predictions

In conclusion, we asked Thiry to give us an overview of the situation today and to tell us what he thinks revenue management of the future will look like. “The challenges are varied,” he told us, ”from increasingly fierce competition, to market resistance to dynamic pricing; from the difficulty of precisely controlling rates (often conditioned by the interference of the various OTAs), to the commoditization of the market.” 

The trend is to increasingly automate the revenue management process through the use of algorithms, leaving out the personal touch of each property, which could instead prove successful in certain situations. Technology and comparison with competitors is inescapable now, but human vision and individual approach are equally important. 

Before saying goodbye, Jean Patrick Thiry left us with a piece of advice addressed to all hoteliers: “Devote special attention (both in terms of human resources and time) to studying the market-which is constantly changing-and the statistics of previous years, trying to focus less on the competitive set.”

Past and present are valuable allies in facing the future, even and especially when it comes to Revenue.