{"id":4188,"date":"2024-09-18T09:00:00","date_gmt":"2024-09-18T07:00:00","guid":{"rendered":"https:\/\/en.wubook.net\/blog\/?p=4188"},"modified":"2024-09-16T17:07:01","modified_gmt":"2024-09-16T15:07:01","slug":"revenue-management-what-it-is","status":"publish","type":"post","link":"https:\/\/en.wubook.net\/blog\/revenue-management-what-it-is","title":{"rendered":"Revenue Management in hotels: what it is and why you can’t go without it"},"content":{"rendered":"\n

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<\/strong>: here is what he told us.<\/p>\n\n\n\n

What is revenue management and how is it measured<\/h2>\n\n\n\n

Revenue Management is the<\/strong> management of hotel revenue or profitability, or the rate optimization strategy<\/strong> that each property adopts to increase its revenue per available room<\/strong> (the RevPAR, Revenue Per Available Room) in a given period. \u201cRevenue management simply consists of adjusting the daily room rate to actual market demand,\u201d Thiry explains. \u201cThe 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.\u201d<\/p>\n\n\n\n

It is therefore necessary to carry out constant, in-depth and up-to-date demand analysis<\/strong> to understand what is the right rate for the property to focus on to be attractive to the greatest number of customers. \u201cThe analysis actually allows you to measure the demand every day, considering that every day the demand varies<\/strong>, because who is in the market to win the room today is not there tomorrow, so this data re-initializes every day,\u201d 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. <\/p>\n\n\n\n

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<\/strong> KPI (Key Performance Indicator) to monitor is RevPAR<\/strong>, which combines occupancy rate with average sales revenue into a single value, according to the formula: Net Room Revenue \/ Available Rooms. \u201cThis is the main metric in our work; at the revenue level, it is the most important one,\u201d stresses Thiry, who recommends, however, also considering the marginal cost per room<\/strong>, i.e., what you pay each time you sell a room (such as OTA commission costs<\/a>, but also housekeeping services, etc.); and the minimum rate<\/strong> below which not to go for image and sustainability issues.<\/p>\n\n\n\n

\"revenue<\/a><\/figure>\n\n\n\n

Why revenue management is essential<\/h2>\n\n\n\n

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

Let’s take an example<\/strong>. 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. \u201cWe would be overjoyed, but this is a situation that does not exist,\u201d warns Jean Patrick Thiry.<\/p>\n\n\n\n

\u201cFor 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.\u201d<\/p>\n\n\n\n

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. <\/p>\n\n\n\n

\u201cWe need to take advantage of different rates to increase the customer base<\/strong> considering that each customer has a different price elasticity,\u201d 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.
\u201cThe 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.”<\/strong><\/p>\n\n\n\n

What customers really buy<\/h3>\n\n\n\n

According to Thiry, in fact, there are 3 different types of people, and therefore types of behavior, found at the reservation stage: <\/p>\n\n\n\n