Hotel revenue management beyond traditional boundaries

What does a hotel revenue manager do? Had you asked this question at any point throughout the last century, the answer would have remained largely the same: optimize room inventory to maximize profitability.

While this remains at the heart of the job, a number of changes over the years have shifted the roles and responsibilities of a hotel revenue manager. Most of these changes have been subtle, a gentle and natural evolution. But now, revenue management stands on the brink of a revolution. The key parameter of our initial definition – the room – is no longer the central premise. Rather, it is space that needs to be optimized.

The shift towards expanded revenue management

Technology is the instigator for this change, as it so often is. Of course, revenue management technology is nothing new. For decades, software has helped to better manage and track rates and inventory, beginning with simple spreadsheets before morphing into fully fledged smart-learning algorithms. 

And for its latest trick, technology gives hoteliers the ability to easily manage revenue across a diverse range of products and services, catering not only to guests staying the night but also to the wider community. From parking spaces to workspaces, event spaces to spas, revenue management now encompasses an array of offerings, transforming hospitality’s approach to demand and pricing strategies.

A rapidly changing societal and cultural dynamic is also behind the change, with notable examples including the modern workplace and the rise of community ecosystems. The demand for flexible and on-demand service models has sparked a need for agile revenue management strategies, enabling hoteliers to adapt swiftly to changing market conditions and customer preferences.

New revenue management opportunities

So what does this revenue revolution look like? The emergence of new business models has been a game-changer for the hospitality industry. With the rise of shared economies and innovative service offerings, hoteliers can now capitalize on various revenue streams. 

For instance, revenue management strategies for parking spaces allow hotels to optimize usage and pricing based on demand patterns, providing both convenience to guests and additional income to the property. It’s exactly the same principle as managing room rates and inventory, and the technology already exists that allows you to manage it from within the same platform.

Similarly, workspaces have become a lucrative revenue opportunity as remote work reshapes the corporate landscape. By offering revenue-managed workspaces (whether that’s purpose-built office space, reconfigured lobbies or day-use rooms), hotels can attract a new demographic of customers, including remote workers and business travelers seeking convenient space conducive to work.

Event spaces, too, have witnessed a transformation in revenue management practices. Hotels can now dynamically price and manage event venues, optimizing revenue during peak periods while encouraging bookings during traditionally slower periods. We’ve seen everything from karaoke and cinema rooms to pop-up hairdressers and weddings – the more willing hoteliers are to get creative, the more revenue they open themselves up to.

The pros and cons of revenue managing everything

I hardly need to tell you the most significant benefit on offer for expanded revenue management: more revenue. But it’s not just quantity that’s important, it’s diversity. A more diverse revenue stream means a healthier, more robust business. 

As recent history has shown, hospitality is not immune to global events. Rely too heavily on one source of revenue, and even a temporary setback could be disastrous. Much better to spread hotel income across multiple services and experiences, as this will bring another big benefit: broadening your customer base.

Attracting new demographics is good news for revenue management. The more varied your guests, the more likely it is you’ll always have a pool of potential customers, regardless of day of the week or time of year. Diversifying revenue goes hand in hand with community building. 

Thinking locally – whether eating, working or experiences – is one of the societal shifts I mentioned earlier. As the internet brings the world to the palm of our hand, an increasingly common response has been to embrace our nearest neighborhoods and support local businesses and communities. This is also where revenue management is really changing. 

Historically, a revenue manager’s role has been to optimize guest spend. But as the local community begins to engage more actively with hotels, it brings opportunities to manage visitor revenue as well. Think back to those parking spaces. If you’re already tracking the itinerary and usage for guests, why not do the same for non-guests too? It’s the same software (or should be) and only requires a small upfront administrative effort.

So far, revenue management 2.0 sounds amazing. This brings us to the obvious next question: What are the challenges? The level of difficulty will largely depend on the technology that you’re using. If you’re still working by spreadsheet or manually assigning rooms and spaces, more revenue managing simply means more workload. 

Coordination across different departments becomes crucial to ensure seamless integration and execution. Moreover, accurately forecasting demand and setting optimal prices for each service requires robust data analysis and predictive modeling, which may pose a challenge for hotels lacking adequate technological infrastructure.

The role of data and technology

Technology is at the heart of modern-day revenue management. Revenue management systems (RMSs) powered by sophisticated algorithms and machine learning allow hoteliers (or rather, their laptops) to process vast amounts of data and derive actionable insights. Data analytics tools help identify demand patterns, allowing hotels to optimize pricing strategies for various offerings in real-time.

Data should also take center stage in decision-making processes. Analysis and forecasting are critical in determining demand patterns and customer preferences. By leveraging historical data, market trends, and customer behavior insights, hoteliers can make informed decisions that boost revenue and overall profitability.

In the beginning, revenue managers may find that the pricing algorithms for newer space types are less robust than with room rates. And that makes sense. These are areas for which – unlike rooms – large enough data sets might not yet exist. But we’ve all seen how fast AI and machine learning is developing. It’s only a matter of time before karaoke room revenue management algorithms become as reliable as with rooms and beds.

At the heart of all smart RMS (or PMS) software is automation. These solutions streamline revenue management processes, freeing up hotel staff to focus on providing exceptional guest experiences. As a hotel scales and manages more types of spaces, there’s no way a single person could manually control rates. Automated pricing adjustments based on demand fluctuations ensure that the optimal price is set at any given time, maximizing revenue potential.

All this being said, just because the technology is there, doesn’t mean that people will use it. According to reports, less than a third of hotels utilize revenue management systems. As the founder of a tech company, this number pains me a little; clearly there is still work to be done to demonstrate the value of hotel software.

Managing time as well as space

I’ve spoken a lot about revenue managing different space types, but this brings a significant added complexity: the need to factor in different time periods. Rooms are traditionally sold on a night basis. One night equals one unit of time. Simple.

If you use the same time units for parking spaces or desk hire, that means you can only serve one customer per day for each space. That’s not good revenue management. It’s necessary, then, to choose software that facilitates multiple time units. For instance, it may be that there are parking restrictions on public roads near your hotel between nine to five. During these hours your parking spot prices should rise as they’re at a premium; after five, the price should drop.

What next for revenue managers?

If much of this article sounds fanciful to you, I can assure you it isn’t. The world of technology moves faster than we realize, and the early adopters will be in the best position to win big.

Not sure where to begin? Seek external expertise from revenue management consultants or leverage training and workshops to upskill your teams in the latest revenue management techniques. Investing in the right hotel tech is a given. Partnering with reliable providers can help overcome the hurdles associated with data analysis and automation. 

Personalization will be a key focus in revenue management (and across the whole of hospitality), with hotels able to tailor pricing and services to meet individual guest preferences. Sustainability and eco-consciousness will likely influence revenue management strategies more and more, encouraging hotels to promote environmentally friendly offerings and experiences.

As traditional hotel boundaries continue to fall, think about where you want your hotel to sit. Will you keep a room-first revenue mentality, or will you start to think more creatively and use the tech at your disposal to diversify your business? I know which side I’m on.