Revenue management is extremely important within the hotel industry, because it allows owners to optimise the way they do business, in order to improve financial results. However, it also requires specific skills and knowledge, which means that it can be more effective to outsource revenue management to a third party that specialises in this area. In this article, you will find out more about revenue management and the benefits of outsourcing.
What is Revenue Management?
Revenue management is a practice based around using data and analytics to anticipate demand, optimise product availability and select the right pricing strategy, in order to generate the best possible financial results. Within the hotel industry, it is best to think about revenue management using the following definition:
Revenue Management: “Selling the right room, to the right customer, at the right moment, for the right price, through the right distribution channel, with the best cost efficiency.”
Why is Revenue Management Important?
For hotel owners and others in hospitality, revenue management is an important concept, because of the nature of the industry. With hotels, rates vary and different customers are willing to pay different prices for the same product (i.e. a hotel room) depending on when they need it, when they make the booking, and which channel they use.
At the same time, hotels only have a limited number of hotel rooms to allocate to guests at any one time. Therefore, in order to maximise revenue and financial results, hotels need to make the right decisions in terms of pricing and distribution, ensuring they sell as many hotel rooms as possible, at the best possible price.
As a general rule, hotels can charge more money when there is strong demand for hotel rooms, but will need to charge less at times of low demand. Anticipating the level of demand and optimising pricing requires careful analysis.
Why Hotels Outsource Revenue Management
Revenue management is a proven concept for optimising revenue and improving financial results. Therefore, a revenue management strategy is a necessity for modern hotel owners. Yet, effective hotel revenue management requires specialist knowledge, analytical skills, experience and a working knowledge of the market.
Hotels are faced with two main choices. The first is to hire a full-time revenue manager to work internally. This usually also requires significant investment in technology to allow them to perform the role effectively. The second involves outsourcing revenue management to a third-party, which specialises in this area and can work on demand.
Large hotel chains might have the financial capabilities to hire a full-time revenue manager and invest in technology, although it is not always necessary or financially prudent. However, for independent hotel owners, the budget for hiring and retaining skilled revenue managers and investing in technology may not be there.
Outsourcing revenue management allows hotels to benefit from up-to-date knowledge, techniques, market insights and technology, helping them to stay ahead of competitors. For independent hotels, outsourcing the revenue management strategy leads to better financial results, on average, than independent hotels that hire revenue managers, or that do no revenue management at all. It also avoids issues surrounding replacing revenue managers when they leave.
4 Advantages of Outsourcing Revenue Management
1. Optimal Financial Results
The main advantage of a hotel outsourcing revenue management is the ability to optimise financial results. Indeed, when the work is outsourced to the right company, they will have the latest technology, the most up-to-date methods, a working knowledge of the hotel industry and the ability to analyse data and identify trends.
Armed with this data – which may include past sales figures, current bookings, information about local events, and wider industry information – a company that specialises in revenue management can help a hotel to set the right prices, focus on the right distribution channels and generate the best financial results possible.
2. Alternative to Hiring a Revenue Manager
Another advantage of outsourcing revenue management is that it is a viable alternative to hiring a permanent revenue manager. In particular, this is beneficial for smaller hotels, or those operating on a tighter budget, because work can be outsourced when it is needed and the hotel does not need to invest in related technology.
It also prevents issues associated with having a permanent revenue manager, such as paying them sufficiently to retain them, and recruiting a replacement if they leave. Companies that specialise in revenue management also have an experience advantage over internal candidates who are trained to become revenue managers.
3. Beating the Competition
When revenue management is outsourced to a third party with the right expertise, hotels open up the possibility of gaining a significant advantage over competitors. This is especially true of competitors who do not have a revenue management strategy in place, or those who try to carry out revenue management on their own.
With that being said, outsourcing revenue management can also provide an advantage over many hotels that employ a full-time revenue manager too. After all, many hotel owners lack revenue management skills and have never done the job, which makes them ineffective at managing the revenue manager they have employed. This then leads to some inevitable inefficiencies along the way.
4. More Focus on Sales and Operations
Finally, running a hotel is complicated and involves managing and dealing with the needs and challenges associated with a number of departments, ranging from sales & marketing, reception and housekeeping, through to the restaurant and bar staff. Therefore, outsourcing responsibility for revenue management can reduce the workload significantly.
As a result of this, managers are able to juggle their responsibilities more effectively, and focus much more of their energy on attracting the right customers, delivering the right level of customer experience to generate loyalty, and optimising the products and services they are providing.
The practice of outsourcing revenue management to third-party experts is becoming more commonplace, for a variety of reasons. Revenue management is now an essential part of the hotel industry and when it is outsourced, many of the costs associated with it are eliminated. Moreover, hiring experienced professionals guarantees that the right level of expertise and industry knowledge is in place, improving the chances of success.