Revenue Management System (RMS)

A Revenue Management System (RMS) is a software solution hotels and other businesses use to optimize their financial performance. It analyzes data to forecast demand, adjust pricing strategies, and maximize revenue. RMS is important because it aids in making informed decisions, enhances efficiency, and responds dynamically to market changes, thus increasing profitability in a competitive landscape.

Key Takeaways

  • Rate Recommendations: RMS calculates precise room rates using sophisticated algorithms and market data.
  • Competitor Information: Includes features to monitor competitors’ rates, aiding strategic pricing decisions.
  • Key Performance Data: Offers vital data such as occupancy rates, revenue per available room, and average daily rates.
  • Demand Forecasting: RMS accurately forecasts demand, aiding in optimal room allocation and pricing.
  • Customer Segmentation: Enables more effective customer segmentation for targeted marketing and pricing strategies.

Table of Contents:

Introduction

For those working in the hotel industry and looking to maximize business results, a revenue management strategy can be invaluable, and a high-quality Revenue Management System (RMS) can help to ensure success. In this article, you will find more detailed information about the importance of revenue management within hospitality settings and some of the main features and advantages associated with RMS software solutions.

What Is Revenue Management?

Revenue management is a key concept within the hospitality industry because hotels must contend with fixed costs, a perishable inventory, and varying demand levels. Typically, revenue management involves using analytics and available data to predict demand, make strategic pricing decisions, and maximize revenue.

For hotel owners, revenue management can be summarized as the following: Selling the right room to the right customer at the right time for the right price via the right distribution channel with the best cost efficiency.

Ultimately, revenue management allows those operating in hotel management to make more informed decisions backed up by evidence and data in order to optimize business practices. With a robust revenue management strategy, owners can bring in more money, ensure their costs are covered, and maximize profit.

What Is a Revenue Management System (RMS)?

Essentially, a Revenue Management System, or short RMS, is a software solution that allows you to carry out important revenue management tasks more efficiently and effectively. It will make use of data from your hotel and from the market at large to help you make more informed decisions. According to the Global Hotel Revenue Management System Market Report by Verified Market Reports, the global hotel revenue management system market size is projected to grow at a CAGR of 8.7% until 2028.

Typically, a good Revenue Management System will use the data and its algorithms to carry out a real-time analysis of the state of the market and of demand to calculate ideal room rates. As a result, most of the important hotel revenue management decisions can be carried out from a single, centralized dashboard.

Revenue Management System - What Is a Revenue Management System

Why Is a Revenue Management System Important?

The primary reason why a Revenue Management System is important for those in the hospitality industry, regardless of the size of their hotel, is because it allows complex calculations to be carried out quickly and allows for real-time tracking of market data virtually impossible to replicate manually. According to the Unleashing Revenue Potential Report by IdeaS, 76% of hoteliers surveyed believe that revenue management technology will become more important in the future.

A Revenue Management System makes it easy to adjust prices across various distribution channels without having to log in to each of those different systems individually. As a result, key performance indicators, such as revenue per available room (RevPAR) can be improved, increasing the hotel’s top and bottom lines.

The use of an RMS is important in smaller hotels because fewer rooms mean it is more important to maximize the revenue each room generates. However, it is arguably even more important in larger hotels because the sheer workload of manual revenue management becomes problematic, resulting in poorer decisions and more errors.

Table: Importance of a RMS System for Various Hotel Departments

Hotel Department Benefits of Revenue Management System Usage Impact
Sales and Marketing Optimized Pricing Strategies: Align rates with demand, improving promotional impact.
Competitor Analysis: Stay competitive with data-driven insights on rival pricing.		 Increased revenue during high-demand periods.
Enhanced marketing effectiveness based on trends.
Front Office/Reservations Efficient Inventory Management: Ensure optimal room allocation and pricing.
Real-time Availability: Instantly update availability across channels for accuracy.		 Reduced overbooking and improved guest satisfaction.
Seamless online booking experience for guests.
Finance and Operations Enhanced Revenue Tracking: Monitor revenue performance with comprehensive analytics.
Automated Reporting: Streamline financial reporting processes for efficiency.		 Improved financial decision-making and forecasting.
Reduced manual errors and increased operational efficiency.

What Are the Most Important Functions of an RMS?

In most cases, Revenue Management Systems are comprehensive software packages with a range of features and functions. With that being said, the following are the most important features:

1. Rate Recommendations

Perhaps the most crucial feature for most Revenue Management Systems is the ability to quickly and accurately calculate ideal room rates using sophisticated algorithms, past performance data, current market data, and other information. Room rates can then be easily adjusted from the main dashboard across distribution channels.

2. Competitor Information

Most RMS software includes an integrated competitor rates feature, allowing you to easily check room rates for other hotels in the area or other hotels of a similar size. This feature is valuable because when armed with a knowledge of competitors’ rates, you can adopt a more strategic approach to your pricing.

3. Key Performance Data

A Revenue Management System will also store and provide key performance data, including occupancy rates, revenue per available room (RevPAR), and average daily rates (ADR). In most cases, users can see performance data from the prior month, from the same time last year, and various other options.

Video: Ideal Pricing

4. Revenue Estimations

Finally, aside from displaying past data and helping you to set your room rates, a Revenue Management System will also provide you with estimates for both the revenue and the profit you are likely to generate through your current pricing strategy and allow you to see estimates for alternative pricing strategies too easily.

What Is Total Revenue Management?

If hotel revenue management is about optimizing the pricing and availability of hotel rooms by using data and analytics to predict customer demand, total revenue management is the process of applying these tactics to all revenue sources. This might mean gyms, restaurants, spas, conferencing services, etc.

Read our “Total Revenue Management: How Hotels Can Maximise Their Revenue“ article, and you will learn much more about total revenue management, how it can be achieved, and the various benefits.

Revenue Management System FAQs

The three main functions of RMS in the hotel industry are demand forecasting, dynamic pricing, and inventory control. These functions help hotels optimize room rates, predict future bookings, and maximize overall revenue.

In hotels, RMS stands for Revenue Management System. This technology solution aids in setting optimal room rates, forecasting demand, and managing room inventory to increase profitability.

Hotels use various types of software, including Property Management Systems (PMS), Revenue Management Systems (RMS), Customer Relationship Management (CRM) systems, and booking and reservation platforms to streamline operations and enhance guest experiences. For more information about hotel software, read “Hotel Software: The Most Important Software Solutions for Hotels.”

Yes, small hotels can benefit from a Revenue Management System by gaining insights into market trends and customer behavior, allowing for more accurate pricing and inventory management, which can lead to increased revenue and competitiveness.

Many hotels, especially those in the mid-scale to luxury segments, use revenue management practices and systems to enhance their financial performance. However, exact numbers vary by region and hotel size.

Revenue management is selling the right room to the right customer at the right time for the right price via the right distribution channel. A Revenue Management System can assist with each of these aspects. RMS software solutions can help calculate ideal room rates, adjust rates quickly, provide projections of future revenue and profit, and offer information about competitors, allowing for a more strategic approach.

More Information About Hotel Revenue Management System

Would you like to learn more about hotel management software solutions that can help you to grow your hotel business? In the following articles, you will find more information about the most important hotel management software for hotels:

More Tips to Grow Your Business

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This article is written by:

Martijn Barten
Hi, I am Martijn Barten, founder of Revfine.com. I am specialized in optimizing revenue by combining revenue management with marketing strategies. I have over 15 years of experience developing, implementing, and managing revenue management and marketing strategies and processes for individual properties and multi-properties.