Five Revenue Management Mistakes In The Hospitality Industry

29th Sep 2022

Nathan MayfieldNB: This is an article written By : Nathan Mayfield, Vice President of ResNexus

Revenue management is a fact of everyday life. Whether it’s the price of milk in the grocery store, the green and red numbers on gas station signs or the airfare at airports, virtually every product and service is priced according to revenue management.

At its core, revenue management is the application of consumer analytics to maximize profits by selling the:

• Right product.

• To the right customer.

• At the right time.

• For the right price.

In other words, revenue management is the science behind maximizing profits by cleverly analyzing supply, demand and the market at large. But the practice of applying revenue management techniques to the hospitality industry is slow-going at times.


Best Travel Insurance Companies Many innkeepers, campground managers and some hoteliers are hesitant to adopt competitive practices because of personal hang-ups, lack of education or simply because flat rate pricing is the easier option. Or, they make use of revenue management but might be making some critical mistakes or neglecting important aspects. These properties are missing out on potentially vast profits by failing to price appropriately for the market.

Here are the top five revenue management mistakes that I’ve seen innkeepers, hoteliers and campground managers make.

1. Flat Rate Pricing

The biggest mistake a property can make when it comes to revenue management is to not employ any whatsoever. This is known as “flat rate pricing” and means the manager lacks any kind of pricing strategy beyond deciding on their rates based on “what feels right.” The only benefit to this kind of strategy is that the unit rates are always easy to remember.

The use of flat rate pricing ignores the many factors that can influence the value of room nights, campsites, cabins and so on, such as the time of booking, high-demand stay dates and incentives for longer stays. This mistake is the biggest of all because it incorporates all others. In short, using flat rate pricing means leaving money on the table.

2. Not Making Use Of Supply And Demand

What’s the difference between a plane ticket to Honolulu, Hawaii, on December 25th and a plane ticket to Juneau, Alaska, on the same day? The answer is demand, and the prices are likely to reflect that, with the Hawaii Christmas flight likely costing double or triple more than the Alaskan flight. This demonstrates the importance of demand, especially when it comes to limited availability. If both flights were priced evenly at the lower rate, then the Hawaii one would sell out before you can say “Santa Claus,” while the planes to Alaska might still struggle to reach full capacity.

The same concept applies to hospitality. Recognizing the difference between busy, slow, shoulder and peak seasons is just one piece of the puzzle. Weekends are generally more valuable than weekdays. Other factors to consider include the property’s location and its proximity to other destinations, the popularity of some of your units compared to others and guests’ average length of stay. Consumers will spend more on products they consider to be high-value, and honing in on that balance will help increase revenue and make your operations more efficient.

3. Pricing Too Aggressively

To many, “revenue management” sounds like a fancy way of saying “raise rates,” but that isn’t necessarily the case. Simply inflating your prices doesn’t mean you have a clear strategy. It could tip the scales in the other direction and cause your occupancy to plummet so much that even the few high-paying guests don’t make up the difference.

In many cases, it’s actually more beneficial to lower rates. Offering discounts for longer stays, lowering rates for slow seasons to shore up occupancy and offering loyalty programs to returning guests are all examples of providing a better deal for the consumer. Revenue management operates in both directions.

4. Trying To Do Everything Manually

The market is a complex animal, and reacting to trends in real-time is a difficult job for a human, especially when you also have to manage every other aspect of your business. Fortunately, there are tools you can use to improve your operations without manually updating all of your units on the go.

One example of this is automated yield management. Clients often come to my company and similar businesses for this type of solution, as this software can automatically adjust room rates based on how the market is changing in real time. When one weekend blows up with an unexpectedly high volume of guests, the rates will automatically account for the increased demand.

Another example is automating your processes by using data collection and analyzing software to help you stay informed on how your property stands up against the market. The time and money you save in this way can be allocated toward improving the guest experience. There are also tools you can use to help you better understand your property’s performance, especially compared to the competition. By making use of this type of benchmarking data, you can more confidently make decisions about revenue management.

When choosing a solution, however, keep in mind that the tool you use needs to support the type of property you run. Some solutions don’t support campground data research, for example, while others do.

5. Not Using Historical Data And Analytics

Unfortunately, for people who got into hospitality for the interpersonal element, this is an industry that thrives on data and analytics. By studying historical trends in your property’s average daily rate, revenue per available room and occupancy, you can start to see emerging patterns. Traditionally, the busy season is June through August, but you might discover that there’s a consistent slow patch at the beginning of July, year over year. Data like this can help inform your pricing strategy to offer strategic discounts and packages. It’s vitally important to study these reports and trends in a scientific manner to confirm your instincts are correct.

In Conclusion

Developing an optimal pricing strategy isn’t static. There are a lot of moving parts and changing trends. But with patience, logic and experimentation, the door to greater profits is wide open to you.

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