Basic hotel revenue management strategies for the summer
Effective Revenue Management is about winning the war, not just the battle. One of the most common mistakes I have found Owners, General Managers, and even Revenue Managers make is focusing on one particular high demand date in a silo and not considering what maximizes revenue throughout the entire week or even the entire year. If you’ve ever decided to close Opaques, negotiated rates, OTAs, or restrict the house with a minimum length of stay on any given high demand date, you may want to consider the following scenarios:
Close Opaques (or discounts): This is often the first idea when a property discusses a high demand date. It makes complete sense to prevent what is probably the lowest rated business from staying at your hotel, but before you jump to the CLOSE decision, take a step back and consider other alternatives:
- Raise the rate. If every other hotel on the block had the idea to close their Opaques, then you are now the only hotel selling through the opaque channel and can command a rate similar to what you would sell through an OTA
- Restrict the rate. If you can sellout your hotel at a $200 rate, you definitely don’t want your $120 opaque customer for one night, but you should take their business for two nights because that will net you $40.
Raise rates: Before raising rates, determine what your business mix is for the high demand date and which rates guests are booking. If LNR or Group business is driving the occupancy in your hotel and not in your competitive set, you may end up pushing BAR business away by pricing yourself higher than the market demands.
Restrict the house with a minimum length of stay: This concept demonstrates an understanding for driving business to shoulder dates, but it may not be ideal for maximizing revenue. First, you have to understand what the demand driver is for the high demand date and determine if demand exists for multiple lengths of stay. If a Saturday night concert is driving demand, is forcing a Sunday night stay really in your best interest, or is it going to essentially close your hotel on Saturday? Second, you should consider length of stay pricing. Once you determine the stay patterns for the event, you may find that offering a significantly higher rate for 1 night than for 2 nights yields higher revenue than closing out a 1 night stay entirely.
The prior scenarios demonstrate a Revenue Management concept called Last Room Value, which is the rate at which you would be able to sell the last room in your hotel, but I would like to take this concept one step further and say that it does not take into consideration relationships…
Close negotiated rates and OTAs: If your property’s BAR rate is $100, and your last room value is $90, would it make sense to leave your OTA with a 20% margin or a $75 LNR open? In a one day silo, definitely not, but over the course of many months, it probably is. Keeping OTAs available will increase placement and conversion over time, and keeping your negotiated rates open for your best clients may earn you more business during shoulder periods.
For all of these scenarios, just keep in mind that your daily RevPAR index may be lower, but your weekly and monthly STRs will pleasantly surprise you!