What is revenue management and how does it work?

What is revenue management and how does it work?

  • Posted by: Revenue by HRM



Revenue management requires a perishable inventory. If your occupancy rate on a given day is 50% that means 50% of your potential revenue for that day is lost forever. One of the jobs of the revenue manager is to devise ways to optimise income and reduce potential losses.

For revenue management to be effective there must be a fixed capacity. Hotels are a perfect example of this in action. No matter how many people want to stay with you there are only so many rooms on offer. So optimising income for each room is essential.

Demand for the product ebbs and flows which requires the Hotel Manager to adopt different approaches to attracting visitors at different times of the year.

There also needs to be segmented markets in play if revenue management is to be effective, and that is certainly the case with the hospitality industry where you have everything from ultra-luxury resorts to discount motels.


There are many tactics an experienced revenue manager can deploy to maximise occupancy at the highest rate possible.

Here are a few:

  1. Discount pricing – Typically employed during the slow season, discount pricing is an effective way to boost occupancy. In most cases lost room revenue can be offset by other, related hotel services.
  2. Value-added pricing – Set slightly higher room rates while also offering a wider range of extras. This leaves the impression of a premium service at a reasonable rate.
  3. Segment pricing – Perhaps the most well-known example of this pricing structure in action is the “family rate” offered by numerous hotels.
  4. Penetration pricing – With this pricing structure your hotel is positioned as the cheapest in each market. You can practice penetration pricing while still retaining the ability to charge higher rates in some instances.
  5. Skimming – If you have easily communicable reasons why people should pay more to stay at your hotel or resort you can position yourself among the most expensive in your market.

With all of that and more at stake, it is vital that you entrust revenue management to someone with an impeccable record of success.

Revenue by HRM provides expert Outsourced Revenue Management solutions for golf resorts, spa, city centre and other destination hotels.

Book a call to learn how we can help your business

Author: Revenue by HRM

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