What is revenue management?

Revenue management is the practice of using data and analytics to adjust and improve your property’s financial performance. For example, responding to supply and demand to maximise your room rates.

As a hotelier you are faced with the challenge of maximising the profit you generate from a finite resource – your rooms.  To do so you must work to understand, anticipate and influence the behaviour of potential guests, a process called hotel revenue management.

Revenue management strategies are equally crucial for small accommodation businesses as they are for large hotels. Even if you can’t afford a fully fledged revenue management system or full-time revenue manager, it’s not something you can afford to ignore.

The good news is that there are easy ways to manage it successfully yourself, and affordable hotel management software solutions that can help you make it effortless.

Let’s take a look at what you need to know!

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What does strategic revenue management mean for small properties?

Essentially, hotel revenue management is about selling your rooms in the right places, to the right travellers, at the right price to maximise income and profit for your business. Other factors such as any amenities you have, or your food and beverage service, also contribute to your strategy.

Every guest who comes to your property will have a maximum value they can offer you. Successful hotel revenue management is about securing as much of that value as possible, convincing the guest to do things like:

  • Book with you directly
  • Purchase an upgrade
  • Purchase extras or add-ons
  • Purchase a value-added package
  • Extend their stay
  • Spend on amenities and services
  • Book in a return stay

Of course, the more total bookings you can capture the better too. To maximise your reservations, you need to balance your distribution between online travel agents (OTAs), and your direct channels such as your website, or even Google Hotel Ads.

Key considerations for the hotel revenue management process

It’s never easy to stay on top of hotel revenue management strategies, with so much to consider each year including:

  • The growth of OTAs
  • The fight for direct bookings
  • Freshly defined traveller groups and booking behaviour
  • Distribution channels
  • Data analysis
  • The rise of mobile
  • Domination of social media and digital channels
  • Viability of traditional advertising and offline booking

With all that in mind, there are a few things you need to do and work on getting right. Some key considerations when it comes to a revenue management process:

1. Forecasting

It’s important to look ahead and predict supply and demand for your property in upcoming weeks or months, so you can market and price strategically to maximise your profit. A big part of forecasting is looking at past performance, current market trends, and known events that will occur. This helps prevent you being caught out by anything you weren’t prepared for. 

2. Segmentation

Identifying different guest segments that stay at your hotel will let you see which segments are more profitable for you. You can then focus more of your marketing and sales efforts on that market. For instance, maybe you find that travellers in the baby boomer segment stay longer and purchase packages more often than millennials or families.

3. Room pricing and rate strategy

Obviously you need to figure out how you’re going to price the rooms at your bed and breakfast or small hotel. Take into consideration the type of room and bed, if there is an attached private bathroom, if the room offers other special amenities such as heated bathroom flooring, pool, hot-tub or gym, if there’s a great view, or if there is a parking space provided.

4. Channel mix

You need to decide which third-party channels are right for you and what proportion of bookings you want to get from OTAs vs direct. Generally, it’s a good idea to diversify your channel connections, making sure you’re working with a good mix of domestic, international, local, and niche channels that attract the full range of guests you typically welcome at your property.

5. Measuring performance

Tracking and analysing your performance regularly is the only way to improve over time. There are a number of common metrics you should use to identify how well your revenue management strategy is working. These include your occupancy rate, your average daily rate (ADR), Revenue per available room (RevPAR), Total revenue per available room (TrevPAR), Gross operating profit per available room (GOPPAR), and Revenue per occupied room (RevPOR). Tracking metrics allows you to have an analytical understanding of the success of your B&B.

6. Clear reporting

With the right reporting tools allowing you to make smart decisions quickly, you’ll notice a steady increase in your revenue. You can use your property management system (PMS), such as Little Hotelier, to draw up essential hotel reports for specific periods of time to know if you have the correct pricing strategy in place. 

For example, Little Hotelier lets you generate reports for:

  • Average occupancy rate
  • Average length of stay
  • Average lead time
  • Average revenue per booking
  • Revenue per available room
  • Average daily rate
  • Dollar value of cancelled reservations

Revenue management examples hotels use

A number of proven, strategic revenue management tools and tactics can help your hotel to maximise revenue and profit. These see a hotelier pulling different levers to pique the interest of potential guests at key moments, ultimately winning their business. The following revenue management examples represent just a few of the ways that you can adjust pricing and inventory based on market demand and customer behaviour.

Dynamic pricing (open pricing and over pricing)

Dynamic pricing is a nimble revenue management approach that sees a hotelier adjust their room rates to reflect market demand. Instead of setting one room rate for an entire season, dynamic pricing considers demand factors like school holidays, public holidays and long weekends, local events and more to identify dates in a given period that will have higher demand, then set the highest room rate that a guest will be willing to pay. You need to be careful to avoid over pricing, however, as this can result in your rooms being empty at the most profitable times of year.


A practice that is common in the airline industry, and that is beginning to be utilised in the hotel industry, overbooking is one of the more risky hotel revenue management strategies, but if you have a deep understanding of guest behaviour, it can be an effective way to maximise profit. Overbooking is the practice of deliberately selling more rooms than you have available, to offset the lost revenue of no-shows and last-minute cancellations. This is one of the more divisive hotel revenue management solutions, and a hotel needs to be very careful with it, as doing overbooking wrong can have a real impact on the reputation of your hotel.


A tried and tested method for revenue management in the hotel industry, upselling sees you offering extras and add-ons to guests, either during the booking process (particularly for direct bookings) or when they arrive at your hotel.

Length of stay control

The cost of cleaning and resetting your rooms is significant, so the less you need to do it, the greater your profit margins will be. Many hotels put a minimum stay in place, particularly during more popular times of year, to remove those high effort, low reward one-night stays.

Last minute deals

Revenue management in hotels is first and foremost about ensuring your rooms are full, because an empty room is a loss-making room. Last minute deals are a great way to maximise capacity, although you need to ensure that the deals you offer are still profitable ones.

Hotel revenue management strategies for your small property

At a basic level, there’s plenty you can do that will naturally improve the amount of revenue you drive, and give you more flexibility around strategic decision making.

Boost your revenue stream by:

  • Being bookable online – It really is crucial to connect to at least five OTAs and also ensure you have an online booking engine integrated with your website.
  • Offer guests extras – This not only increases your revenue but also enhances the experience for your guests.
  • Personalise upsell offers – Your upselling will be much more effective if you can match your offers with your guest’s preferences and profile.
  • Enforce policies – Policies such as a minimum and maximum stay length or cancellation fees can ensure you are maximising profit at all times.
  • Ancillary revenue – Selling products that you use at your hotel such as soap or candles, or letting guests purchase breakfast or a massage will pile revenue on top of what you’re already earning from your rooms.
  • Account for the seasonality of your property – Your pricing must be fluid, not static. When there is high demand, you have the freedom to increase your rates to earn more revenue. In low season, you could try using packages and bundles to entice guests with convenience. 

Most importantly, always seek help in the right places. There are many expert consultants in the industry that know exactly how a small property should be optimising their revenue. There are also technology providers, such as Little Hotelier, that are specifically designed for small accommodation providers – giving you an all-in-one solution.

By Dean Elphick

Dean is the Senior Content Marketing Specialist of Little Hotelier, the all-in-one software solution purpose-built to make the lives of small accommodation providers easier. Dean has made writing and creating content his passion for the entirety of his professional life, which includes more than six years at Little Hotelier. Through content, Dean aims to provide education, inspiration, assistance, and, ultimately, value for small accommodation businesses looking to improve the way they run their operations (and live their life).