As hotel markets begin to see demand return, revenue managers now need to start conducting some housekeeping on their strategies rather than just reacting to the inconsistencies in the market.
Room type efficiency analysis is one aspect of revenue management that is often overlooked while having a huge potential to improve your profitability.
Ask yourself, are your hotel room types all contributing equally to the bottom line… Odds are, there are winners - and losers.
The big challenge many revenue managers face, particularly as we return to business, is figuring out which room types are most profitable - and preferably, at which times - and which rooms aren’t holding up their end of the bargain. And then do something about it.
This should be a necessary part of your revenue management strategy, especially if you have more than a few room types or room type categories.
3 Factors to Auditing Room Type Performance
In order to start auditing your room type performance, consider the following:
- Can you identify and measure the profitable contribution of each room type?
- Are there some outliers that tend to remain empty most of the time and drive your revenues and profits down?
- Are you selling out of the highest performing rooms too soon and thus leaving money on the table?
Each room type may have a different demand pattern, so it’s vital to track each one independently. The key is to observe the booking pace of different room types during different demand seasons and increase (or decrease) the difference between them to maximize revenue results.
For example, during the summer season, your 2-bedroom suites may be more popular if your hotel attracts family business. But then you might find that you get more corporate clientele (single occupancy) during the winter season.
A revenue management system can help you optimize room-type profitability quickly and efficiently. However, if you’re still managing revenue manually, here are some steps to consider:
First, you need to calculate the average occupancy per room type over a 12-month period. This might feel counterintuitive right now, but it’s still a necessary exercise. Then do the same exercise by month to see if the results change based on season, or other criteria you’re looking to analyze (e.g., comparing event vs. non-event travel).
This actual 47-room property provides a good example of this analysis:
In the table above, three room types are always sold out (during the given date range): BV1K, PS1K, and ST1K. This means that the prices for those can be increased to capitalize on the ADR.
Looking at the table above, we can also see two room types that are running at relatively low occupancy: OVSU and PVSU, which happen to be suites. This could mean that the hotel is overcharging for those, so you might consider slightly decreasing the differential to be able to increase production from those two room types.
Now, all we need to do is to adjust the differentials to ensure that all room types equally contribute to the revenue production of the property without leaving money on the table. Then - sit back, relax and watch the magic happen. Check the same data in about 30 or 60 days.
This is how the same 47-room hotel looks after the differentials have been adjusted.
There’s still some room for improvement but… doesn’t this look a lot better? All room types are now generating revenue more profitably. If this is done right, this may equate to tens of thousands of dollars every month for a given hotel, compared to a less optimal room type strategy.
Applied manually, this may seem like too time-consuming an audit to run. But consider the loss of revenue. A modern RMS can help you automate the process, saving you time and increasing accuracy.
Taking it one step further, your RMS should allow you to manage each room type independently and dynamically fluctuate your differentials. This ensures you can always flex the most optimal strategy for your entire property and adjust your base room type category. We call this Open Pricing.
Want to learn how Duetto RMS can help you automate room type optimization? Contact us to arrange a demo.
Ira Vouk is the Senior Director of Product Management Data & Analytics