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Understanding the Four Primary Revenue Drivers for Hotels
By Tracy Dong - Exclusive for 4Hoteliers.com
Thursday, 8th June 2023
 

Exclusive Feature: Generating revenue is the primary goal of every business, and hotels are no exception, so to achieve success in the hospitality industry, hotels rely on four primary revenue.

These drivers are: rooms, meetings and events, food and beverage, and ancillary services. Each of these pillars plays a vital role in determining a hotel's financial success, and understanding how they contribute to the bottom line is crucial.

Rooms

Rooms are the functional backbone of a hotel, providing a clean, safe, and comfortable space for people to sleep at night. Whether rooms are being sold or left vacant is a significant indicator of the financial health of a hotel.

Rooms often receive the highest return on investment since the overhead costs are the lowest. Due to this, and the high amount of revenue rooms generate, it’s essential that hospitality organisations don’t leave important pricing decisions like pricing to manual based processes.

Utilising an advanced revenue management system (RMS) which analyses supply and demand, local events, historical and recent records, group size, and competitors’ price movements, can help hotels determine the most effective pricing strategy.

By taking a whole-picture view of how, when, and why your rooms are being reserved, you can more easily determine how to price rooms effectively. An RMS can help a hotel maximize profits from the other revenue streams as well.

Meeting and event spaces

Although profits from meetings and events took a hit during the pandemic, they are projected to outpace 2019 levels in the near future. Whether a local business is utilizing a conference room for a day, a wedding reception in one of the banquet halls, a full-week conference, or a tour group hosting a meal between outings, meeting and event spaces can operate flexibly based on demand and generate a significant amount of revenue.

Hotels can maximise revenues from meeting and event spaces by ensuring their event team considers how extra spaces can be used, such as ballrooms, gardens, and business centers. The function space revenue management module in an RMS could forecast the utilization of the meeting and event spaces, so teams can direct marketing and promotional efforts toward increasing business from the most profitable segments.

Food and beverage

Food and beverage departments within a hotel range from room service to in-property restaurants, all of which can substantially increase a hotel's bottom line. Today's travellers are busy and crave convenience. Providing room service that sets a hotel apart from local dining options, whether through extended hours, menu items, or pricing, can help increase the volume of food and beverage activity within a hotel to support revenue growth.

Not only can hotels make a lot of money through food and beverage, but they can also become significant cost centres if not managed correctly. Hotels should use demand forecasts generated by their RMS to help avoid potential waste created from food and beverage operations within the hotel.

Knowing when there will be periods of high and low demand, and which segments will be present can help food and beverage departments better plan menus and the ordering of perishable items, to ensure they order the products at the right time and avoid costly spoilage.

Ancillary services

Although ancillary services don't generate as much revenue as rooms, meetings and events, and food and beverage, they still contribute to a property's overall profits and success.

Ancillary services also offer hotel visitors a more inclusive experience. Although not everyone will take advantage of these services, those who do will be more likely to pay higher-than-average prices for convenience.

Ancillary services can help hotels differentiate themselves in a competitive market. Either through incorporating ancillary services into a personalised guest package, or simply through a guest having awareness that they could schedule a spa session after a long day or get dry cleaning in time for the big presentation. Ancillary services can elevate a hotels brand and lead to consumers choosing their location over a rival.

Effectively manage all hotel revenue departments

In an asset managers’ eyes, total revenue, gross profit and net operation income generated by the property or a portfolio of properties is a fundamental measure of financial success. While rooms are a significant source of revenue, hotels must diversify how they generate revenue to diversify their business and maximise profits.

Applying advanced revenue management techniques and solutions to the four main revenue generating areas of a hotel is critical. By taking a whole-picture view of how, when, and why rooms and other services are being reserved, hotels can determine more easily how to price their offerings effectively.

To do this, data from all areas of a hotel should be integrated to provide a true picture of a guest’s preferred activities and their overall value, as well as considering all spend from online reservations to check-out, food service to spa services, guest rooms to gift shop, and more.

In addition to making more profitable decisions, this data allows hoteliers to make more informed decisions about promotions, service offerings, and inventory levels, in order to more effectively (and effectively) run their property and support long term revenue performance.

Written by Tracy Dong, Principal Industry Consultant, IDeaS. For more information on how your hotel can better manage overbooking scenarios, please visit: www.ideas.com

This is strictly an exclusive feature, reprints of this article in any shape or form without prior written approval from 4Hoteliers.com is not permitted.

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