Every hotelier aims to boost profitability, yet many struggle with fragmented strategies - adjusting rates, switching distribution channels, or analyzing data without an overarching plan.

The problem is that most small—to medium-sized hotels lack a comprehensive revenue management framework that drives long-term profitability.

Revenue management is no longer just about setting the "right" price for a room. A solid framework integrates data-driven decisions, dynamic pricing, guest segmentation, and cross-departmental collaboration. Hotels that master this framework don't just survive; they thrive.

This blog post examines the three critical components of a successful revenue management framework and provides practical advice for hoteliers who want to elevate profitability

1. Market Segmentation and Demand Forecasting

Why It’s Critical

Revenue management begins by defining which guests you want to stay at your hotel, not just understanding who has already stayed there. The desired guest profile represents a vision and a goal for the property. Identifying these target guests directs pricing, marketing, and operational strategies.

Hoteliers must also determine whether these ideal guests travel to the destination year-round and across all days of the week. Understanding these travel patterns allows hotels to align their strategies with guest behavior.

After defining the target audience, the next step is conducting a comprehensive analysis to assess whether these guests currently book at the property. A robust business intelligence tool is essential to effectively analyze guest behavior and booking patterns.

Micro-market Segmentation
Market segmentation combines multiple variables to create micro-segments, allowing hoteliers to tailor strategies more precisely. The segmentation process typically includes:

• Travel Reason: Business or leisure.
• Guest Origin: Domestic or international.
• Distribution Channel: OTAs, direct bookings, corporate contracts.
• Booking Behavior: Early planners, last-minute bookers.
• Length of Stay: Short-term vs. extended stays.

By combining these variables, hotels can identify micro-segments and analyze:

• Volume of bookings
• Average rates
• Total revenue per segment
• Customer acquisition costs

This analysis helps determine the most profitable micro-segments, guiding marketing and sales strategies to focus on high-value guests.

Demand Forecasting
Once the target audience is well-defined, forecasting demand becomes more accurate. Demand forecasting enables hoteliers to predict when target guests will visit based on:

• Seasonal demand patterns (high, shoulder, and low seasons)
• Weekly patterns (weekend vs. weekday stays)
• External influences such as holidays, local events, and weather conditions

Aligning pricing and operational plans with these insights allows hotels to capture maximum revenue during peak-demand periods while optimizing occupancy during low-demand periods.

How to Implement

• Conduct a thorough analysis of existing guest data using a robust business intelligence tool to compare the current customer base against the target audience.

• Set a base price based on the target audience's willingness to pay, ensuring perceived value aligns with pricing.

• Adjust prices dynamically—raise rates during high demand to capture the full market value and reduce rates strategically during low demand to maintain occupancy.

• Align marketing and operational strategies around the target audience’s preferences, from personalized offers to curated guest experiences.

2. Not So Dynamic Pricing

Why It’s Critical

Every hotel should have a Revenue Management System (RMS). Setting and updating rates and availability has become more complex. Without automation, it's impossible to follow the golden rule of revenue management: Set the right price at the right time and in the right channel.

However, not all dynamic pricing is created equal. Many RMS solutions follow a simplistic pattern: If there are rooms left to sell and no recent pickup, the system will lower the rate to find the market price at which bookings resume. While this approach may work for generic hotels, it can backfire for properties that have defined a specific target audience.

Lowering rates indiscriminately may attract guests outside the desired profile, potentially damaging the guest experience. Guests generally prefer staying in environments where they feel comfortable among similar travelers.

The Importance of a Tailored Pricing Strategy

Before implementing an RMS, it’s essential to:

• Define a pricing strategy that aligns with the target audience’s willingness to pay and perceived value.
• Communicate your strategy to the RMS vendor, ensuring the system is configured to reflect your unique positioning.
• Monitor and calibrate the system thoughtfully. Over-adjusting settings prevents the system from learning market patterns and limits effectiveness.

How to Implement

• Adopt a Revenue Management System (RMS) that enables dynamic pricing tailored to your target audience.
• Set pricing rules that prevent rate drops below thresholds that could alienate your desired guest segments.
• Monitor competitor rates but avoid reactive pricing that could trigger detrimental price wars.
• Optimize distribution channels by prioritizing those that align best with your target audience’s booking behaviors.
• Create value-driven packages (e.g., spa treatments, dining experiences, or excursions) that justify higher rates while enhancing total guest spend.

Continue to read about the third critical component of a revenue framework here.

Anders Johansson - Follow Anders

Founder and CEO @ Demand Calendar | Creating Profitable Hotels