What is a Hotel Revenue Management System and How Does it Work?

What is a Hotel Revenue Management System and How Does it Work?

Are you a hotel owner or manager looking for ways to increase revenue and boost your bottom line? 

Then you must have heard about the hotel revenue management system, RMS, but might not be sure how you can benefit from implementing it.

Moreover, adopting an RMS can help you gain a competitive advantage in the increasingly competitive hospitality industry.

Read on to learn how a revenue management system can help your hotel thrive, from optimizing room rates to forecasting demand.

Let’s dive in!

What is The Hotel Revenue Management System (RMS)?

The hotel revenue management system is software that helps hospitality companies optimize their pricing and inventory strategies to maximize revenue. 

It uses algorithms and data analysis to recommend when and how to adjust prices, allocate inventory, and target different customer segments. 

As such, it can dynamically adjust prices based on demand and availability.

What Pain Points Can The Hotel Revenue Management System Help You Solve?

The RMS helps solve many pain points hotels may face in managing their revenue.

1.  Inefficient And Time-consuming Manual Processes

Revenue management can be a complex and time-consuming task, especially for larger hotels with many rooms and distribution channels. 

Thus, the RMS can automate many of the processes involved in managing revenue, including:

  • Demand forecasting, 

  • Pricing optimization, 

  • Rate shopping, and 

  • Distribution channel management, saving time and resources for hotel staff.

2. Inaccurate Demand Forecasting

Demand forecasting is vital to optimizing revenue, but it can be challenging to predict demand accurately. 

Revenue management software can use advanced algorithms to analyze historical and real-time data to accurately predict demand, helping hotels optimize their rates and inventory.


3. Inconsistent Pricing

Manual pricing strategies can result in inconsistencies in pricing across different channels and markets. 

With the help of the RMS, you can set consistent prices across all channels and optimize pricing for different markets, ensuring that the hotel is maximizing its revenue potential.

4.  Lack of Visibility Into Pricing and Market Trends

Without access to real-time data and insights, you may be unable to make informed decisions regarding pricing and distribution.

That’s where the revenue management system jumps in – It provides real-time data and insights into market trends and competitor pricing.

Doing so can help you make data-driven decisions about your pricing and distribution strategies.

5. Limited Ability to Customize Pricing and Distribution Strategies

Each hotel has unique needs when it comes to pricing and distribution.

What’s more, without the ability to customize their strategies, hotels may not be able to optimize their revenue potential. 

However, the revenue management system can help by offering a range of customization options, helping you tailor the strategies to meet your hotel’s unique needs.

The Revenue Management System’s Key Features

1. Data Management

An RMS usually collects, processes, and analyzes data, such as reservations, point-of-sale, and customer relationship management systems.

Afterward, it uses the data to identify trends and behavior patterns you can use to establish pricing strategies.


2. Market Segmentation

This refers to dividing customers into distinct groups based on their needs, preferences, and behaviors.

Market segmentation usually involves a few factors:

  • Demographic factors, such as age, income, and gender,

  • Customer behavior, including purchasing patterns, frequency of purchase, and product usage, and
  • Miscellaneous factors, such as customer location and loyalty.

Once you’ve segmented your customers, you can develop pricing strategies tailored to each segment.

For example, you can: 

  • Offer discounted rates during non-peak times to attract price-sensitive customers while offering premium pricing to customers less sensitive to price.

  • Optimize revenue and profitability by targeting specific customer groups with different pricing offers.

Moreover, one of the key benefits of market segmentation is that it allows you to identify profitable opportunities within each customer segment.

3. Demand Forecasting

One of the key components of the revenue management system is forecasting future demand for a product or a service.

Accurate demand forecasting involves:

  • Analyzing historical data,

  • Looking at trends and changes in market conditions and 

  • Taking into account any external factors that may impact demand.


4. Optimization Models

These models usually incorporate data on demand, capacity, pricing, and revenue to provide recommendations on pricing, inventory allocation, and other factors.

Furthermore, inventory management, or capacity, involves analyzing demand patterns and making supply decisions to match the demand.

For example, if the number of products or services available is insufficient to meet the demand, you may lose potential revenue. 

Conversely, if the number of products or services available exceeds the demand, you may experience inventory waste.

Therefore, optimizing inventory management can result in significant revenue growth.

Furthermore, you can identify the optimal pricing and inventory strategies contributing to revenue.

5.  Pricing Strategy

A pricing strategy is the foundation of any revenue management system because it helps you establish and implement strategies aligning with your market position, target customer groups, and overall business objectives.

6. Channel Management

Effective channel management involves identifying and targeting the most profitable distribution channels.

Moreover, an RMS can help you adjust your strategies to maximize revenue across different channels, including direct sales, third-party distribution channels, and online platforms.

Revenue Management KPIs You Should Track

Data collection is critical to revenue management success.

The premium RMS must be able to gather and process accurate, reliable information on occupancy rates, seasonal demand trends, local events, vacation seasons, etc.

After it collects the data, it analyzes it using sophisticated algorithms to recognize trends and make forecasts to develop effective pricing strategies.

Key Performance Indicators, KPIs, refer to the important metrics that indicate how well a hotel is performing in terms of its revenue management goals.

Thus, keeping track of these KPIs is essential to make informed decisions. Let’s check the most common ones:

✨ Occupancy rate –  Refers to the number of occupied rooms at a specific time as a percentage of total available rooms.

✨ Average Daily Rate (ADR) – Represents the average price of a sold room and provides insight into the price change. 

The way to calculate it is to divide the total room revenue by the total number of rooms you’ve sold.


✨ Revenue Per Available Room (RevPAR)This is a combination of the occupancy rate and the ADR, providing an overall picture of how well inventory strategies perform.

The higher the RevPAR, the better the performance.

✨ Gross Operating Profit per Available Room (GOPPAR) – Shows the total hotel’s revenue before deducting operating expenses. 

To calculate GOPPAR, divide the total revenue by the number of available rooms.

✨ Length of stay – The LOS data points to the average number of nights a guest spends at the hotel and helps forecast future demand, inventory allocation, and pricing strategies.

✨ Forecast accuracy – Refers to the difference between the predicted occupancy rate and the actual occupancy rate.

Thus, it measures the quality of the forecasting models and can identify areas of improvement.

With the insights you gain from tracking these KPIs, you can get a clear picture of the success rate of your revenue management strategies and make informed decisions.

Moreover, you can address your customers’ needs better and boost guest loyalty.

Bonus: Revenue Management vs. Yield Management

Revenue management and yield management are terms people often use interchangeably, but they refer to slightly different concepts.

Revenue management manages the hotel’s pricing, inventory, and sales channels to maximize revenue and profits. 

It focuses on predicting future demand based on historical data and market trends and then using that information to adjust prices and allocate inventory to available channels.

Revenue management aims to sell the right product to the right customer at the right time and the right price.

Yield management is a subset of revenue management focusing primarily on optimizing inventory usage.

Yield management mainly focuses on maximizing revenue by selling inventory at the highest possible price to the customers who value it the most.

Key Differences Revenue Management System Yield Management
Application Applicable to all products and services and has a broader range. Limited to a few specific industries where perishable inventory dominates the sales set.
Focus Focuses on predicting future demand and adjusting the prices. Focuses on managing product discounts and service pricing. 

Wrapping It Up

The Hotel Revenue Management System has become essential for hotels seeking to optimize their revenue and enhance customer experiences.

Not only does it optimize your revenue management strategies, but it also analyzes different factors impacting customer behavior to create highly targeted pricing and inventory strategies. 

However, not all revenue management systems are easy to implement and use – some have a steep learning curve.

Furthermore, most RMS systems focus only on revenue management, neglecting other aspects of hotel management.

Luckily, there is a user-friendly solution that doesn’t require external assistance while onboarding and that addresses the full hotel management.

How Can OTA SYNC Help You On This Field?

OTA SYNC is an all-encompassing cloud-based hotel management system using innovative technology to:

  • Facilitate and automate hotel management and

  • Redefine the guest experience.

Therefore, OTA SYNC focuses on every aspect of hotel management, from reducing operational costs over seamless bookings to channel and revenue strategies.

So, what makes our software different?

🔥 Easy onboarding without the need for external assistance.

🔥 The multi-property dashboard that helps you manage multiple properties from one dashboard, providing a clean and comprehensive view.

🔥 Plug and play revenue booster that allows the system to independently change sales and pricing settings based on pre-set limitations.

🔥 Flexible tax and general settings you can easily set up and make them specific for different markets.

🔥 Advanced business intelligence providing in-depth business analysis, including various revenue, finance, and in-hotel reports.

🔥 Multi-Property hub so you can connect a customized booking engine to your website and drive increased bookings while improving guest experience.

🔥 Guest App that enhances the guest experience by offering tailored recommendations and tips, quick check-ins, etc.

🔥 Booking Engine shows live availability and rates, provides upselling and cross-selling of relevant products and services, etc.

🔥 Channel Manager that lets you manage and update room availability, rates, and bookings in real-time, ensuring all is in sync across OTA and booking channels.

🔥 OTA SYNC Payment Processor that lets you connect to all major payment gateways to provide safe and secure instant and automated transactions.

🔥 And the list goes on.

Enticed to see what more we’ve got in store for you?

Sign up for OTA SYNC today to ensure effective revenue generation in the long run!

Keep Learning:

5 Best Hotel Revenue Management Software to Consider

What is Property Management System in a Hotel – The Ultimate Guide

5 Key Reasons Why Hotel Revenue Decreases and Solutions

Related Posts