5 powerful reasons why independent hotels need a Revenue Management System (RMS)

We sell Revenue Management Software to Independent and small hotel chains every day. Although multinational hotel chains were quick to adopt technology such as Revenue Management Software, smaller independent hotels seem more hesitant towards it. They often believe that having a small number of rooms means there is no need for automated Revenue Management Software and instead they often opt for manual Revenue Management practices.

Small hotels often do not have a strong Revenue Management (RM) Culture nor a dedicated Revenue Manager in place. It is often the General Manager, Sales or Marketing Director or even front of house staff that decide on Revenue Strategy and make day-day revenue Management decisions. Manual RM practices do not only cost considerably more time than automated practices do, but also the manual computation of Revenue Management decisions often leads to over- and under-pricing room rates, resulting in competitive disadvantage. There are two major factors that make manual pricing decisions disadvantageous. One of them being the inability to collect and compile all the necessary information in real-time to be able to make informed decisions is near-impossible when done manually. Secondly humans are subject to a number of decision biases that affect pricing and in turn can have a huge impact on the bottom line results, such as those outlined in the For Smart Hotels article “Ten Dangerous Biases in Hotel revenue Management”.

From our point of view, Revenue Management Software is an essential tool not only for multinational hotel chains but also for independent hotels and small hotel chains. Here are the five reasons why:

To compete with branded hotels
Most if not all multinational hotels use Revenue Management Software. Most branded hotels will also have some independent or small chain hotels in their competitive set. Those multinational hotels will have a competitive advantage over the independent hotels that do not use RMS as they will have visibility about their competitors pricing strategies. To create a competitive pricing strategy you need to know what the hotels in your competitive set are doing. Having increased visibility on your competition gives you more ammunition to compete with multinational hotel groups, it allows you to react to your competitors in real-time.

To avoid costly errors
The same Revenue Management principles apply to all hotels. However smaller-sized properties tend to have less margin for error as the impact of a pricing decision for one room could represent a large percentage of the total daily generated room revenue. Pricing rooms incorrectly could have a huge impact on ADR & RevPAR performance of a small hotel. If there is a pricing error at a larger hotel, it is easier to ‘bury’ the mistake and compensate elsewhere. The fewer number of rooms the more critical pricing of individual rooms becomes.

To get to know your guests
Revenue management software will give you heaps of information about your guests for you to analyse. Looking at information in the RMS will tell you more about customer behaviour which you could use in turn to attract more bookings. Examples include the channels by which your guests prefer booking and how they react to different pricing strategies. With fewer rooms, managing booking pace and capturing the most revenue generating reservations with optimal arrival dates and lengths of stay is critical.

For efficient time management and staff planning
Effective Revenue Management can help you drive revenue and also cut costs. Having a real-time forecast of demand will help you not only for optimising your hotel room rates, but will also allow you to plan your staff levels accordingly. Planning for enough staff in peak times and not over-staffing during low season will ensure you have optimum level of service and lead to optimised costs.

To conduct more efficient group displacement analysis
Because of the limited size of the hotel, the meeting and event spaces are often also limited. Whether to accept a group or not, and under which conditions, at which price, for which days is just as or even more important for small hotels than it is in larger hotels. Revenue Management Software allows you to understand the displacement of a group of transients vs. accepting a group. When this is done right, with the right tools, it can help drive additional revenue and contribute to increasing occupancy.