Do Small Hotels Really Need a Revenue Management System? The Numbers Say Yes

Oftentimes I hear from smaller properties that they don’t need a revenue management system because of their size. While I understand that smaller properties try to keep costs low and they often feel that dynamic pricing isn’t as necessary, I believe that a revenue management system can have a return on investment for hotels of all sizes and I have math on my side to prove it!

Oftentimes I hear from smaller properties that they don’t need a revenue management system because of their size. While I understand that smaller properties try to keep costs low and they often feel that dynamic pricing isn’t as necessary, I believe that a revenue management system can have a return on investment for hotels of all sizes and I have math on my side to prove it!

As an example, let’s assume a 34 room property has an annual occupancy of 83% and an annual ADR of $189. If an RMS increases the ADR by 5%, the increase in revenue annually is $97,338. Now I know what you are going to say, I can just raise my price by 5% and get that same increase without incurring the costs. If you were to try that and increase rates across the board, you may not see the return you are looking for, because an annualized ADR and annualized occupancy rate experience variation throughout the year. 

By increasing rates by 5% across the board, you risk losing business to competitors in some months and  not compensating for that loss with a large enough increase in the high season. The decrease in occupancy could ultimately result in a decline in revenue year-on-year. An RMS is able to analyze current market dynamics to ensure rates are optimized for every single day of the year to remain competitive and to maximize revenue on days when demand is highest. This intricate balance between ADR and Occupancy is where an RMS can ultimately help you to maximize your revenue.

In the above example, the overall increase of rates by 5% results in a decrease in revenue of -2.28% year-on year. In the example with an RMS where each month sees its own fluctuations, ADR has increased by 5% overall and the revenue increase is 5.14% year-on-year. 

Additionally, and this is especially crucial for small hotels, you can save a significant amount of time. With a revenue management system in place you can be sure that your rates are optimized for the next 365 days and more, every day. The system will analyze the competitive pricing and capitalize on any anomalies or high demand dates. The system will send you reports so you can oversee it in your hotel’s image, without requiring you to spend a few hours a week doing manual adjustments. And while those hours can be quantified in terms of salaried hours saved, I prefer to qualify them as opportunity cost. Especially when it comes to small hotels, what else can you be doing with those hours and how would those tasks benefit the hotel.

Historically an RMS has been a huge investment, but that is no longer the case. Rate Yield is accessible for any budget and offers flexible month to month billing so you can be confident that the return is there for you without committing to a lengthy contract term or an upfront lump sum payment. Reach out today to see how Rate Yield can help you to yield more revenue!

Rikki Cavanagh is the Director of Business Development at Rate Yield. Connect with Rikki on LinkedIn.

About Rate Yield

Rate Yield was created in 2019 by seasoned Revenue Management consultants with over 30 years of experience within the field. Rate Yield RMS was designed to adapt to small hotels, inns, and resorts as well as large hotels in city centers. With settings and thresholds that can be modified against a hotel’s unique market trends, Rate Yield makes it more accessible than ever to implement AI in revenue management strategies. With real-time insights, agile strategy development, modules for budgets and forecasts, as well as a tool for displacement analyses, Rate Yield provides a complete software that will help your hotel to yield more revenue, period! To learn more, visit us at www.rateyield.com