What is the Best Strategy to Increase Hotel Occupancy and Revenue?

Be clear on your overall objectives

Before you can decide on a strategy to increase financial performance, you need to have a clear idea of what your objectives are. First of all, in relation to this question, while occupancy is directly related to revenue it is only one piece of a complicated puzzle. In fact, you could increase your occupancy dramatically and simultaneously see an overall decrease in revenue. Room revenue will always be a direct function of occupancy and room rate, but even then, optimizing room revenue may or may not be the best strategy to optimize total hotel revenue. Furthermore, optimizing total hotel revenue is yet just another step in the higher prize, optimizing the profitability of the hotel (for the moment we’ll side-step questions of balancing profitability with social responsibility and stick to profitability concerns).

Your strategy needs to be holistic form the onset

You can’t start with strategies for driving occupancies and later attempt to dovetail those into overall property profitability. The approach from the beginning needs to be deciding on bottom line objectives and then structuring strategies that mix cost control with revenue generation from rooms, food and beverage, and other revenue generating departments. These strategies need to take into account both short term and long-term objectives.

On the revenue side, you may have a traditional business hotel supported by guests looking simply for convenience at a reasonable price. In such a case, the room revenue strategy may be the focus with food and beverage adding ancillary revenue primarily driven by those in house business guests. On the other hand, you may have a lifestyle hotel with guests looking for a more social and active experience. This type of hotel may even fulfill aspirational or psychological signaling desires of guests (including leisure and business guests). There may be a large food and beverage component with multiple outlets driving brand image and association desirability. In this case, the food and beverage components may drive a substantial (or even majority) part of the total hotel revenue and could also directly drive increases in room rates and occupancies. So again, the first step is understanding the holistic profitability strategy and aligning all cost and revenue strategies to that broader strategy.

Get deeper into the details, hard and soft strategies

Assuming you have this holistic approach covered and are ready to move deeper into the details, there are two basic approaches in revenue strategy to consider, hard (physical product) strategies and soft (operational management) strategies. (Some mix of the two strategies may be optimal.)

The hard strategies include asset management approaches primarily dealing with how to upgrade or reposition the physical product to better enable the property to capture demand. The soft strategies relate to management driven approaches ranging from PR and marketing to revenue and distribution channel management.

Focus on soft strategies first, bet first on revenue management

In terms of return on investment, as a first step, soft strategies will virtually always yield higher returns. You can start tearing down restaurants and renovating rooms, but be sure you have fully optimized your operational management approaches first. A renovation or reposition should not be the default course of action for increasing revenue.

PR and marketing strategies are a traditional approach to increasing revenue, there may be some low hanging fruit here, but most likely the best and quickest bang for your buck will be in an increased focus on revenue management. Revenue management, including distribution channel management and inventory control will 9 times out of 10 give you your best ROI on revenue driving strategies.

Top Revenue Management Strategies in a Nutshell

While a deep dive into revenue management is beyond the scope of this short article, there are few common structural mistakes that are easy to avoid when building revenue management strategies:

1. Hire properly trained and experienced revenue managers. Don’t promote reservations managers to this positions without specific and proper training.
2. Make sure your revenue managers report directly to the GM. There is an inherent conflict of interest between those driving revenue (sales and marketing) and those optimizing revenue. The GM needs to make the final call when there is disagreement in revenue strategies, not Directors of Sales and Marketing.
3. Ensure weekly revenue meetings with business heads are mandatory. The meeting should be led by the revenue manager, but the GM must be in attendance. Don’t make this meeting a supplemental meeting to a sales and marketing or other meeting. A clear agenda and action item list are a must.
4. Invest in systems that promote data collection, interpretation and integrity. Make sure you have IT systems that enable proper data collection and offer tools for analysis and interpretation. Get the right IT solutions including property management systems, point of sale systems and revenue management software.