One of the major frustrations when talking to owners, operators, and virtually anyone in the hospitality industry about revenue management is how quickly the conversation turns to the absolute loftiest talking points, while neglecting the bread-and-butter of what our profession is really about: making you money. When talking to prospective clients, often the first thing I get grilled on is "How can you reduce my OTA market segment contribution?" or something of that nature. Only after cracking open their books do I realize that the hotel is running 60% occupancy, missing sellouts like nobody's business, and is down 25% year over year in the local negotiated market segment.
This happens so often, in fact, that I noticed parallels between hotels and people. You'll probably agree that hotels themselves take on a kind of life of their own and develop personalities. You may notice that your hotel is priced neurotically, with big swings between weekday and weekend rates; has mercurial occupancy that plummets from 90% on Wednesday to 40% on Thursday; and has a Machiavellian sales force but is a bit of a softy on the operations side.
Back when I was in college and had delusions that I would be psychoanalyzing people — rather than hotels — on a Freudian fainting couch, I took my fair share of psychology courses before getting on my more fruitful hospitality-business trajectory. I mostly remember the greatest hits: Pavlov's "dingaling-aling woof woof" experiment, Skinner boxes, the Stanford Prison study, object permanence, and the crème de la crème of my (very basic) psychology tutelage: Maslow's Hierarchy.
If you aren't familiar with Maslow's Hierarchy of Needs, it basically ranks and categorizes people's psychological development based on how their needs are being met across a range of criteria — from the basics (food and water) to the more complicated (self-esteem and the ability to be creative). I noticed some big parallels between what makes a great hotel and a great person — certain qualities I saw in the best teams I've worked with, and what was lacking from the worst. Below I'll try to parallel Maslow's hierarchy and translate it to the characteristics of hotels.
Stage one: bookable and grounded in reality
The first level of our revenue management hierarchy of needs is basic. Within this level I would put a few different criteria: the hotel should be discoverable and bookable online, and should have a pricing structure that is at least grounded in reality — premium room types priced higher than basic room types, and the compset considered even if there is no daily rate shop. At this stage, the hotel is not participating in any dynamic revenue management activities, except for occasional reactionary rate changes based on extremely obvious cues. I would guess roughly 90% of hotels are meeting at least these criteria — and if a hotel is not, then the higher levels of our hierarchy are far out of reach.
Stage two: the ability to analyze data
The second level is the ability to analyze data and have a dedicated revenue manager — even if it is not a full-time revenue manager (it may be a GM who also has an interest in changing rates and looking at pickup reports). On the reporting and analytics side: the hotel should have a way to look at past performance, decision-makers should be able to look at occupancy for future arrival dates, and there should be access to a reliable competitive rate shop. We don't have deep, critical analysis of the data at this phase, but the ability to look at occupancy, pickup, and compset pricing begins to unlock higher tiers. I would estimate 75% of hotels meet or exceed these criteria. This step has some of the tools required to make more advanced decisions, but decisions are still made on "feel" rather than data.
Stage three: specialization, with flaws
The third level is where we begin to see differentiation and specialization in the hotel's roles — but only at a basic level. At this phase, the hotel has a revenue manager, an operational leader, and a sales leader, all of whom are individuals who can dedicate themselves to their respective tasks (even if it's a taskforce GM, an RM with six other properties, and a regional salesperson). This is an improvement over the first two steps, but still has big flaws:
- The operations team has trouble selling out and is not confident walking guests. Perfect sell-outs are often luck-based, and the team has bad habits such as blocking rooms for house use on busy dates.
- Basic coding practices are in place, but laziness at the front desk leads to an unnecessarily high number of rate overrides and missed sales leads.
- Sales makes rogue decisions — booking groups and offering negotiated rates with no input from revenue management.
- Revenue management has strategy calls, but doesn't have full buy-in from operations and sales.
- Too much of the revenue manager's time is spent making reports and manually forecasting, with too much reliance on home-brew Excel.
- Often one leg of the three-legged team has too much say — for example, a GM who vetoes potentially beneficial strategies that challenge the status quo.
- Some of the team clings to archaic beliefs: "OTAs are the enemy," or "We have to give certain accounts LRA because they've been with us for so long!"
Most hotels are at this phase in the hierarchy, and the primary goal of revenue management is taking hotels from stage three to stage four.
Stage four: a genuine revenue-management culture
The fourth level is the major turning point where we can begin to make the critical decisions required to get to the final step. Hotels in the fourth level have a cohesive, three-pronged team that divides and conquers to add value to the whole operation. This includes:
- A sales team that actively communicates with revenue management, asks for advice on pricing, considers displacement when booking groups and corporate business, and is engaged in revenue meetings. A good sales team maintains healthy account relationships and is unafraid to request higher rates when agreements expire or room-night expectations aren't met.
- An operations team that can execute perfect sellouts more than 50% of the time, is comfortable in light oversell situations, and can enforce stay restrictions and cancellation policies.
- A revenue management team that confidently leads weekly calls, makes data-driven decisions, and has the other two branches on board.
Revenue managers at this stage are not simply raising and lowering rates — they are yielding lower-rated business, supplementing occupancy on soft dates, and driving rate on days forecasting above supply. Other hallmarks: stronger RevPAR than the compset, consistently accurate demand and revenue forecasting, and reliance on market-segment-level data rather than just top-line occupancy.
So how many hotels are at this level? Maybe 10% to 20%. This is the biggest leap of them all, and where you can begin to say the ever-elusive "revenue management culture" exists. For most intents and purposes, this is the level all hotels should aspire to — because even the strongest hotels typically alternate between cycles of stages four and five.
Stage five: self-actualization
The self-actualization level represents a hotel at the absolute top of its game. Hotels in this stage are very rare, and may not be able to stay there for extended periods, as seasonality reduces demand or certain days of week are historically soft. What's going on at this level?
- Reporting capabilities allow analysis down to the reservation level, rather than just the market-segment level — maximum detail for strategy decisions.
- Revenue management has buy-in from all team members and ownership. Sales and operations are present for all weekly revenue calls. Ownership does not make capricious recommendations for the sake of "mixing things up."
- Occupancy is consistently high (85%–90% or higher) with multiple consecutive sell-outs. Missed sell-outs are the exception, not the rule.
- The revenue management team can try creative strategies thanks to persistent excess demand and confidence in its forecasting tools.
- The revenue manager is not burdened by manually creating forecasts or pulling disparate reports.
- Occupancy is high enough that the revenue manager can begin to focus on channel optimization and driving more direct bookings.
What percentage of hotels are truly at this coveted level? Maybe 2% to 5% during certain points of the year, with possibly only the top 1% maintaining it year-round. This near-perfection is not just for five-star properties — some select-service and midscale properties reach it too, but it requires a phenomenal amount of effort, a great team, and a robust reporting solution.
I won't lie to you and tell you I'm at level five with all of my properties — most are in the process of rising from stage three to four, with my strongest properties being level-four properties that occasionally break into stage five only in high-demand seasons. Realistically, level four is where all hotels should aim, and then slowly work to fine-tune the three sides of the hotel equation to begin to see flashes of brilliance.