Revenue management for small accommodations explained

A room you sell for the same price all year brings in less than that same room with a price that moves with demand. That's revenue management in one sentence, and you don't need expensive software to start.

Revenue management sounds like something for chains with their own department and a software package costing thousands of euros per year. That picture is wrong. The core is simple: you ask more when many people want a room and less when it's quiet. A B&B with 6 rooms can do that with a calendar and three price levels, without buying anything.

The term comes from aviation. An airplane seat that leaves empty is lost revenue forever, so airlines vary their prices per day, per hour and per demand. A room works exactly the same: an empty night, you never get back. Hotel chains took the logic over, and there's no reason why a small accommodation shouldn't apply it. The only difference is scale and complexity, not the principle.

In this article I explain what revenue management is, what it concretely delivers with a calculation example, and what order you start in. For the two parts where you really turn the dials, your price and your occupancy, I refer to two follow-up articles with steps.

The problem

Suppose you have 6 rooms and you're now running the same price of 95 euros per night all year. That feels fair and clear. It's also the pattern that leaves the most money on the table.

In July and August you're full. People would also pay 120 euros, but you ask 95. That difference of 25 euros per room per night you miss out on, every night, a whole summer long. In November your rooms are half empty. For 75 euros you could have sold a few extra nights to cyclists or business guests, but you stick with 95 and the room stays empty.

So a fixed price is expensive in two ways: you ask too little in high season and too much in low season. Revenue management fixes both by letting your price move with demand.

The two numbers it all comes down to are your ADR (average daily rate, your average room price per night across all sold rooms) and your occupancy rate (what percentage of your rooms you sell). Together they determine your revenue. Revenue management is nothing more than turning those two dials so the outcome is higher.

The tricky part is the two dials work against each other. Set your price too high and occupancy drops because guests book elsewhere. Set it too low and you're full but leaving margin on the table. The art is finding the price where you just reach full occupancy when demand is there, and low enough to fill nights that would otherwise stay empty. That sounds complicated, but in practice you solve it with three fixed prices and a glance at your calendar. You don't need to calculate per night, you just need to separate the busy and quiet periods.

Calculation example

Take the same room, a whole month long, in two scenarios. Left is the fixed price of 95 euros. Right is a smart variable price: more on weekends, less on weekdays in low season, full price during a busy week.

For simplicity we calculate with one room, a 30-night month, and a low-season month where demand varies.

The difference isn't in a higher price alone. It's in the lower weekday price filling more nights (from 8 to 12 sold) and the higher weekend price bringing in more per sold night. You sell more nights and earn more per night.

This is one room. Have 6, and you roughly multiply this by six. In this example that's over 2,000 euros extra revenue in a quiet month, without you investing a euro. In high season, when you're full anyway, the higher weekend price weighs even heavier.

Also calculate for your situation. In the savings calculator, enter your own room price, occupancy and number of rooms and see what smarter pricing brings you per month.

Step-by-step plan

You don't have to do everything at once. Revenue management for a small accommodation is a matter of starting in the right order.

1. Set three price levels. A low rate for quiet weekday nights, a normal rate, and a high rate for weekends and busy periods. Start simple: for example 75, 95 and 120 euros. You refine later.

2. Mark the busy and quiet periods in your calendar. Weekends, school holidays, local events and festivals are high demand. Weekdays outside season is low demand. A festival 10 kilometers away can suddenly make a quiet Tuesday full, so keep the regional calendar.

3. Hang the right price level on each period. This is the heart of dynamic pricing. How you set that smartly per night and per channel, with concrete rules and pitfalls, read about in dynamic pricing for your hotel or B&B.

4. Steer on your occupancy and ADR together. High price with empty rooms is just as bad as low price with full rooms. How you get both up at the same time is in raising occupancy and ADR.

5. Fill the gaps that remain. Even with good prices you'll have quiet nights left over. What you can concretely do about that, from last-minute offers to attracting a different guest type, read in filling empty rooms and specifically for the slow months in filling low season.

6. Evaluate monthly. Look back: which nights stayed empty, where did you price too low, where did you sell out fast (a sign you could have priced higher). Adjust your three levels based on what you see.

Common mistakes

• Running one price all year. This is the most expensive mistake and the easiest to fix. A weekend night in July is simply worth more than a Tuesday in November. Charge accordingly.

• Dropping too late in low season. An empty room brings zero euros. A room you sell for 70 euros brings 70 euros. Sticking to your high season price in a quiet week is not discipline, it's giving up revenue.

• Only steering on price and forgetting occupancy. You can raise your price until your rooms stay empty. Revenue management is the balance between price and occupancy, not the hunt for the highest price. See raising occupancy and ADR for how to watch both.

• Thinking you need software to start. A revenue management system (software that automatically calculates prices based on demand) is useful with more rooms or if the manual work takes too much time. But your first hundreds of euros in extra revenue you get with a calendar and three rates, no subscription.

• Setting your direct price below your Booking price. That looks clever but Booking usually requires equal rates and can punish your position if you break this. Make direct booking attractive with extras (free cancellation, late check-out), not with a lower price. What Booking costs you now, you work out in Booking.com commission calculated per night.

• Setting prices and never looking at them again. Revenue management is not a one-time action. An event you missed, a week that filled faster than expected, a month that fell short: those are signals to adjust your rates. Someone who sets prices once a year and stops is missing exactly the moments where it makes the difference. Half an hour per month looking back is enough.

• Only focusing on the weekend. The biggest win often isn't in your busy Saturdays, because you sell those anyway. The win is in the weekday nights in low season that stay empty now. A lower rate that fills a Tuesday in November counts just as hard in your monthly revenue as a higher weekend rate.

What you can do now

Revenue management is not a project of six months and not a software package you first have to learn. It's a way of looking: ask more when demand is high, ask less when it's quiet, and keep your price and occupancy together in view.

Start small. Set three price levels in your calendar for the coming three months and evaluate after a month what it did. Then you refine. The two parts where you get the most out, your pricing and your occupancy, each have their own article with steps: dynamic pricing for your hotel or B&B and raising occupancy and ADR.

First calculate what smarter pricing brings you through the savings calculator. Want someone to look on and help set up a pricing strategy for your accommodation, we discuss that at marketing for hotels.