The Importance of Revenue Management

Ledger Bennett Insights, Measurable Results, Revenue

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For successful businesses to remain lucrative and strong, organizations need to employ a certain level of introspection. Common areas for scrutiny include operations, management, coordination between teams and adoption of new tools and technologies. But today we will focus on one area that really deserves more attention — revenue management.

What is revenue management? Broadly speaking, revenue management is data-driven strategy meant to predict and inform the best times and ways to maximize revenue generation based on customer behaviors. This is not to be confused with strategies that try to sell the most product, mind you. But rather selling the right product or service to the right customer at the right price to benefit your business.

Below we will look at a few of the basics of revenue management, as well as ways to optimize strategies and operations to meet your goals.

The basics behind revenue management

Revenue management is a specific kind of program. And because of that, it’s often thought to be a consideration consigned to the hospitality industry which includes hotels and resorts, which is true to an extent.

For example, a hotel might have two rooms available for Thursday night. Once Friday morning begins, the opportunity to sell those two rooms is gone. To combat potential lost opportunities, management might slash room rates by 50 percent to motivate bookings for Thursday; or may keep the prices at the current level in case only one room is booked rather than two.

Applying the principles of revenue management, the hotel’s management might decide that lowering the price by 30 percent might instigate customers to reserve rooms for additional nights, thus resulting in higher revenues and more bookings at a lower price.

Revenue management is all about forecasting demand and pricing sensitivity and matching those factors to determine your price. Ensuring that these factors work in your favor requires a great deal of knowledge about your customer base.


The necessary conditions for revenue management include:
• A certain level of predictability within your industry or business.
• A fixed amount of resources meant to be sold at a certain time.
• A diverse customer base made up of people willing and able to pay different prices for the same commodity or service.
• A perishable product or service which can only be sold within a fixed timeframe.
• Fluctuating demand.

The above criteria match the hospitality industry perfectly, which is why it is typically the go-to illustration for revenue management. However, it’s not the only example. Other industries that could benefit from revenue management include tourism, travel, restaurants, events and entertainment, automotive sales, the financial sector and many others.

Challenges facing revenue management

The road to better revenue management, like any other business optimisation, includes a few hurdles along the way. Below are a few challenges to think about as well as suggestions to ensure you’re headed in the right direction.


Communication Breakdown
One of the challenges facing revenue management is a disconnect between various teams such as Marketing and Sales. Salespeople and Marketers might be focused on one set of goals while Revenue Managers are focused on another. Poor communication (or no communication) results in a tug of war which pulls your organization in different directions without really moving anywhere at all.

For example, Marketing and Sales teams are pushing for more bookings around the holidays; meanwhile the Revenue Management side of the business understands that holiday bookings are a given and would prefer Marketing and Sales to push more for autumn bookings to prop up a slow season.

By aligning teams and putting emphasis on good communication, everyone can work towards the same goal of optimizing revenue across your teams.

Channels and Outreach
Another common challenge facing revenue management determining the proper channels to attract prospective customers. Is it best to nudge leads with an email marketing campaign or are social promotions more attractive? Is it better to spend time following up with would-be customers via phone calls or via emails? How do you get the most responses from your existing lead pool?

To properly build an outreach strategy, it’s crucial to understand that each channel has its place in a coordinated Marketing plan. Prospective customers likely use email, text, phone and social media daily, so pursuing leads on each of these channels has its benefits.

Of course, following up via each channel takes a lot of time and effort which is why some companies are adopting Artificial Intelligence (AI) solutions to lighten the load. Yes, AI might seem a more ethereal topic to some. But in reality, AI is affordable, powerful and within the reach of many businesses, no matter their size or vertical.

Sales AI Assistants Aid Revenue Management
One such example is a Sales AI Assistant which autonomously reaches out leads via email or text and nurtures them into opportunities. At the moment the lead is deemed “Sales-ready” it is passed by the AI Assistant to a Salesperson to close the deal.

How does this aid revenue management? AI Assistant can be aimed at various pools of potential customers to elevate Sales-ready leads that simply don’t make sense to send your employees chasing after. For example, a prospect may have been previously interested in your product, service or booking, only to abandon their plans and disappear. It probably doesn’t make sense to have a staff member follow up four, five or six times to get this person talking again. But an AI Assistant who has nearly unlimited capacity can nurture this lead until they are ready.

Sales AI Assistants differ from typical email marketing outreach campaigns by operating autonomously and developing original, human-like conversations for each message.

Overcoming Data Issues
The final hurdle we will look at today is the data issue. To properly develop a revenue management plan, businesses need to rely on better data rather than more data. For instance, many hotels rely on historical data to determine seasonal peaks and downturns. Unfortunately, this methodology is far from perfect. What businesses really need is data that looks towards the future so businesses can strategize for what lies ahead.

The goal is to empower teams for long-term planning while simultaneously allowing for short-term agility to tackle challenges on a day-to-day basis.

Revenue Management Software (RMS) handle many of the complex operations behind revenue management so you can focus on strategies. Various RMS solutions pull data from your own business and the wider market to help you make informed decisions about how to run your business including rate recommendations, competitor data, revenue estimations and more.

The Takeaway

Properly leveraged, revenue management offers businesses a way to maximize their profits by matching variable price to the right customers at the right time. This isn’t always easy, so it helps to coordinate your efforts with the teams inside your organization and to adopt the right tools and technologies to inform your strategies.

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