Written by
Mia Kun
in
Revenue Management Based on 13+ years advising independent hoteliers on revenue management strategy, we've seen the same foundational gaps show up repeatedly. Properties that struggle with pricing and demand are almost always missing a clear grasp of the basics: not the tools, but the underlying concepts those tools are built on.
The short answer: The 8 core hotel revenue management concepts are fixed capacity, perishable rooms, advance purchase, fixed vs. variable costs, differential pricing, evolving demand, target customer, and market segmentation. Get these right and everything else, including your pricing strategy and tool choices, follows naturally.
Revenue management can be defined as "selling the Right Room to the Right Client at the Right Moment at the Right Price on the Right Distribution Channel with the best commission efficiency" (Landman, 2011).
But it can also be defined as the practice of maximizing a company's revenues while selling the same number of products or services.
Below, we will be looking at the basic terms associated with revenue management that we need to comprehend in order to succeed in this area.
Once we have a firm understanding of them, it will change the way we look at some hospitality-related products.
As you know, every hotel or property has fixed capacity. This means that there is a cap on how many guests it can host per room and how many rooms there are in total.
This provides us a total number of guests that can lodge at the same time at the property. Hence, it helps understand the limitations, since it is impossible to host more than this number.
Hotel rooms are perishable products. It means that if the room remains empty overnight, we have lost the revenue associated with it for that night. There is no way to recover it. We can’t sell that room the next day and make up for the lost revenue.
Within the hospitality industry, every day is a brand-new opportunity where we have our vacated rooms ready for selling. However, what wasn’t sold for a night can’t be stored and sold later.
A great thing about hotels is that they can be sold in advance. Rooms can be booked even up to a year in advance, 24-hour a day.
As we already mentioned, rooms can’t be sold later as they are perishable, but they can be sold beforehand giving that competitive edge to build an occupancy base as far in advance as possible.
It also gives the opportunity to reject any booking that isn't profitable, review the strategy, and adjust pricing as bookings keep coming in order to maximize revenue.
A key requirement for revenue management is the high fixed cost and low variable cost.
It means that the rooms have a high fixed cost associated to them, whether or not they are occupied.
Hence, revenue loss is inevitable every time a room remains empty. Yet, providing additional service for extra rooms sold is very little. Therefore, variable cost comes into the picture. This is where revenue management helps generate additional revenue by adding minimal extra expenses and making a difference.
The good thing about rooms is that they can all be priced differently based on amenities associated to them, such as extra services, views, size of the room or anything that gives added value to the customer.
Pricing will be covered more in depth, but it’s great to know that not everything needs to have the same price attached to it.
Customers change, seasons change and so does the demand. Not every month or every season has the same demand.
It is crucial to be familiar enough with the market to know how the demand changes based on seasonality.
Identify major events or holidays that drive demand and low season period when it is quieter in order to set up the best strategy for the hotel.
There is another variable that makes the demand change, and that’s pricing. In case there is a price sensitive demand in the market, higher rates can really hurt that demand. Just like knowing the seasons, knowing the customers is key in revenue management.
Every product is designed for someone, and it’s increasingly important to recognize the typical target customer.
We need to be able to answer the basic questions about them in order to generate a product or service they need. What do they value? The room itself, the amenities, location - the answers are unlimited. What would they pay for the room?
Identify what is the service, experience or product that they would want to pay extra for.
This takes us to the final point.
The market can be segmented. There is one main target customer, yes, but the hotel will not be filled with only that one type of customer. There will be families, business travellers, couples and solo travellers. There will be a healthy mix of all these and they form the different market segments.
Each and every one of them needs to be targeted in one way or another. Either with a service or with an amenity or simply by location.
All the segments help achieve the revenue goal set out and they are all equally valuable to the business. Most people forget that there are other segments, not just the ones that fill 60% of the hotel. Hence, they miss out on other potential customers.
Be open and inclusive, considering everyone who might want to stay.
These are the basics of revenue management, the pillars that need to be understood in order to build the correct strategy designated for the hotel.
Know how many guests can stay at the hotel, and understand that the room can be booked even one year in advance.
Understand the demand of the market and price differently when needed. See the opportunity when it presents itself. Target all the customers that can potentially stay at the property, don’t just focus on the ones that always come.
Broaden the opportunities and the revenue stream will rise together with it.
With HotelMinder, match with vetted hotel experts to solve your operational problems.
Understanding the concepts is step one. Applying them consistently is where most independent hotels fall short.
If you want expert guidance on your revenue strategy, Lobby connects you with vetted hospitality consultants who specialize in revenue management and pricing — on demand, for the scope you need.
Looking for the right tools to support your strategy? The HotelMinder Tech Index ranks revenue management systems by expert review, so you can evaluate options with confidence rather than marketing claims.
For deeper reading on pricing, demand strategy, and distribution, browse the HotelMinder Knowledge Hub.
Hotel revenue management is the practice of selling the right room to the right guest at the right price, at the right time, through the right channel. It combines demand forecasting, pricing strategy, and inventory control to maximize revenue from a fixed number of rooms.
A hotel room is perishable because any night it goes unsold is revenue permanently lost. Unlike physical goods, you can't store an empty room and sell it later. This is why pricing strategy and advance bookings are so critical in hospitality.
Rooms can be booked up to a year or more in advance, 24 hours a day. This gives hotels the opportunity to build occupancy early, adjust pricing as demand develops, and reject bookings that don't meet revenue targets.
Fixed costs (staff, mortgage, utilities) exist whether a room is occupied or not. Variable costs (cleaning, toiletries, breakfast) only apply when a room is sold. Because variable costs per room are low, selling an additional room almost always improves profitability, making revenue management a high-leverage discipline.
Differential pricing means charging different rates for different room types, based on size, view, amenities, or added value. It allows hotels to capture more revenue from guests willing to pay more, without reducing base rates for budget-conscious segments.
Because different guest types, business travelers, families, couples, solo travelers, have different needs and willingness to pay. Effective segmentation lets you tailor pricing, packages, and marketing to each group, capturing revenue from segments you'd otherwise miss.
Mia Kun, originally from Hungary, Budapest, has been living in London UK while pursuing her interests in travelling and experiencing other cultures. She graduated in 2017 from Rochester Institute of Technology (RIT Croatia) with a major in International Hospitality and Service Management.
Currently, Mia works for a leading Hospitality Company as a Revenue Manager. With years of expertise in Creative Writing at Writers Bureau, she is a published author, who has written two fiction novels, and is currently working on more titles.
Her enthusiasm to add value in multiple domains across various categories of hospitality management has allowed her to take up different projects for HotelMinder, focusing on revenue management, distribution strategies, and guest interactions for clients.
HotelMinder brings value to independent hoteliers through a Knowledge Hub, a Tech Index, and one-to-one hotel management consulting services. Since 2013, we provide actionable solutions to critical business challenges, while establishing a relationship based on trust, engagement and mutual benefit. We help hotels meet their goals through better operations, smarter software decisions, and clear, actionable advice.
Launched in 2025, Lobby is our new curated network of hospitality consultants. Lobby connects hotel decision-makers with carefully vetted experts to deliver fast, effective solutions to hoteliers’ top problems. If you are a hotelier who needs project support, unbiased information, or strategic advice, you can enter the Lobby for free.
Your trust is our top priority. Whether you're choosing technology or connecting with an expert, we're committed to transparency. Here’s how we ensure you get unbiased, reliable guidance. Learn more about our promise.
Browse Knowledge Hub
Check out the latest insights, news and articles from the HotelMinder team, industry leading technology vendors and hospitality consultants.
Cloudbeds Spring Release 2026 adds Groups & Events, Spaces, a new booking engine, Accounting, enhanced Insights, and conversational AI. Here's what changed.
HotelMinder welcomes Lighthouse as a Preferred Partner, expanding its hotel commercial strategy technology category with real-time market intelligence tools.
A hotel consultant debunks 3 common hotel technology myths. Learn why new tech isn't always the answer & how to truly optimize hotel operations for profit.
Access world-class hospitality expertise with Lobby. Our on-demand hotelier expert network offers proven solutions for revenue management, marketing, and technology challenges. Join free.
Discover more insightful articles in our Knowledge Hub and Partners Hub.
Sign up for expert insights, exclusive offers, and real solutions made for hoteliers like you.
