March 15, 2022
History of Revenue Management
Part 2: The History of Revenue Management
Welcome to Part Two of the Guide, the History of Revenue Management, you can download the full guide here.
Revenue management is generally defined as:
A strategy that uses data to predict consumer behavior to optimize product availability and price for maximum revenue growth.
In the Beginning…
For years, hotel owners used a “cost-focused” approach to run their business—make enough money to please investors, maintain hotel operations, and make a living wage. A cost-focused approach looked like this:
- Fixed Costs: Defined as the amount of money it tools to run the hotel on an average day
- Variable Costs: Costs that went up or down depending on the number of customers
- Fixed + Variable: An estimated cost to run the hotel
An estimated cost to run the hotel ÷ number of rooms = Nightly rate per room (with adjustments depending on the different room types as applicable)
But eventually, hotel owners realized that by taking a revenue-focused approach, they could conceive of ROIs beyond pleasing investors. They could use an increase in revenue to renovate their building and facilities, hire more staff and pay a more competitive wage, and even move into franchising.
The revenue-focused approach would eventually become the foundation for a successful vacation rental management business.
The Vacation Rental Industry Grows Up
The vacation rental industry renaissance began in the 1970s as industry experts started looking for ways to optimize revenue in traditionally seasonal markets.
Because while hotels (particularly in urban areas) managed a fairly consistent demand year after year, hospitality in seasonal markets and resort destinations struggled due to the major fluctuations in demand.
The opportunity was ripe for the taking: The industry needed an in-between option for a hotel (which were designed to be booked for a week or less) and a long-term rental (which often required a lease for six months or longer).
Short-term vacation rental ownership took off from there, and property management companies specializing in short-term rentals and seasonal markets began to emerge, supporting second homeowners who wanted to make a little extra money on their vacation property when they weren’t using it themselves.
The pace at which the vacation rental industry took off was such that property managers turned towards traditional tools and best practices for hotel room booking and management at the time.
Soon, it became clear that a revenue-focused approach to vacation rentals was the best way to make vacation rentals worth it for both the property manager and the homeowners.
Vacation rental popularity and growth in the US and other markets spurred the popularity and demand, aided by OTAs and the rise of technology available ages to scale and bring a level of professionalism to match traditional lodging.
This article is the introduction to Rented’s Ultimate Guide to Revenue Management for Vacation Rentals – 2022 Edition. You can download the full guide here.