A revenue management system (RMS) for hotels is software that sets the price of each room for each night, from forecasts of demand, the prices of nearby hotels and what travellers are searching for. Its goal is to earn the most money from a fixed number of rooms. A room that stays empty tonight can never be sold again, so its value for that night is lost. The RMS is used by a hotel's revenue manager, the person who decides prices and which channels to sell on.
Hotels measure this with three numbers. Occupancy is the share of rooms that are sold. Average daily rate (ADR) is the average price of the rooms that are sold. Revenue per available room (RevPAR) is the room revenue divided by all the rooms, sold or not. RevPAR is the number most hotels try to raise. A hotel that sells every room cheaply can earn less than a hotel that sells 85% of its rooms at a higher price.
The RMS makes a demand forecast for each future night. It reads the bookings already made, and how fast they are arriving compared with the same nights last year. This speed is called the booking pace. It also reads events in the city, holidays, the day of the week, rival hotels' rates from competitor price monitoring, and searches on travel sites. It then recommends a price for each room type and each night. Many hotels now let the RMS change prices automatically, several times a day. This is dynamic pricing.
Take, for example, a 120-room hotel in Ahmedabad, near the city's large cricket stadium. A one-day international match is announced for a Sunday six weeks away. On a normal Saturday, the hotel sells 70% of its rooms at ₹5,500. Within two days of the announcement, it already has 60 bookings for the Saturday before the match, three times its usual pace. The RMS forecasts that the hotel can fill every room. It raises the price to ₹7,000, and a week later to ₹8,500, as bookings continue to arrive. It also stops discounts for one-night stays that weekend. In the end, the hotel sells 116 rooms at an average of ₹8,000. Its RevPAR for that night is about ₹7,700, against about ₹3,850 on a normal Saturday.
The RMS reads past bookings and revenue from the property management system (PMS). It sends each new price to the channel manager, which updates every travel site at once.
How is a hotel RMS different from price and promotion optimisation for shops? A shop can order more stock when an item sells well. A hotel cannot add rooms. So hotel pricing is about selling a fixed number of room-nights, each before its date passes.