Why These Core Principles Must Be In Place Before Revenue Management Can Deliver Real Value

Revenue management is often talked about in terms of algorithms, pricing tools, and booking data. But before any of that can work its magic, certain foundational conditions need to be in place.

Without these, even the best tools or talent will struggle to move the needle.

Below are the six essential conditions that must exist before revenue management can be applied effectively in a hotel or any other business with perishable inventory.

1. Perishable Inventory

At its core, revenue management is about selling the right product to the right person at the right time for the right price. That only works when your product is perishable—meaning that if it isn’t sold by a certain time, it’s gone forever.

In hospitality, a room night not sold tonight can’t be stored and sold tomorrow. This creates urgency and opportunity, making inventory perishability the first and most important condition.

2. Fixed Capacity

Revenue management thrives in environments with limited supply. Hotels, like airlines and car rental companies, can only sell what they have available—whether that’s 50 rooms or 500.

You can’t just “make more rooms” for tonight if demand suddenly spikes. That limitation gives power to dynamic pricing strategies that help you make the most of what you’ve got.

3. Segmentable Market

To maximise revenue, you need to identify and target different customer segments that are willing to pay different prices.

Think leisure guests vs corporate travellers, early bookers vs last-minute bookers, or locals vs internationals.

If everyone’s paying the same price regardless of circumstances, you’re leaving money on the table.

4. Variable and Predictable Demand

Your demand needs to fluctuate over time, and you must be able to predict those fluctuations with a reasonable degree of accuracy.

Seasonality, holidays, events, and even day-of-week trends all play a role. The more predictable your demand patterns, the more effectively you can shape them using pricing, promotions, and restrictions.

5. Low Marginal Costs

In an ideal revenue management environment, the cost of selling one more unit (like a hotel room) is low compared to its potential selling price.

This makes pricing flexibility viable. If your costs per room sold are high, heavy discounting can quickly eat into profits. But if the marginal cost is low—cleaning, laundry, and minor utilities—there’s room to be strategic.

6. Advance Reservations

The ability to sell inventory in advance gives revenue managers a critical edge. With advance bookings, you gain valuable insights into future demand and can adjust prices accordingly.

If all sales happen at the last minute, you’re flying blind. Advance reservations give you the foresight to steer revenue more effectively and avoid both overbooking and underselling.

Conclusion:

When these six conditions are met, the door opens to effective and profitable revenue management.

Without them, you may still benefit from basic pricing strategies—but you won’t unlock the full potential of dynamic, data-driven revenue optimisation.

If you’re operating in a business that checks these boxes, it might be time to double down on your revenue management efforts—or introduce them if you haven’t already.