What Is an RMS? Hotel Revenue Management Systems Explained

An RMS suggests room rates based on booking data. What the software does and when it is worth having.

By Michael Külbel 3 min read

Graphic: four data sources of a revenue management system: bookings on hand, booking history from previous years, competitor rates and events such as trade fairs or holidays
What a revenue management system bases its rate recommendations on, simplified. Graphic: eingecheckt.de · Background photo: JIP, Wikimedia Commons, CC BY-SA 4.0
Key points
  • RMS stands for revenue management system: software that analyses booking data and recommends room rates or sets them automatically.
  • It relies on forecasts based on bookings on hand and booking history, often supplemented by competitor rates and events such as trade fairs.
  • According to an introduction from Cornell University, revenue management has increased revenue by 2 to 5 per cent in many hotels. An RMS does this work faster and more consistently.
  • An RMS needs clean data from the PMS and clear limits. Responsibility for rates stays with the hotel.

How much should the double room cost on the second Saturday in March? Anyone who has to answer that question for every day of the year and several room types soon reaches the limits of gut feeling. This is where a revenue management system comes in.

What an RMS is

A revenue management system, or RMS, is software for pricing. It reads reservations and bookings on hand from the PMS, identifies patterns and derives rate recommendations from them. Depending on the settings, the system either only suggests rates for someone at the hotel to approve, or sends them automatically to the website and booking platforms via the channel manager.

How an RMS arrives at its rates

At the heart of every RMS is the forecast. Chris Anderson and Sheryl Kimes of Cornell University describe the principle: booking curves show how reservations for an arrival date build up over the preceding weeks. Hotels create such curves for each guest segment. If current bookings differ from the usual pattern, the expectation for that date changes.¹

From expected demand, the system works out which rate levels to open or close. Many systems also take into account competitor rates, school holidays, trade fairs or events in town. Some adjust rates several times a day.

What an RMS can achieve

According to Anderson and Kimes, revenue management has increased revenue by 2 to 5 per cent in many hotels. Because hotels have high fixed costs and comparatively low variable costs, a large part of this flows straight to the bottom line.¹ An RMS does this work faster and more consistently than is possible with a spreadsheet. How much it achieves in any one case depends on how much a property’s demand fluctuates and how consistently rates have been adjusted so far.

When an RMS is worthwhile

An RMS pays off above all for properties with fluctuating demand, several room types and many distribution channels, such as city hotels with trade-fair and weekend business. A small holiday hotel with fixed seasonal rates and many regular guests can often manage with a well-kept rate table. Either way, up-to-date booking data is essential, otherwise even the best software calculates with the wrong numbers.

The limits of automation

An RMS knows the figures, but not every context. A wedding party that has only just enquired, or building works outside the hotel, do not show up in the data. That is why hotels should set minimum and maximum rates and check the recommendations regularly. Responsibility for rates stays with the hotel.

What hoteliers should look for

Checklist: introducing an RMS
  1. Check the data: Are bookings, cancellations and room types in the PMS complete and up to date?
  2. Clarify integrations: Does the RMS work with the existing PMS and channel manager?
  3. Set limits: Define minimum and maximum rates for each room type.
  4. Start with recommendations: Review suggestions for the first few weeks before rates are sent automatically.
  5. Measure success: Compare revenue per available room with last year, not just occupancy.

More in the magazine

Why guests are booking later and how hotels can adapt is explained by tourism professor Marco A. Gardini in our article "AI is changing how guests find hotels and they are booking later – how hotels can adapt". The basics of pricing are covered in the glossary entry on revenue management, and the key performance metric in the entry on RevPAR.

Sources

This glossary entry is based on the following source:

  1. Chris Anderson, Sheryl Kimes (Cornell University) (n.d.)
    Revenue Management for Enhanced Profitability: An Introduction for Hotel Owners and Asset Managers
    Book chapter, Cornell eCommons. Forecasting with booking curves, rate fences and segmentation, revenue increases from revenue management of 2 to 5 per cent in many cases.
Hotel Glossary

More terms

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Software & systems
Distribution & booking
Rates & metrics