Ask any hotel general manager (and certainly every revenue manager) and they'll explain exactly how important revenue management is to running a profitable lodging enterprise. Yield management, as it was once called, reflects a proactive approach to the business of making money through the sale of rooms, and mitigates some of the unavoidable complications arising from the fixed and highly perishable nature of hotels' core products. Though relatively new (revenue management has only enjoyed widespread use within the hotel industry since the early 1990s), most hotel executives would find the notion of operating a hotel without a comprehensive revenue management strategy inconceivable.

And rightly so. Revenue management has revolutionised the hotel industry, taking the post-and-pray nature of static rack-rate pricing out of the picture, helping to unify disparate strategies, and forging beneficial linkages between crucial hotel operating departments. Running a hotel without it would be returning to the crude tools of yesteryear.

But because revenue management is a complex practice that incorporates many different disciplines and stretches across many distinct departments within a hotel, it is sometimes easy to overlook the basics concepts that undergird it. At its core, revenue management is about understanding, anticipating and influencing customer behaviour, with the end goal of increasing revenues for a property. Focusing exclusively on the supporting functionalities of revenue management, such as pricing, channel management, or inventory control, and neglecting the principles that serve as the foundation of revenue management is like not seeing the forest through the trees.

This is not an isolated occurrence; many managers and executives dwell on the details of revenue management. Let us go back to the basics of revenue management. The most logical starting point is a definition.

To use the American Hotel and Lodging Educational Institute's definition, revenue management is "a set of revenue maximisation strategies and tactics meant to improve the profitability of certain businesses." This definition purposely leaves the complex multidisciplinary aspects of the process vague, to emphasise its ultimate goal: improving profitability. It is complex because it involves several aspects of management control, including rate management, revenue streams management, and distribution channel management, just to name a few.

The first step in this long and ongoing process of encouraging consumer behaviour that is beneficial to the hotel is "understanding" consumer behaviour. What motivates a potential guest to book a room at one hotel as opposed to another, or at one price and not another is an essential concept to grasp. Selling a room to a guest at the right price to both maximise occupancy and the revenue it generates is impossible without first considering what will prompt a consumer to make the purchase. Once an understanding of consumer behaviour is gleaned – both in a general sense and specific to the property and the property's competitors, then management can begin to anticipate that consumer behaviour. This is where the real challenge or revenue management emerges: being as accurate with this anticipation as possible, through forecasting, modelling, and exhaustive research.

The last, and most critical aspect of revenue management, is actually influencing consumer behaviour. If a hotel can understand and anticipate a consumer's decision, then the next logical step is to guide that decision in a direction that is beneficial to the property. In terms of selling rooms, exerting influence is largely a function of presentation and sales channel distribution, in an effort to display a room to a customer at the price most likely to incite them to buy (while simultaneously being the price that earns the most revenue for the hotel in that situation).

The process of influencing consumer behaviour is the capstone of revenue management; it is supported by understanding and anticipating consumer behaviour, but in the end it is all the only visible result of a revenue management strategy. Once you have collected and analysed all of the data, it will be simple to implement the findings into your revenue management processes. By doing so, it will provide you with a huge competitive advantage in the market, thus helping you capture a bigger share of the market.

These are the fundamentals of revenue management and the keys to a hotel's financial success.

- The author is the CEO and co-founder of RevPAR Guru. The views expressed are his own