By Eugene Win CRDE

For Kabul Serena Hotel 2009

Copyright. Eugene Win CRDE

2009

Revenue
Management...

Where is it originated?
It is originated in the
airline industry.
Marriott International
Lodging Revenue
Management

Copyright. Eugene Win CRDE

2009

Revenue
Management...
Seats on airplane divided into
different products base on
different restrictions.
$1,000 Y Class: Can be purchased
at any time, refundable.
$ 200 Q Class: Required 3 weeks
Marriott International
advanced purchase. Penalties on
Lodging Revenue
Management
cancellation or amendment.
Copyright. Eugene Win CRDE
2009

Revenue Management
is .
Selling the right

product
to the right customer
at the right time
for the right price.

Copyright. Eugene Win CRDE

2009

Revenue Management is

Revenue Management is concerned

with
maximization of revenue
by allocating fixed capacity (roomnights)
Marriott International
Lodging Revenue
Management

to different customer segments

with different rates.

Copyright. Eugene Win CRDE

2009

Revenue Management
is ...

BASED ON SUPPLY
AND DEMAND.
Prices tend to rise
when demand exceeds
supply; prices tend to
fall when supply
exceeds demand.
Copyright. Eugene Win CRDE
2009

Desire is to Focus on REVPAR

REVPAR = Rate
Occupancy

Rate

Occupanc
y

Copyright. Eugene Win CRDE

2009

How Does a Property Increase

REVPAR ?
SAFEST

Increase
restrictions on
lower rates
Eliminate last
room availability
for Special
Corporate
accounts
Eliminate nonproducing
Special
Corporate
accounts

MODERATE

Close out lower

rates on peak
days
Raise rates for
smaller Special
Corporate
accounts

RISKIEST

Raise the
Corporate Rate
Eliminate
discount rates

Raise prices on
discount rates
Copyright. Eugene Win CRDE
2009

Revenue Cycle

CREATE
DEMAND

MAXIMIZE
REVENUE

SUPERIOR
SERVICE
EXPERIENCE

Copyright. Eugene Win CRDE

2009

Revenue Management
MAXIMIZING REVENUE

Capacity

Discount

Duration

Management

Allocation

Control

How we

How we sell

Control and

our product

Limit the room

supply
Copyright. Eugene Win CRDE
2009

How we
protect
sufficient
space for
longer stays

Revenue Cycle
MAXIMIZING REVENUE

PRICING

SELLING
STRATEGY

How we price

How we sell

our product

our product

INVENTORY
ALLOCATIO
N

Copyright. Eugene Win CRDE

2009

What we put
on the shelf

Revenue management is designed to measure

revenue achievement.
Yield Statistic is the ratio of actual room
revenue to potential room revenue.

Copyright. Eugene Win CRDE

2009

We will illustrate the new formulae by using a

particular scenario:
Tower Hotel has 300 guest rooms with an
average room rate of $35.00. It is currently
operating at 70% average occupancy. The
hotel has 200 standard double bedrooms, and
100 double deluxe rooms. At rack rate, the
standard rooms sell at $40.00 at single
occupancy and $50.00 at double occupancy,
whilst the deluxe rooms sell at $50.00 at
single occupancy and $60.00 at double
occupancy.
Copyright. Eugene Win CRDE
2009

Formula 1: Potential Average Single Rate

The hotel has varied its single rate by room type,
so we need to calculate the potential average
single rate:

Room type- Number of rooms- Single Rack rate- Revenue at 100%

occupancy
Standard
200
$40
$8,000
Deluxe
100
$50
$5,000
Total 300
$13,000

Potential Average
Single Rate
=
=
=

Single Room Revenues at Rack Rate

Number of Rooms Sold as Singles

13,000/300
$ 43.33
Copyright. Eugene Win CRDE
2009

Formula 2: Potential Average Double Rate

Since we also have varied rates by room type
the potential average double rate must be
calculated:

Room type- Number of rooms- Double Rack rate- Revenue at 100%

occupancy
Standard
200
$50
$10,000
Deluxe
100
$60
$6,000
Total 300
$16,000

Potential Average
Double Rate
=
=
=

Double Room Revenues at Rack Rate

Number of Rooms Sold as Doubles

16,000/300
$ 53.33
Copyright. Eugene Win CRDE
2009

Formula 3: Multiple Occupancy Percentage

This is the proportion of a hotels rooms that
are occupied by more than one person. This
percentage indicates sales mix and helps
balance room rates. If 168 rooms from the
total of 210 rooms sold (70% of 300 rooms)
are sold at double occupancy then the
computation is as follows:
Multiple Occupancy
Percentage

168
=
=

210
80%
Copyright. Eugene Win CRDE
2009

Formula 4: Rate Spread

The determination of a room rate spread
among various room types can be essential to
the use of yield decisions in targeting a hotels
specific market. The mathematical difference
between the hotels average single rate
(Formula 1) and potential average double rate
(Formula 2) is known as the rate spread.:
Rate Spread = Potential Average Double Rate Potential Average
Single Rate
= $ 53.33 - $ 43.33
= $ 10.00
Copyright. Eugene Win CRDE
2009

Formula 5: Potential Average Rate

This is a collective statistic that effectively
combines the potential average rates, multiple
occupancy percentage, and rate spread.

Potential =

Average Rate

Multiple x Rate Spread

Occ %

+ Potential Average
Single Rate

= (0.8 x $10.00) + $ 43.33

= $ 51.33

Copyright. Eugene Win CRDE

2009

Formula 6: Room Rate Achievement Factor

The percentage of the rack rate a hotel
actually receives is contained in the hotels
achievement factor, also referred to as the
rate potential percentage.
Achievement Factor

=
=
=

Actual Average Rate

Potential Average Rate
$35.00/$51.33 x %
68%

Copyright. Eugene Win CRDE

2009

x 100

Formula 7: Yield Statistics

This is perhaps the most important element in
yield management. We have already seen how
to express and calculate this statistic. Here we
will use the following computation:
Yield Statistics

=
=
=

Occupancy % x Achievement factor

0.7 x 0.68
0.476
48%

Copyright. Eugene Win CRDE

2009

Formula 8: Identical Yield Statistics

This is the point where we can ask What if
? questions to determine how discounting
will affect our revenue. If we were to decrease
or increase our rate, what occupancy
percentage would we need to achieve to
produce the same yield? Lets suppose that
our hotel wants to decrease its rate by $2.00
to $33.00.

Identical Yield = Current x

Current Rate
Statistics
Occ %
Proposed Rate
=
70% x ($35/$33)
=
0.742
=
74%
To achieve the same yield the hotel must have an occupancy of 74%.
Copyright. Eugene Win CRDE
2009

Copyright. Eugene Win CRDE

2009