Revenue Management in Practice

Definition

“Selling the right product to the right kind of

customer, at the right time, at the right price, so as
to maximise revenue or yield”
-Sheryl Kimes

Also “through the right channel”

 A unit of measurement providing a consistent
indication of business performance
 Traditional measurement by occupancy % and
average rate (ADR) can be misleading
 Growth in one area is often matched by
reduction in the other – how do you assess
the trade off?
 Assuming a hotel with 250 bedrooms

◦ Occupancy 50% - ADR Php128

◦ Occupancy 80% - ADR Php80

◦ In both cases the yield is Php64

◦ Also known as Rev Par
 In both cases, the revenue earned is
Php16,000
 ADR is revenue divided by the number of
rooms sold
 RevPar is revenue divided by the total number
of rooms available
 RevPar = Revenue per available room
 ADR multiplied by occupancy %
 Gives a true comparison of performance year
on year
 Enables true comparison with competitor
hotels of a different size and business mix
 Provides a consistent measure of business
performance
 RevPar is the preferred unit of measurement
in Revenue Management
• When a physically identical product can be sold to
different market segments for different prices
through different channels under different booking
conditions
• In order to increase revenue from a fixed level of
capacity
• Increased revenue = increased profits
 A group of customers with a pattern of
buying behaviour

◦ Price sensitivity
◦ Lead time of booking
◦ Willingness to pre-pay
◦ Need for flexibility, to cancel or modify without
penalty
◦ Length of stay
◦ Different perception of “value”
 Different market segments may book through
the same channels or different ones
• Direct with the hotel
• Through hotel website
• Via a travel agent (business or high street)
• Via a 3rd party website (Expedia, Booking.com,
Lastminute, etc)
• Via a tour operator
 Cost of sale varies by channel
 Rate parity for all public rates
 Lead time
 Prepayment
 Limited or no flexibility – no cancellation or
modification permitted
 Length of stay requirements, minimum or
maximum
 Specific nights included
 Package rates, to include other elements
 Enable discounted rates to be “fenced”
 Analyse existing demand patterns
 Predict future demand patterns
 Match the right volume of rooms at each rate
level so as to maximise yield
 Minimise peaks and troughs to avoid
“wasting” inventory ie leaving rooms empty
which could have been sold
 Forecast or
Budget

Adjust Plan

Review Sell/Distribute
Know your business

◦ Use historical data to identify demand patterns and

trends
◦ Seasonal
◦ By day of week
◦ Lead time
◦ No-show/cancellation rates
◦ Unsatisfied demand, turnaways
 Booking pace
◦ Pick up reports, daily weekly, monthly
◦ By market segment
 Statistical/historical data on market segments
– room nights, ADR
 Data relative to past business performance,
factors which may have contributed
Know your market

 Economic conditions
 Seasonal variations
 Local sources of business, corporate offices,
conference centres, entertainment venues,
tourist attractions
 Local events
Know your competition

 Identify your competitors

 Benchmark your product
 Establish rate hierarchy
 Monitor their activities – pricing, promotions,
policies
 Changes in supply
 Plan your preferred market mix based on
expected demand levels by segment
◦ How many rooms can you expect to sell to
higher
rated market segments, and when?
◦ How many rooms can you afford/do you need to
sell to lower rated segments?
◦ What rate parameters/structure should you be
working within?
◦ When will unconstrained demand lead to peaks and
troughs?
 Monitor booking pace and occupancy growth
- as bookings are received, update forecast
and decide where changes need to be
made
 Monitor competition for pricing changes
 Monitor local demand levels
 Adjust strategy using all tools, not just
pricing
 Record all changes
 Pricing
 Discount allocation
 Duration control
 Capacity management
 Supply control
 May be applied differently when demand is
stronger or weaker
 There is no “right” price for your product
 It will have a different value for different
customers at different times
 Your competitors’ activities may influence the
customers’ perception of your value
 Know the difference between “great value”
and “cheap rooms”
 Ensure discounts are “fenced” with booking
conditions to avoid dilution
 Know when to stop selling discounted rates
to avoid displacement
 Use multi night offers to attract business on
hard to fill shoulder nights
 Avoid peaks and troughs – empty rooms
equal lost revenue, especially if avoidable
 Use restrictions to avoid selling out on one
night and having to turn away through
bookings
 Offer discounts/added value for multi night
stays which include hard to sell dates
 Overbooking

◦ Identify probability of late cancellations and no-

shows
◦ Manage overbooking, don’t let it happen by
accident!
 When demand is strong, sell to room type
◦ Ensure you get premium prices for superior rooms

 When demand is soft, oversell lower room

categories and upgrade
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