Revenue Management

Competencies for
Revenue Management
1. Explain the concept of revenue management and
discuss how managers can maximize revenue by
using forecast information in capacity
management, discount allocation, and duration
control.
2. Discuss common formulas managers use to
measure and manage revenue.

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(continued)
 Competencies for
Revenue Management
(continued)

3. Explain how revenue management decisions are

affected by: group room sales, transient room sales,
food and beverage activity, local and area-wide
activities, special events, and fair market share
forecasting.
4. Summarize typical revenue meetings, outline
potential high and low demand tactics, discuss four
revenue management tactics, and explain how
revenue management software aids hotel managers.
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 Benefits of Revenue Management
∙ Improved forecasting
∙ Improved seasonal pricing and inventory decisions
∙ Identification of new market segments
∙ Identification of market segment demands
∙ Enhanced coordination between the front office
and sales divisions
∙ Determination of discounting activity

(continued) 3
 Benefits of Revenue Management
(continued)

∙ Improved development of short-term and long-term

business plans
∙ Establishment of a value-based rate structure
∙ Increased business and profits
∙ Savings in labor costs and other operating expenses
∙ Initiation of consistent guest-contact scripting

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 Revenue Management Methods
∙ Capacity management
Balances risks of overbooking against potential
loss of revenue from reservation cancellations,
early departures, and no-shows
∙ Discount allocation
Restricts time period and product mix (rooms)
available at reduced or discounted rates
∙ Duration control
Places time constraints on accepting reservations
in order to protect rooms for multi-day
reservations (which represent higher levels of
revenue)
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Revenue Management Formulas

∙ Formula 1: Potential average single rate

∙ Formula 2: Potential average double rate
∙ Formula 3: Multiple occupancy percentage
∙ Formula 4: Rate spread
∙ Formula 5: Potential average rate

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 Revenue Management Formulas
(continued)

∙ Formula 6: Room rate achievement factor

∙ Formula 7: Yield statistic
∙ Formula 8: RevPAR
∙ Formula 9: Equivalent occupancy
∙ Formula 10: Required non-room revenue per guest

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Potential Average Single Rate

Single Room Revenues at Rack Rate

Number of Rooms Sold as Singles

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Potential Average Double Rate

Double Room Revenues at Rack Rate

Number of Rooms Sold as Doubles

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 Rate Spread

Potential Average Double

Rate
 Potential Average Single Rate

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 Potential Average Rate
(Multiple Occupancy % Rate Spread)  Potential Average Single Rate

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Room Rate Achievement Factor

Actual Average Rate

Potential Average Rate

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 Yield Statistic Formulas
Formula #1
Actual Rooms Revenue
Potential Rooms Revenue
Formula #2
Room Nights Sold Actual Average Room Rate
Room Nights Available X Potential Average Rate

Formula #3
Occupancy Percentage Room Rate Achievement Factor

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 RevPAR Formulas
Formula #1
Actual Rooms Revenue
Available Rooms Revenue

Formula #2
Occupancy Percentage Average Daily Rate

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 Elements of Revenue
Management Strategies
∙ Group room sales
∙ Transient room sales
∙ Food and beverage activity
∙ Local and area-wide activities
∙ Special events
∙ Fair market share forecasting

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Revenue Management
Meeting Participants
∙ General manager
∙ Sales managers
∙ Catering managers
∙ Reservations manager
∙ Front office manager
∙ Food and beverage manager

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 High Demand Tactics
∙ Close or restrict discounts
∙ Apply minimum length of stay restrictions carefully
∙ Reduce group room allocations
∙ Reduce or eliminate 6 p.m. holds
∙ Tighten guarantee and cancellation policies
∙ Raise rates to be consistent with competitors

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 High Demand Tactics
(continued)

∙ Consider a rate raise for packages

∙ Apply full price to suites and executive rooms
∙ Select dates that are to be closed-to-arrivals
∙ Evaluate the benefits of sell-throughs
∙ Apply deposits and guarantees to last night of stay

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 Low Demand Tactics
∙ Sell value and benefits
∙ Offer packages
∙ Keep discount categories open
∙ Encourage upgrades
∙ Offer stay-sensitive price incentives
∙ Remove stay restrictions
∙ Involve your staff
∙ Establish relationships with
competitors
∙ Lower rates 19
Four Revenue Management Tactics

∙ Hurdle rate
∙ Minimum length of stay
∙ Close to arrival
∙ Sell-through

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Revenue Management Software
Revenue management software provides:
∙ Continuous monitoring
∙ Consistency
∙ Information availability
∙ Performance tracking
∙ Special reports

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