© 2009, Educational Institute Revenue Management.

© 2009, Educational Institute

Revenue Management


Competencies forRevenue 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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Competencies forRevenue Management

3. Explain how revenue management decisions are affected by group room sales, transient room sales, other revenue opportunities, local and area-wide activities, special events, and fair market share forecasting.

4. Discuss the revenue manager’s role and position, summarize typical revenue meetings, outline potential tactics to use in periods of high and low demand, discuss revenue management tactics, and explain how revenue management software helps 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

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Benefits of Revenue Management

• 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 allocationRestricts time period and product mix (rooms) available at reduced or discounted rates

• Duration controlPlaces time constraints on accepting reservations

in order to protect rooms for multi-day reservations (which represent higher levels of revenue) 6


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• Formula 6: Room rate achievement factor• Formula 7: Yield statistic

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Revenue Management Formulas

• Formula 8: RevPAR• Formula 9: Identical yields• Formula 10: Equivalent occupancy• Formula 11: Required non-room revenue per guest• RevPAG• GOPPAR

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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 #1Actual Rooms Revenue

Potential Rooms Revenue

Formula #2 Room Nights Sold Actual Average Room Rate

Room Nights Available Potential Average Rate

Formula #3Occupancy Percentage Room Rate Achievement Factor

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RevPAR Formulas

Formula #1

Actual Room Revenue

Available Rooms

Formula #2

Occupancy Percentage Average Daily Rate

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Identical Yields

Identical Yield Occupancy Percentage =

Current Occupancy Percentage

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Current Average Rate

Proposed Average Rate


RevPAG and GOPPAR

RevPAG =

GOPPAR =

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Total Revenue

Number of Guests

Departmental Revenues – Departmental Expenses

Number of Available Rooms


Elements of Revenue Management Strategies

• Group room sales• Transient room sales• Other revenue opportunities• Local and area-wide activities• Special events• Fair market share forecasting

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Revenue Manager Skills and Qualities

• Operational skills• Analytical skills• Strategic skills• Organizing skills• Communications skills• Good listening skills• Team-building skills

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• Team-building skills• Training skills• Patience• Creativity• Cooperativeness• Flexibility


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• 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

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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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© 2009, Educational Institute Revenue Management.

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Transcript of © 2009, Educational Institute Revenue Management.