Revenue ManagementFrom the literature…"Revenue management is the art and science ofpredicting real-time customer demand at the micromarket level and optimizing the price and availabilityof products.“-Robert G. Cross
Revenue ManagementIn practice… Selling the right product To the right person At the right time For the right price
RM Goals↑ $ Revenue $ ↑ Conditions Necessary… • Fixed inventory • Various price points • Perishable What other industries?
Individual ProjectTake a break and calculate Fixed and Variable costsfor your hotels.• Use a spreadsheet or paper• First column put all fixed monthly costs o Fixed Costs = Total Fixed ÷ (Total Rooms X Days in Month)• Second column put total monthly variable costs o Variable Costs = Total Variable ÷ (Rooms sold in month) Let’s take 10-15 minutes….
Example Fixed VariableMortgage 45,000 Housekeepers 7,000Electric 15,000 Laundry 3,000Salary 12,000 Amenities 1,500 72,000 11,50072,000 ÷ (75 * 30) 32.00 11,500 ÷ (75 * 87% * 30) 5.87 POR• Month of September FC: $32.00 per room• 75 room hotel VC: $5.87 POR• 87% monthly occupancy $37.87 CPOR
How can you use this?Cost of an empty room…Average Occupancy 62% = 38% Vacancy Rate70 room hotel• 70 * .38 = 27 room spoilage daily• 27 * $32.00 Fixed Costs = $864 spoiled revenue• $864 * 365 = $315,360 average annual spoilage
Costs & PricingIn economics and business decision-making, sunk costs areretrospective (past) costs that have already been incurredand cannot be recovered.Pricing decisions (Marginal Costs vs Marginal Revenue)Cost based pricing or market based pricingTo achieve profit exceed FC and VCTo reduce sunk costs cover VC at minimum
Minimum PriceFC = $32VC = $12TC = $44To achieve profitability? Why?Lowest amount you would take? Why?
Incremental Revenue Sun Mon Tue Wed Thu Fri Sat WK SOLD 25 45 57 44 53 105 106 62 ADR $49.36 $72.69 $70.35 $67.34 $69.96 $75.29 $76.88 $68.84REVPAR $11.32 $30.01 $36.79 $27.18 $34.02 $72.52 $74.76 $39.25 Break up into pairs… 109 rooms. What happens to RevPAR if they: • Take 10 rooms Sun-Thu at $30? • Take 3 rooms Fri & Sat at $60?
Not enough rooms?Enough talk of empty rooms!What if you don’t have enough rooms to meetdemand?Unconstrained demand > available inventory
Displacement Analysis1. Determine your forecast without the group2. Determine amount displaced by the group, if any3. Compare revenue with group to revenue without group to decide
Displacement ScenarioUse the data in the RMS Workbook:
Group Request…• Arriving Thursday 12/8/2011• Departing Monday 12/12/2011• 30 rooms each night o 12 Kings @ $75.00 o 18 Doubles @ $85.00• Group into pairs and determine if you should take the group and at what rate? o What is your forecast without the group on each day? o Will the group displace any business? o How much revenue will be displaced? o Should you book the group? If yes, what rate?
What did you come up with? Why did you make the choices you did?
Know your comp set• Benchmark o Tour their site o Compare online information• Collect Intelligence o Shop their rates o Subscribe to Smith Travel Research o Consider other report tools• Maintain a friendly yet competitive relationship• Avoid complacency
Know your customersCater a strategy to their unique needs• Categories • Types o Leisure o Family • AAA o Single o Business o Couples o Group • Price sensitivity o High “Bargain shoppers”• Stay Patterns o Low “Willing to pay more to o Weekday get exactly what they want” o Weekend • Typical booking path o Call direct o Internet o Travel agent
What’s important to them?Single business traveler Family on vacation• Distance to their work site • Distance from attractions• Weekday business • Weekend business• Book direct or with an • Books online (OTA’s or agent brand.com)• Low price sensitivity • High price sensitivity• Prefers larger king beds • Needs two beds• Quality high speed internet • Free breakfast• Restaurant/bar on-site or • Swimming pool nearby
Forecast by segment Sun Mon Tue Wed Thu Fri Sat King BT BT BT BT2 Queen FAM FAM
Pricing by room typePeak/Busy dates by customer and room type Sun Mon Tue Wed Thu Fri Sat King BT BT BT BT2 Queen FAM FAMPossible pricing based on forecasted demand Sun Mon Tue Wed Thu Fri Sat King $84 $99 $99 $99 $99 $89 $892 Queen $84 $89 $89 $89 $89 $99 $99 J.N.D.’s
Day in the life…How to revenue manage, even if you are not arevenue manager…• Daily check o So much impact can be made simply by monitoring and adjusting to demand• Weekly revenue meeting o Develop a team and conduct regular meetings • Review past performance • Strategize for the next 90 days
RM Team• Who should be on that team?• What roles should they have?
RM Meeting• Agenda items o Time for each• Sales• Front Desk• Revenue Manager
Get some tools• Bare minimum (if I was stuck on an island) o Competitor Rate Shopping o Occupancy Tracker
The RM Cycle Monitor DemandForecast MonitorDemand Comp Set Understand Adjust Customer