Worked with the Town Pump hotel managers during a half day workshop on key revenue management principals and tactics.

1. Revenue
Management
Town Pump
Manager’s Meeting
October 13, 2011

2. Agenda
• Introductions
• Revenue Management Defined
• Costs
• Incremental Revenue
• Displacement
• Competitor Benchmarking
• Selling Strategies
• Day in the life….
• Questions

3. Introductions
Daniel Wise
Cascade Revenue Management
• Best Western
• Choice
• Hilton
• IHG
• Independents

4. Revenue Management
From the literature…
"Revenue management is the art and science of
predicting real-time customer demand at the micro
market level and optimizing the price and availability
of products.“
-Robert G. Cross

5. Revenue Management
In practice…
 Selling the right product
 To the right person
 At the right time
 For the right price

6. RM Goals
↑ $ Revenue $ ↑
Conditions Necessary…
• Fixed inventory
• Various price points
• Perishable
What other industries?

7. Understanding Costs
Fixed Costs
• Mortgage
• Salaries
• Utilities (somewhat)
Variable Costs
• Labor
• Cleaning supplies
• Amenities

8. Individual Project
Take a break and calculate Fixed and Variable costs
for 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….

9. Example
Fixed Variable
Mortgage 45,000 Housekeepers 7,000
Electric 15,000 Laundry 3,000
Salary 12,000 Amenities 1,500
72,000 11,500
72,000 ÷ (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

10. How can you use this?
Cost of an empty room…
Average Occupancy 62% = 38% Vacancy Rate
70 room hotel
• 70 * .38 = 27 room spoilage daily
• 27 * $32.00 Fixed Costs = $864 spoiled
revenue
• $864 * 365 = $315,360 average annual
spoilage

11. Costs & Pricing
In economics and business decision-making, sunk costs are
retrospective (past) costs that have already been incurred
and cannot be recovered.
Pricing decisions (Marginal Costs vs Marginal Revenue)
Cost based pricing or market based pricing
To achieve profit  exceed FC and VC
To reduce sunk costs  cover VC at minimum

12. Minimum Price
FC = $32
VC = $12
TC = $44
To achieve profitability? Why?
Lowest amount you would take? Why?

13. 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 $68.84
REVPAR $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?

14. 10 @ $30 S-Th
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 $68.84
REVPAR $11.32 $30.01 $36.79 $27.18 $34.02 $72.52 $74.76 $39.25
Sun Mon Tue Wed Thu Fri Sat WK
SOLD 35 55 67 54 63 105 106 69
ADR $43.83 $64.93 $64.33 $60.43 $63.62 $75.29 $76.88 $64.18
REVPAR $14.07 $32.76 $39.54 $29.94 $36.77 $72.52 $74.76 $40.80
$1.55 / 3.9% RevPAR Increase

15. 3 @ $60 Fr/Sa
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 $68.84
REVPAR $11.32 $30.01 $36.79 $27.18 $34.02 $72.52 $74.76 $39.25
Sun Mon Tue Wed Thu Fri Sat WK
SOLD 25 45 57 44 53 108 109 63
ADR $49.36 $72.69 $70.35 $67.34 $69.96 $74.86 $76.41 $68.71
REVPAR $11.32 $30.01 $36.79 $27.18 $34.02 $74.17 $76.41 $39.71
$0.46 / 1.2% RevPAR Increase

16. To consider…
Not just about room revenue: Total Revenue
• Food & beverage
• Gaming
• Activities
• Others?
Need to analyze average spend per guests.

17. Break
Take 10-15 minutes

19. Not enough rooms?
Enough talk of empty rooms!
What if you don’t have enough rooms to meet
demand?
Unconstrained demand > available inventory

20. Displacement Analysis
1. Determine your forecast without the group
2. Determine amount displaced by the group,
if any
3. Compare revenue with group to revenue
without group to decide

21. Displacement Scenario
Use the data in the RMS Workbook:

22. 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?

23. What did you come up
with?
Why did you make the choices you did?

24. Let’s do the DA together

25. 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

26. Know your customers
Cater 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

27. 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

28. Forecast by segment
Sun Mon Tue Wed Thu Fri Sat
King BT BT BT BT
2 Queen FAM FAM

29. Pricing by room type
Peak/Busy dates by customer and room type
Sun Mon Tue Wed Thu Fri Sat
King BT BT BT BT
2 Queen FAM FAM
Possible pricing based on forecasted demand
Sun Mon Tue Wed Thu Fri Sat
King $84 $99 $99 $99 $99 $89 $89
2 Queen $84 $89 $89 $89 $89 $99 $99
J.N.D.’s

30. Break
Take 10-15 minutes

31. Top Down Selling
Strategy
• Choice Hotels recommended strategy

32. Choice Selling Tool

33. Day in the life…
How to revenue manage, even if you are not a
revenue 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

34. RM Team
• Who should be on that team?
• What roles should they have?

35. RM Meeting
• Agenda items
o Time for each
• Sales
• Front Desk
• Revenue Manager

36. Get some tools
• Bare minimum (if I was stuck on an
island)
o Competitor Rate Shopping
o Occupancy Tracker

37. The RM Cycle
Monitor
Demand
Forecast Monitor
Demand Comp Set
Understand
Adjust
Customer

38. Tools
• Simple forecast tool
• Opaque workbook
• Choice Target Selling Application

39. Resources
• Major brands if applicable
o Choice University
o Wyndham
• Other managers on your team/company
• Hotel organizations
o HSMAI
o AH&LA
• The Cascade team

40. Questions?

41. Thank you!