Chapter 13

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Chapter 13

  1. 1. © 2009, Educational Institute Chapter 13 Revenue Management Managing Front Office Operations Eighth Edition (333TXT or 333CIN)
  2. 2. © 2009, Educational Institute 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. (continued)
  3. 3. © 2009, Educational Institute Competencies for Revenue 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. (continued)
  4. 4. © 2009, Educational Institute 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)
  5. 5. © 2009, Educational Institute 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 (continued)
  6. 6. © 2009, Educational Institute 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)
  7. 7. © 2009, Educational Institute 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
  8. 8. © 2009, Educational Institute Revenue Management Formulas • Formula 8: RevPAR • Formula 9: Identical yields • Formula 10: Equivalent occupancy • Formula 11: Required non-room revenue per guest • RevPAG • GOPPAR
  9. 9. © 2009, Educational Institute Potential Average Single Rate Single Room Revenues at Rack Rate Number of Rooms Sold as Singles
  10. 10. © 2009, Educational Institute Potential Average Double Rate Double Room Revenues at Rack Rate Number of Rooms Sold as Doubles
  11. 11. © 2009, Educational Institute Rate Spread Potential Average Double Rate  Potential Average Single Rate
  12. 12. © 2009, Educational Institute Potential Average Rate (Multiple Occupancy %  Rate Spread)  Potential Average Single Rate
  13. 13. © 2009, Educational Institute Room Rate Achievement Factor Actual Average Rate Potential Average Rate
  14. 14. © 2009, Educational Institute Yield Statistic Formulas Formula #1 Actual Rooms Revenue Potential Rooms Revenue Formula #2 Room Nights Sold Actual Average Room Rate Room Nights Available Potential Average Rate Formula #3 Occupancy Percentage  Room Rate Achievement Factor 
  15. 15. © 2009, Educational Institute RevPAR Formulas Formula #1 Actual Room Revenue Available Rooms Formula #2 Occupancy Percentage  Average Daily Rate
  16. 16. © 2009, Educational Institute Identical Yields Identical Yield Occupancy Percentage = Current Occupancy Percentage  Current Average Rate Proposed Average Rate
  17. 17. © 2009, Educational Institute RevPAG and GOPPAR RevPAG = GOPPAR = Total Revenue Number of Guests Departmental Revenues – Departmental Expenses Number of Available Rooms
  18. 18. © 2009, Educational Institute 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
  19. 19. © 2009, Educational Institute Revenue Manager Skills and Qualities • Operational skills • Analytical skills • Strategic skills • Organizing skills • Communications skills • Good listening skills • Team-building skills • Team-building skills • Training skills • Patience • Creativity • Cooperativeness • Flexibility
  20. 20. © 2009, Educational Institute Revenue Management Meeting Participants • General manager • Sales managers • Catering managers • Reservations manager • Front office manager • Food and beverage manager
  21. 21. © 2009, Educational Institute 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
  22. 22. © 2009, Educational Institute 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
  23. 23. © 2009, Educational Institute Four Revenue Management Tactics • Hurdle rate • Minimum length of stay • Close to arrival • Sell-through
  24. 24. © 2009, Educational Institute Revenue Management Software Revenue management software provides: • Continuous monitoring • Consistency • Information availability • Performance tracking • Special reports

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