3. CONTENTS
Revenue Management Definition and Fundamentals
Hotel Revenue Management Metrics
Managing Revenues in Various Hotel Revenue Centers
Revenue Management Software
RM Team
Ethical Issues in Hotel RM
Selling Techniques
4. DEFINITION
Revenue Management can be defined as:
Selling the Right Product to the Right Customer at
the Right Moment and Right Price on the Right
Distribution Channel with the best commission
efficiency
5. UNDERSTANDING THE DEFINITION
Right product:
It is the product that
a) delivers value to the 'right' customers by
satisfying their needs, wants, requirements,
b) reflects the customer's willingness to pay, and
c) is profitable for the hotelier
6. UNDERSTANDING THE DEFINITION
Right customer:
It is the customer that the hotel could properly and
profitably serve and deny accommodation for the
rest
7. UNDERSTANDING THE DEFINITION
Right customer:
It is the customer that the hotel could properly and
profitably serve and deny accommodation for the
rest
8. UNDERSTANDING THE DEFINITION
Right price:
The 'right' price is the price that the customer is
willing to pay and the hotel is willing to charge.
9. UNDERSTANDING THE DEFINITION
Right communication:
The way information is provided on the hotel's
website or how prices are presented (framed) can
influence customers' perceptions about the value
they (could) receive from consuming the hotel's
product, and the fairness of the price conditions.
10. UNDERSTANDING THE DEFINITION
Right distribution channel:
The channel that provides access to the 'right'
customer and is cost effective to sustain.
11. WHAT MAKES HOTELS SUITABLE TO BE
ABLE TO APPLY REVENUE MANAGEMENT?
Product perishability:
Each room that has not been used for a particular
time base (overnight) cannot be sold later for a
future use and the potential revenue from it is lost
forever as no customer would be willing to pay for
accommodation for a period already passed.
12. WHAT MAKES HOTELS SUITABLE TO BE
ABLE TO APPLY REVENUE MANAGEMENT?
Capacity can be defined as the number of
customers that the hotel can serve within a
particular period of time. When the time base for
the calculation of the capacity is one night, then
the room capacity of the hotel equals the number
of beds in the hotel.
In the short run the physical room capacity of the
hotel is fixed and cannot be changed.
13. WHAT MAKES HOTELS SUITABLE TO BE
ABLE TO APPLY REVENUE MANAGEMENT?
High fixed and low variable costs:
Fixed costs (FC) are those that do not change according to
the number of guests in the hotel - depreciation, debt
service, salaries for administrative personnel and part of the
front line employees, part of the expenses for
heating/water/electricity, and marketing expenses, among
others. Usually they account for 60-80% of all costs in the
hotel.
Variable costs are those that change according to the
number of guests in the hotel - part of the salaries for the
front line employees, food product costs,
heating/water/electricity for the rooms
For the hotel, it is worth serving a particular customer if the
room revenues received from him cover at least the variable
costs for serving him.
14. WHAT MAKES HOTELS SUITABLE TO BE
ABLE TO APPLY REVENUE MANAGEMENT?
Unequal demand throughout the
day!week!month!year!:
Tourism demand is often volatile, uncertain and
subject to seasonal variations depending on the
product of the hotel and its location.
Business hotels, for example, have higher
occupancy during weekdays and lower over the
weekend, while for leisure properties the situation
is usually reversed.
15. WHAT MAKES HOTELS SUITABLE TO BE
ABLE TO APPLY REVENUE MANAGEMENT?
Possibility to forecast demand:
If demand is chaotic and impossible to forecast
within acceptable forecasting error, revenue
management becomes obsolete and the optimal
hotel pricing strategy would be to maintain
constant prices.
16. WHAT MAKES HOTELS SUITABLE TO BE
ABLE TO APPLY REVENUE MANAGEMENT?
Possibilities to segment market demand:
Applying revenue management techniques, price
discrimination in particular, requires that market
demand is not homogeneous, and so the hotel
may apply a differentiated marketing strategy and
prepare different marketing mixes for the different
target segments
17. WHAT MAKES HOTELS SUITABLE TO BE
ABLE TO APPLY REVENUE MANAGEMENT?
Different price elasticity of market segments:
Price elasticity of demand- is the reaction of
demand to changes in prices. It is measured by
the ratio between the percentage change in
quantity demanded and the percentage change in
a product's price.
18. WHAT MAKES HOTELS SUITABLE TO BE
ABLE TO APPLY REVENUE MANAGEMENT?
Possibility for advanced booking:
One of the major characteristic of hotel services is
that they may be booked in advance - weeks, even
months before the check-in date. Advance bookings
allow tourists to be guaranteed that they would
receive the accommodation service sometime in the
future while they provide a long time window during
which hoteliers can sell their room.
From a revenue management perspective the
possibility to book hotel rooms in advance provides
hoteliers with the opportunity to use time as a
segmentation criterion - e.g. differentiating customers
on the basis how many days before check-in they
make their booking in the hotel
19. WHAT MAKES HOTELS SUITABLE TO BE
ABLE TO APPLY REVENUE MANAGEMENT?
Different willingness-to-pay of market segments:
When different market segments are ready to pay
different prices for the same product,
accommodation establishments can apply price
discrimination, charge them different rates
according to their willingness-to-pay and erect
price fences so that customers with higher
willingness-to-pay do not purchase at lower rates.
20. SO WHAT DO YOU NEED TO APPLY
EFFECTIVE HOTEL REVENUE
MANAGEMENT?
-Market Segmentation
-Historical Demand and Booking Patterns
-Demand Forecast and Displacement Analysis
-Pricing and Inventory Management
-Overbooking
-Information Systems
21. SO WHAT DO YOU NEED TO APPLY
EFFECTIVE HOTEL REVENUE
MANAGEMENT?
Market Segmentation:
The market segmentation shall help you identify the
trends of your business:
-Length of Stay
-Day of Weeks stays
-Total Revenue per room, Total Revenue per client
-Lead Time
-Cancellations
-No Show ratio
22. SO WHAT DO YOU NEED TO APPLY
EFFECTIVE HOTEL REVENUE
MANAGEMENT?
Demand forcasting:
At which rate and how many rooms can you sell for
every future day (booking pace)?
23. SO WHAT DO YOU NEED TO APPLY
EFFECTIVE HOTEL REVENUE
MANAGEMENT?
Demand Calendar:
The most basic version of a demand calendar
contains the following information;
-RevPAR last year
-Groups or events last year
-Demand level indicator last year (High, Medium,
Low, Distressed)
-Demand level indicator this year
-Exceptional demand indicators
24. SO WHAT DO YOU NEED TO APPLY
EFFECTIVE HOTEL REVENUE
MANAGEMENT?
Unconstrained Demand:
The unconstrained demand of a hotel is your total
demand for a particular date irrespective of your
capacity.
The unconstrained demand will help you
calculate your Last Room Value for certain dates,
and possible length of stay restrictions that may
apply.
25. SO WHAT DO YOU NEED TO APPLY
EFFECTIVE HOTEL REVENUE
MANAGEMENT?
Group Trends:
Elements to consider
-Conversion ratio
-Lead time ratio on basis of the dates of request.
-Total spend by group
-Size of the groups
-Wash factor
-Segmentation of groups: leisure or corporate
-Denial and cancellation stats with reasons
26. SO WHAT DO YOU NEED TO APPLY
EFFECTIVE HOTEL REVENUE
MANAGEMENT?
Stay Controls or restrictions:
The most common restrictions are:
-Minimum length of stay
-Maximum length of stay
27. SO WHAT DO YOU NEED TO APPLY
EFFECTIVE HOTEL REVENUE
MANAGEMENT?
Evaluate the Value Proposition of your Competitors:
You can take the following steps to analyze your hotel
value:
1.Identify the strengths and weaknesses of your hotel
2.Develop a check list to evaluate your competitors in terms
of product & quality
Welcoming and openness of the employees
Quality and cleanliness of the bedroom
F&B outlets and other services
Location
3.Score the quality of your competitors
28. SO WHAT DO YOU NEED TO APPLY
EFFECTIVE HOTEL REVENUE
MANAGEMENT?
Rate Value Matrix:
How often are you more or less expensive than your
competitors?
Do you take into account your positioning and value
offer when deciding of your daily rates?
Choosing a clear price positioning strategy for your
base rate will help strengthen your value perception to
consumers.
There are several strategies you can follow;
a) Penetration pricing strategy
b) Equal pricing strategy
c) Surrounding pricing strategy
29. PRICING STRATEGIES
a) Penetration pricing strategy:
The market accepts and understands your positioning:
among the cheapest in the market.
31. PRICING STRATEGIES
c) Surrounding pricing strategy:
Your first room type will be the cheapest in the market or
among the cheapest ones. Your superior room type will
be sold at a rate close to the first available rates of your
32. PRICING STRATEGIES
d) Skimming pricing strategy:
The skim strategy is to position clearly your hotel among
the most expensive.
33. HIGH DEMAND TACTICS:
Close or restrict discounts
Apply minimum length of stay (Block out)
Reduce group room allocations
Reduce or eliminate 6 P.M holds
Tighten guarantee and cancellation policies
Increase rates
Consider a rate raise for packages
Apply full price to suites and executive rooms
Apply deposits and guarantees to last night of stay
Apply hurdle rate
35. REVENUE MANAGEMENT METRICS
Two ways to calculate potential revenue
1. Some resorts calculate their potential revenue as the
amount the resort would earn if all rooms were sold at the
double occupancy rate.
2. Commercial hotels often calculate their potential revenue
by taking into account the percentage mix of rooms
normally sold at both single and double occupancy.
36. DISADVANTAGES OF OCCUPANCY PERCENTAGE & AVERAGE
DAILY RATE AS PERFORMANCE MEASURES
Occupancy percentage and average daily rate are both one
dimensional analysis. As a result, neither of these measuring
sticks captures the relationship between these two factors and
the room revenue they produce.
For example, a hotel may decrease its room rate, or ADR, in an
effort to increase occupancy. This strategy will improve the
occupancy percentage but does not account for the revenue lost
because of lower rates. In addition, it does not take into account
the cost per occupied room, which can reduce overall profitability.
Conversely, increases in room rates, or ADR, may be
accompanied by a decline in occupancy percentage, which
means that some revenue will be lost because rooms that might
37. REVENUE MANAGEMENT METRICS
1. Potential Average Single Rate
= Single Room Revenue Rack Rate
Number of Rooms Sold as Singles
2. Potential Average Double Rate
= Double Room Revenue Rack Rate
Number of Rooms Sold as Double
3. Rate Spread
= Potential Average Double Rate
Potential Average Single Rate
4. Multiple Occupancy Percentage
=Number of Rooms Sold as Double
Total Rooms Sold
38. REVENUE MANAGEMENT METRICS
5. Room Rate Achievement Factor
= Actual Average Rate
Potential Average Rate
6. Yield statistics
1, = Actual Rooms Revenue
Potential Rooms Revenue
2, = Room Nights Sold *Actual Average Room Rate
Room Nights Available Potential Average Rate
3, = Occupancy Percentage * Room Rate Achievement
Factor
40. TAKE A MOMENT!
Exercise
1. Which scenario would you prefer?
A. 85% occupancy with an ADR of $75 or
B. 67% occupancy with an ADR of $95
41. REVENUE MANAGEMENT METRICS
Breakeven Analysis
Is done to compare and determine how profitable groups
are
A breakeven analysis involves calculating or estimating:
• The net change in room revenue due to room rate changes
• The amount of net non room revenue needed to offset any
reduction in net room revenue( when room rates are
discounted) or the amount of net room revenue needed to
offset any reduction in net non room revenue (when room rates
are increased)
• The average amount each guest spends in non room revenue
centers
• The change in occupancy likely to result from room rate
changes
42. REVENUE MANAGEMENT METRICS
8. Required Non-Room Revenue Per Guest
= Required increase in Net Non-Room Revenue
Number of Additional Guests
9. RevPAG = Total Revenue
Number of Guests
43. REVENUE MANAGEMENT METRICS
A front office manager has reviewed the daily report, which
reveals that 240 rooms were sold last night. The hotel has
300 rooms and a rack rate of $98. Using the following
breakdown of room sales,
85 rooms at $98
65 rooms at $90
90 rooms at $75
A, determine the yield for last night
44. OTHER OPERATING FORMULAES
1.RevPOR= Total Room Revenue
Rooms Occupied
2. GOPPAR = GOP
Rooms Available
Gross Operating Profit Per Available Room
GOP= Revenue-Operating Expense
3. RevPOST= Total Function Revenue
Function Space/Time Used
45. 4. RevPAST= Total Function Revenue
Available Function Space/Time
5. ProPOST= Function Profit
Occupied Space/Time
6. MPI = Hotel Occ%
Market Occ %
MPI=Market Penetration Index
7. RGI = Hotel RevPAR
Market RevPAR
RGI = Hotel RevPAR
Market RevPAR
RGI= Revenue Generated Index
47. SELLING TECHNIQUES
Selling the guest room: Golden rules
Know your product ( the facilities and services of
a hotel along with the corresponding prices
Know your guest
Match the guest with the product
Sell the product before the price (introduce the
facilities and services before rushing to quote the
price
49. SELLING TECHNIQUES
1.Suggestive selling technique
This involves selling products or services by suggesting
alternatives in a way that creates desire. To create the
desire, we need to:
–Describe and offer alternative products or services
–Highlight special features, benefits and value
50. SELLING TECHNIQUES
2. Upselling (Bottom-Up approach)
This sales technique starts the selling process at the
lowest priced item and then sells up to the next level and
the next, until the customer chooses the level and price of
product or service they require and with which they are
comfortable, based on the features they described and the
perceived value.
This works well when potential customers have indicated
they are not sure what they want but are looking for
something special (i.e. are looking for birthday celebration,
anniversary , etc)
51. SELLING TECHNIQUES
3. Down selling (Top-Down approach)
Down selling is essentially the opposite of upselling. We start
the most expensive item and work down to the lowest price
until the customer chooses the product or services they are
comfortable with.
This also works well when a potential customer indicated they
are not sure what they are after, but gives us clues that value
and money are important. They may say, ‘what else, have you
got? In response to a higher priced item, or inquire if there is
anything cheaper?
52. SELLING TECHNIQUES
4. Extras and add-ons/ Cross-selling
This technique is used to encourage customers to
purchase additional products to the main product to
make it more desirable. Add-ons and extras are
products that are sold to the main product or service
the customer has bought.
This works when customer makes a reservation, we
often ask if there is anything else we can do for them,
or we tell them about other features in the venue that
may be of interest.
53. OTHER ESSENTIAL HOTEL ROOM SALES STRATEGIES
1. Hotel group sales strategy
2. Hotel direct sales strategy
3. Destination marketing sales strategy
4. Cross-promotional sales strategy
5. Guest rewards sales strategy
6. Revenue management sales strategy
54. HOTEL PROMOTION IDEAS
1. Seasonal promotions
2. Themed promotions
3. Event-based promotions
4. Direct booking promotions
5. Partnership promotions
57. IT IS NOT THE
EMPLOYER WHO PAYS
THE WAGES.
EMPLOYERS ONLY
HANDLE THE MONEY...
“
It is the customer
who pays the
wages.”
Henry Ford, Founder of Ford Motors
#DeskQuote
58. KIND WORDS
CAN BE SHORT
AND EASY TO
SPEAK, BUT
THEIR ECHOES
ARE TRULY
ENDLESS.”
MOTHER TERESA
“
#DeskQuote
59. If you work just
for money, you’ll
NEVER make it,
but if you love
what you’re doing
and you always
put the customer
first, success will
be yours.”
Ray Kroc; Founder of McDonald’s
“
#DeskQuote
62. DO WHAT YOU DO SO
WELL THAT THEY
WILL WANT TO SEE IT
AGAIN AND BRING
THEIR FRIENDS.”
WALT DISNEY, FOUNDER OF DISNEY
“
#DeskQuote
63. THE BEST WAY
TO FIND
YOURSELF IS
TO LOSE
YOURSELF IN
THE SERVICE
OF OTHERS.”
MAHATMA GANDHI
“
#DeskQuote
64. CUSTOMERS DON’T EXPECT YOU
TO BE PERFECT. THEY DO
EXPECT YOU TO FIX THINGS
WHEN THEY GO WRONG.”
DONALD PORTER, V.P. OF BRITISH AIRWAYS
“
#DeskQuote
65. One customer well
taken care of could
be more valuable
than $10,000
worth of
advertising.”
Jim Rohn, Entrepreneur and Motivational Speaker
“
#DeskQuote
66. IF WE DON’T TAKE CARE
OF OUR CUSTOMERS,
SOMEONE ELSE WILL.”
UNKNOWN
“
#DeskQuote
67. ALWAYS DO
MORE THAN
IS REQUIRED
OF YOU.”
GEORGE PATTON, FORMER GENERAL OF
THE UNITED STATES ARMY
“
#DeskQuote
71. THERE IS ONLY ONE
BOSS.
THE
CUSTOMER.
AND HE CAN FIRE EVERYBODY IN
THE COMPANY FROM THE
CHAIRMAN ON DOWN SIMPLY BY
SPENDING HIS MONEY SOMEWHERE
ELSE.”
SAM WALTON
“
#DeskQuote
72. Here is a simple but powerful rule:
Always give people more
than what they expect to
get.”
Nelson Boswell
“
#DeskQuote
73. If you don’t genuinely like your customers,
chances are they won’t buy.”
Thomas Watson, former CEO IBM
“
#DeskQuote
74. The longer you wait, the harder it is to
produce outstanding customer service.”
“
William H. Davidow, Silicon
Valley Venture Captalist
#DeskQuote
