Hotel Revenue Management #3 by Dino Leonandri

1. 3 rd Session-Hotel Revenue Management Process
by : Dino Leonandri
1
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2. Revenue management is a long-term management strategy with immediate
results that optimise the income of a hotel establishment during periods of
high and low demand.
As such, revenue management could be defined as a demand behaviour
prediction technique, the aim of which is to increase a hotel’s income. More
specifically, revenue management can be considered a formula that enables
a room to be sold today at a specific price, with the certainty demand at
higher prices does not exist.
In this regard, revenue management enables us to segment the market,
adapting our service to the needs of the client in terms of time, price and
distribution.

3. (1) Data collection
Correct revenue management should be based on the collection of a series of data that enables
decision making, which translates into price and distribution strategies. Consequently, all the
information obtained related to clients and their purchasing habits becomes essential for any
revenue manager.
Booking dates, rates, available rooms, no-shows, cancellations, room types, etc. are some of this
essential data. This means a good booking integrated with the hotel’s property management
system (PMS) and channel manager can be the difference between optimising income long term
and surviving in the short term without future guarantees.
Revenue management is founded on six steps defined
below:

4. Revenue management is founded on six steps defined
below:
(2) Interpretation of information
Interpreting the data collected is the basis for the production of the
sales forecast as well as pricing and distribution strategies.
A revenue manager has a complicated task and must focus on the
segmentation of the market, or focus on the creation of homogeneous
groups of clients that are, within each group, heterogeneous. The client
is equal to demand.

5. Revenue management is founded on six steps defined
below:
(3) Preparation of the hotel forecast
When preparing the sales or hotel forecast, precision is decisive in
obtaining a measurement of demand, which includes periods of
peaks and troughs in activity. This forecast enables you to react
when faced with periods of low demand, design different rate levels,
and choose the optimal distribution channels for the management of
bookings.

6. Revenue management is founded on six steps defined
below:
(4) Pricing and distribution strategy
Defining your pricing and optimal distribution channels
strategy is the step prior to fully engaging in revenue
management. As such, you must consider concepts such
as parity and value, given that positioning a price is not
simple.

7. Revenue management is founded on six steps defined
below:
(5) Implementation
Putting the designed strategy into practise will also require time and planning in particular. Two essential
issues are raised:
(5.1.) Technological development and solutions. Currently, new technologies offer solutions that enable us
to easily implement our revenue strategy. These developments gather data from the PMS and, depending
on your needs, offer the chance to perform different analyses that facilitate the decision making process.
Revenue Management Systems (RMSs) are an option. However, when trying to set prices in accordance
with competitors, distribution channels, pick up or booking pace and, in addition, you are the one who sets
your own business rules, there are other solutions that better adapt to your hotel’s needs.
This is the case with a Distribution Manager System (DMS), a new revenue management solution that
Paraty Tech will present at FITUR.
(5.2.) Training of employees. Revenue management must involve every staff member at the hotel, which is
why training becomes a powerful ally.

8. Revenue management is founded on six steps defined
below:
(6) Results analysis
Monitoring results through completing periodic reports that enable
comparisons to be made is another key point in revenue management.
Without an exhaustive analysis of results, it is impossible to establish
corrective measures that allow you to optimise revenue management.

9. Room Rate
Structure
• The combination of all the rates offered at a hotel is called the rate structure.
• Hotel room rates are both quantifiable and qualifiable.
• Average Daily Rate (ADR) is a term used in different ways. In this analysis, it is used to
determine a starting point in establishing a hotel’s rate structure

10. Place your screenshot here
10
Cost
Level of
services
Location
Target
market
Competition
Factors Affecting Room Rate

11. The Hubbart Formula
Roy Hubbart developed a method to calculate a hotel room rate
based on the costs incurred in operating the hotel and a reasonable
return on investment for the investors
The Hubbart Formula incorporates three schedules. I looks at specific
financial calculations, II looks at the rates per occupied room, and III
incorporates square footage into the analysis.

12. Hubbart Formula– Schedule I
• Traditional room cost is considered
• In addition, Return on Investment is factored in to give
owners/investors a fair rate of return.
• What hotel trend precipitated the need to incorporate ROI?
That is, what changed in the industry and what other industries
became involved?

14. Hubbart Formula– Schedule II
• The figure reached at the end of Schedule I is used to determine the
average daily rate the hotel would need to charge to meet its
obligations (operating costs and owner ROI).
• Schedule II incorporates opportunity cost.
• Schedule II also assumes an average occupancy percentage.
• How can using the 70% occupancy figure sometimes cause problems?

15. Hubbart Formula Example - Schedule II
Example
1. Amount Needed from Guest Room Sales (Schedual I) $2,060,000
2. Number of Guest Rooms Available 175
3. Number of Rooms Available on an Annual Basis
Item 2 multipled by 365 (175x365) 100% 63,875
4. Less Allowance for Average Vacancy 30% 19,163
5. Number of Rooms to be Occupied Based
on Average Occupancy 70% 44,712
6. Average Daily Rate Required to Cover Costs and
Provide Reasonable ROI (Item 1 divided by Item 5) 46.07$

16. Hubbart Formula– Schedule II
• Schedule III makes an assumption that
larger rooms are more expensive to
maintain.
• A square footage calculation is made of
the area of all the guestrooms in a hotel.
• What are some of the drawbacks of using
a strict square footage calculation?

17. Hubbart Formula Example - Schedule III
Example
1. Amount Needed from Guest Room Sales (Schedule I) $2,060,000
2. Square Foot Area of Guest Rooms 70,000
3. Less Allowance for Average Vacancy (70,000 x 30%) 21,000
4. Net Square Footage of Occupied Rooms (70,000 x 70%) 49,000
5. Average Annual Rental per Square Foot (Item 1 divided by Item 4) 42.04
6. Average Daily Rental per Square Foot (365 divided by Item 5) $0.12

18. Thanks!
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