This document discusses the basic principles of revenue management. It defines revenue management as tracking information and allocating capacity to maximize profit for the business and value for customers. The key levers of revenue management are managing demand, price, waitlists, duration, and discounts. Revenue management can be used for any business with fixed capacity, variable demand, and perishable inventory like seats in a restaurant. The goal is to maximize revenue per available seat hour.

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MANAGINGYOUR REVENUE:MODULE 1
BASIC PRINCIPLES OF
REVENUE MANAGEMENT

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WHAT’S THE BEST WAY TO BE PROFITABLE?

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WHAT IS “REVENUE MANAGEMENT”?
• Tracking information and applying knowledge to
allocate the right capacity to the right customer
at the right price at the right time
• RIGHT means maximizing potential for the
operator and maximizing value to the customer

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THE LEVERS OF GOOD REVENUE MANAGEMENT
REVENUE
MANAGEMENT
MANAGING
DEMAND
MANAGING
PRICE
WAITLIST
MANAGEMENT
DURATION
MANAGEMENT
DISCOUNTING
MENU
ENGINEERING

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REVENUE MANAGEMENT CAN BE USED FOR
ANY BUSINESS THAT HAS THE FOLLOWING:

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FIXED CAPACITY
• Number of seats
• Staffing
• Kitchen capacity
• Menu item limitations
• “Experiential capacity”

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VARIABLE (BUT PREDICTABLE)DEMAND
• Reservations (maybe)
• Arrival patterns
• Varying duration depending on
party size or meal period
• Seasonal and day-of-week
fluctuations

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Chevys Arrowhead: Seat Occupancy
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
11 12 1 2 3 4 5 6 7 8 9
Hour of Day
SeatOccupancy%
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Total Number of Occupied Seats
Total Number of Seats in Restaurant
SEAT OCCUPANCY

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SEAT OCCUPANCY
• Increase seat occupancy by
seating parties at the right
size of table whenever
possible

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PERISHABLE INVENTORY
• It’s not just the food – the seat!
– An unfilled seat is revenue lost forever
• Inventory measured in “available seat
hours” (ASH)
• Sample calculation: 110 seat
restaurant, open from 5:00 pm to
12:00 pm Tuesday through Sunday
ASH = 110 x 7 hours x 6 days = 4,620 ASH
per week

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IN RESTAURANTS, THE GOAL IS TO
MAXIMIZE REVENUE PER AVAILABLE SEAT HOUR
• Low RevPASH (“Cold” hours):
– Increase demand
– Increase average check through upselling
• High RevPASH (“Hot” hours):
– Increase seat utilization
– Increase price where feasible

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