Demystifying Revenue Management 1229171356194006 1

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DeMystifying RevenueManagement

PCMA POWER Chapter

September 12, 2007





Who’s going to win Sunday?



Revenue Management

Definition A combination of pricing strategies,stay pattern controls, and informationsystems to sell the right rooms tothe right customer at the righttime for the right price via the rightdistribution channel… in a way thatmaximizes revenue or yield .



Consumer Case





What other business coulduse revenue management?



Rev. Mgmt. Strategic Levers1. Controlling duration - length of stay

a. Arrival – Departure patternb. Open, closed, no arrivals, max/min length of

stay, allocationsc. Meeting space maximizationd. Managing wash – reminders, deposits, attrition,

cancel fees, overbooking, early departure policy,blind cuts

2. Pricea. Channel/Distribution managementb. Competitive pricingc. Demand based pricing



Rate FencesPhysical rate fence : rates determined by roomlocation, view, or amenitiesProduct-line rate fence : rates determined by

product category such as concierge, business class,standard or doubleRestrictive rate fence : lower rate with non-refundable depositControlled-availability rate fence : rates

determined by coupons, by the guest or hotel'sgeographic location, or by distribution channelBuyer-characteristic rate fence : senior discount,frequent customer, AAA, kids, or special rate for beingpart of a group



RevPAR Calculation1. Room Revenue / Rooms Available or2. Average Rate X Occupancy

Example: A 400-room hotel in the month of May isrunning 72% at an average rate of $122.59.400 rooms x 31 days = 12,400 room nightsavailable. 72% are occupied = 8,9288,928 x $122.59 = $1,094,483.52

$1,094,483.52 / 12,400 = $88.27 RevPAR



Hot/Warm/ColdSome hotels will assign a value to each day

Hot dates – 90% or greater occupancy

Warm dates – 70 – 89%Cold dates – less than 70%

RevPAR can generally be improved byincreasing occupancy on cold days and ADR onHot days. Discounted rate categories areclosed as demand increases.



Demand Control Chart

Source – Sherry Kimes, Cornell University150 room hotel





Group Business EvaluatorsRoom BlocksPeak night and pattern (booking parameters)

Prime, shoulder or distressed periodsRooms to Space Ratio# of rooms to amount of space needed

F&B contribution per room night – i.e.$50/optimumConcessions, rebates, commission



Revenue Management Analysis



Getting on the Same Page

Revenue

Management

Operations

Sales& Marketing



Business Review Meetings Attendee’s

GM, Revenue Manager, DOS, Sales Team, RoomsExecutive, Dir. of Catering, Dir. of Convention Service

FrequencyHeld Daily to evaluate group business opportunities

CriteriaDates, Patterns, Future Business, Meeting Space,Rates, F&B Revenue, Historical Data – rates, bookingcycle, RevPar results, city events and occupancy,Competition – Local and National



Group Booking Scenario

400 room Hotel65% group/35% transient business10,000 sq ft ballroomGroups usually book 200 rooms or moreon peak night, book beyond six monthsSun-Thurs – 240-200 rooms avail tobook



Group

Nationwide Insurance125 rooms on peak night for 2 nights(Tue – Thurs pattern)250 ppl classroomContinental breakfast and 2 breaks for250ppl



Negotiation Tactic

"If I were a planner, I might ask thequestion, 'So how does my meeting fitinto the revenue management strategyfor your property on those dates?„ If thereaction is a 'deer-in-the-headlights' one,the planner will know the salespeople areprobably compensated on the traditionalmodel."

Carol Verret – Consultant/Trainer



Other Revenue Meetings

Yield Meeting – Once a week -Determine pricing & controls strategy.Review transient booking cycle &competition for the next 60 – 90 days

Yield Strategy – Once a month

looking one year out.



RevPAR Benchmarking



Beat the Competition!

Tab 2 - DaySTAR Summary - My Hotel vs. Comp SetAny Hotel 123 Any Street Any City, Any State 90210 (555) 555-5555

STR # 98765Period ending: July 17, 2004

My Property 64.3% 15.8 84.0% 18.5 97.6% 18.5 97.9% 1.8 90.0% -4.3 83.9% -7.5 92.2% 3.3 87.1% 5.4Comp Set 81.6% 14.7 93.9% 12.2 98.0% 3.3 97.5% 1.2 92.3% -0.2 84.6% -5.7 92.1% -1.1 91.4% 3.0Index 78.8 1.0 89.5 5.6 99.6 14.6 100.4 0.6 97.5 -4.1 99.2 -1.9 100.2 4.5 95.3 2.3

My Property $161.17 0.9 $172.50 1.5 $181.10 7.2 $181.54 10.7 $171.01 9.0 $156.48 2.6 $163.30 9.6 $170.32 6.6Comp Set $177.60 -2.5 $191.85 0.8 $197.46 4.7 $198.13 8.8 $191.83 6.0 $177.44 3.4 $179.67 1.6 $188.19 3.6Index 90.7 3.5 89.9 0.7 91.7 2.4 91.6 1.7 89.1 2.8 88.2 -0.8 90.9 7.8 90.5 3.0

My Property $103.69 16.9 $144.85 20.2 $176.75 27.0 $177.80 12.7 $153.97 4.3 $131.31 -5.0 $150.58 13.2 $148.42 12.3Comp Set $144.97 11.8 $180.09 13.1 $193.56 8.2 $193.19 10.1 $177.15 5.8 $150.17 -2.5 $165.40 0.5 $172.07 6.7Index 71.5 4.6 80.4 6.3 91.3 17.4 92.0 2.4 86.9 -1.4 87.4 -2.6 91.0 12.7 86.3 5.3

ADR

RevPAR

Occupancy

July 11, 2004 - July 17, 2004

Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total% Chg % Chg % Chg % Chg % Chg % Chg % Chg% Chg

Tab 3 Daily Data For Month



Tab 3 - Daily Data For MonthPeriod ending: April 21, 2007 Date Created: April 25, 2007

Su Mo Tu We Th Fr Sa Su Mo Tu We Th Fr Sa Su Mo Tu We Th Fr SaApr Run

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 MTDMy Property 87.3 86.7 89.3 92.0 91.3 91.3 88.7 76.0 84.0 75.3 77.3 84.0 88.0 81.3 76.0 84.0 75.3 77.3 84.0 88.0 81.3 83.7Comp Set 72.9 78.7 89.4 91.9 94.5 92.7 78.7 50.8 43.9 41.1 50.2 58.9 61.1 65.5 75.8 78.2 6.2 7.8 14.5 39.6 40.4 58.7

Index 119 .7 110.1 99 .9 100.1 96 .7 98.6 112.7 149.5 191 .5 183 .1 154 .1 142 .7 144 .0 124.2 100.3 107.4 1214.9 994.1 577.6 222.4 201 .5 142 .7

angeMy Property 8.0 10.5 2.9 5.2 -1.0 -0.3 -3.8 -18.1 -7.7 -13.2 -14.5 -5.2 -7.0 7.0 33.6 97.6 90.6 101.8 92.2 79.2 78.7 11.0

Comp Set 87.9 83.2 86.6 49.3 26.4 9.6 -8.2 -21.8 -37.3 -30.5 -3.5 4.4 -1.8 26.0 152.6 1 83.2 -88.7 -86.4 -71.8 -0.3 5.6 3.5Index -42.5 -39.7 -44.9 -29.5 -21.6 -9.0 4.7 4.8 47.1 24.8 -11.4 -9.2 -5.3 -15.1 -47.1 -30.2 1584.4 1382.7 580.8 79.7 69.2 7.2

Apr Run1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 MTD

My Property 345.65 337.74 326.16 329.21 307.72 323.85 317.98 306.90 236.13 223.96 229.53 225.63 248.07 222.38 306.90 236.13 223.96 229.53 225.63 248.07 222.38 271.83Comp Set 291.31 271.47 273.01 265.59 280.71 275.32 251.92 222.34 208.17 190.25 183.41 164.33 171.57 163.93 117.68 114.42 122.35 132.30 121.82 116.09 115.21 212.79

Index 118 .7 124.4 119.5 124.0 109.6 117.6 126.2 138.0 113 .4 117 .7 125 .1 137 .3 144 .6 135.6 260.8 206.4 183.1 173.5 185.2 213.7 193 .0 127 .7

angeMy Property 17.5 42.9 30.9 37.5 16.6 25.2 11.7 9.3 -3.3 -10.9 -10.7 -19.5 -9.1 -24.6 11.6 1.2 1.4 -1.4 5.3 22.1 14.7 -0.3

Comp Set 37.4 36.1 37.7 37.9 54.5 47.6 33.2 11.8 8.3 0.4 3.1 -2.2 3.6 5.7 -20.1 -28.4 -26.9 -19.5 -22.4 -6.0 -6.3 16.7Index -14.5 5.0 -5.0 -0.3 -24.5 -15.2 -16.2 -2.2 -10.7 -11.2 -13.4 -17.7 -12.2 -28.7 39.7 41.4 38.6 22.5 35.6 29.9 22.5 -14.5

Apr Run1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 MTD

My Property 301.87 292.71 291.37 302.87 281.05 295.79 281.94 233.25 198.35 168.71 177.50 189.53 218.30 180.87 233.25 198.35 168.71 177.50 189.53 218.30 180.87 227.65Comp Set 212.49 213.62 244.08 244.03 265.20 255.14 198.24 113.05 91.29 78.29 92.02 96.71 104.84 107.38 89.16 89.52 7.59 10.29 17.72 45.94 46.50 124.91

Index 142.1 137.0 119.4 124.1 106.0 115.9 142.2 206.3 217.3 215.5 192.9 196.0 208.2 168.4 261.6 221.6 2223.9 1724.6 1069.7 475.2 389.0 182.3

% ChangeMy Property 26.9 57.9 34.6 44.7 15.5 24.8 7.4 -10.5 -10.8 -22.7 -23.6 -23.7 -15.4 -19.4 49.0 99.9 93.3 99.0 102.3 118.9 105.1 10.6Comp Set 158.1 149.4 157.0 105.9 95.3 61.8 22.3 -12.6 -32.1 -30.2 -0.5 2.1 1.7 33.3 101.7 102.7 -91.7 -89.0 -78.1 -6.3 -1.1 20.8

Index - 50.8 -36.7 -47.6 -29.7 -40.8 -22.9 -12.2 2.5 31.4 10.8 - 23.2 - 25.3 -16.8 -39.5 -26.1 -1.4 2235.2 1716.4 823.2 133.6 107.3 -8.4

RevPAR

Occupancy (%)

ADR

Daily Indexes for the Month of April

92

592

1092

1592

2092

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21



Micros Opera Rev.Mgmt Software

• 4 – 12% increase in

RevPar with existingdemand.• Re-forecast & re-

optimize every hour.• Group optimizer• Used by hotels with

over 100,000 totalinstalled.



Displacement Analysis

A method of comparing the entire groupvalue

vs.

the value of other business (transient oranother group) that would be displaced



0

2,0004,000

6,000

8,00010,000

12,000

14,000

Other A/VF&BRoom Revenue

Group vs. Transient

40 Group Rooms 40 Transient Rooms

Source: Defining Revenue Management: Top Line to Bottom Line



Displacement Exercise

The Displacement Template

Hotel size 500 Rooms displaced 65

ADR $135.00 Contribution per room $100.00Variable cost per room $35.00 Displaced contribution $6,500.00Room contribution $100.00

Other contribution $5,600.00Department Revenue Margin Contribution Total contribution needed $900.00Room rental $2,000.00 90% $1,800.00F&B $7,500.00 40% $3,000.00 Number of group rooms 225AV $2,000.00 40% $800.00 Minimum contribution per room $4.00

TOTAL $5,600.00 Variable cost per room $35.00Minimum rate per room $39.00

Dates Forecast Group SizeDisplaced

Rooms1 300 75 02 465 75 403 450 75 25

Total 225 65

Room Contribution Analysis

Other Contribution Analysis

Displacement Analysis

Rate Calculation



RFP Overload – Case StudyQuestion - I work in convention sales in a hotel & manymeeting planners are trending towards online RFP's andresponse forms. Most often, we receive these type ofleads from a 3rd party who conceals the identity of theend user, provides limited information on the client &their true reasons for buying, & never lists who we arecompeting against. These RFP's can be distributed toover 50 hotels across the country & the information wesubmit is presented to the client in the form of a grid withdates, rates & meeting space availability. Has my abilityto sell been taken away? It seems almost impossible tobuild a relationship under these circumstances. I knowthis is a whine, but, it is very frustrating becauseresponding to leads this way cuts into the time I canreally sell.



RFP Overload – ResponseSubmit a proposal that shows you ll rent out rooms for $1 anight, plus extras. And they have to call you to find out whatthe extras are. This will get you a direct response from thecustomer. Third-party bidding will never build a salesrelationship until you re either lucky or unlucky enough to winthe bid and meet the customer. I would call the third party &tell them that it s impossible for you to submit a valid bid untilyou know the expected outcome of the meeting. I would alsoinclude in the bid as many customized features as you can thatallows the customer to choose what they want with respect tomeals & other amenities for their event. But in the end, you recorrect. It s a no -win situation, and you have to decide whetheryou want to play in that environment or not.

Jeffrey Gitomer – www.gitomer.com

http://www.gitomer.com/

http://www.gitomer.com/



Does your RFP get noticed?

Limit the playing fieldPick up the phoneHelp them help youPut all your cards on the tableBe flexibleGive them adequate time

Ask the hotel to sell youBe empoweredBe timelyBe loyal



Info Needed for a Quality Bid Account name, meeting name, URLRoom block & meeting/expo spacerequirementsPreferred dates (flexibility)Competition – cities or hotels considered

At least two years of history

Desired properties to include (for CVB)Concessions, communicated “wants” Meeting purpose, critical decision factorsIndividual names and roles in decision process

Decision date



Marriott Key Center Rates

Group Month/Yr Rate

School of Dental Medicine Alumni CWRU May-07 $139

34 th Annual Natural Areas Conference Oct-07 $99

Urban Libraries Council May-07 $139

Midwest School Social Work Council Conference Oct-07 $139

Assoc. for Iron & Steel Training Seminar Oct-07 $144

Federation of Tax Administrators Investigation Class Sep-07 $119

Pri-Med Mar-07 $129

Pace Ambassadors Conference Feb-07 $179

Mechanical Construction Student Chapter Summit Oct-07 $149



Quantify Concessions

Comp rooms, suites, discounted staffrooms, 1 per 50 s Upgrades, amenities, airport limosF&B discounts, other

Put a value on each (x # of nights + tax)and divide by group rate to get concession /comp ratio

N i d S i d C A id ROI



Negotiation ResultsItem Quantity Unit Total Comment

Negotiated group rate down $10 125 $10 $1,438 Staff and speaker room nights. Includes 15% tax3 staff rooms @ 50% 15 $170 $2,933 5 nights each, includes 15% taxNegotiated room rental down $3,000 $3,000 Original quote vs. end result10 Upgrades to club level 40 $35 $1,610 4 nights each, includes 15% tax5% reduction in F&B $6,350 Total spend $100k plus tax & service charge10 Comp Welcome Amenitites 10 $25 $318 Plus tax & S/C20% reduction in A/V $5,350 Total spend $25k plus taxTotal Savings $20,998

Cost AvoidanceItem Quantity Unit Total Comment

Attrition liability waived 47 $170 $10,147 Picked up 78% of block, contractual liability 2%Used hotel table centerpieces 30 $25 $803 Instead of purchasing from floristGuarantee strategy 90 $18 $2,057 Planned for 30 no shows each morningTotal Savings $13,007

Grand Total $34,005

Time Invested 3 Months

Loaded Salary X time invested $15,000

ROI - Savings - Investment/Investment 127%

Negotiated Savings and Cost Avoidance ROI2007 Annual Meeting



Negotiating PitfallsNegotiating with the wrong personNot having an alternative, being able to walk away

Negotiating before there is an agreement in principleTossing out the 1st offer with little to no informationGiving concessions without getting something inreturn

Poor planning, poor qualifyingGetting emotionalFocusing only on priceGetting hung up on Terms & Conditions



Questions

Documents

Demystifying Revenue Management 1229171356194006 1