Revenue management & it’s application in the hotel industry

Made By:Mudit Grover

Revenue Management• Revenue: Money that hotel collects from the sale of rooms or

from the sales of product & services

• Revenue Management: The process of examining & factoring in consumer behavior to achieve the max. amount of profit from a perishable good.

• Revenue Manager: Individual responsible for decision making necessary to maximize the property’s long term RevPar.

What is Revenue Management??• It is an umbrella term for a set of strategies that enable

capacity constrained service industries to realize optimum revenue from operations.

• Making the very best use of product is yield management.

• Therefore, yield management is the management in the terms of maximizing revenue generation and also called as Revenue Management or Revenue Enhancing Technique.

• “The hotel’s aim should be high profit business rather than high volume business”.

Objectives of Revenue Management

> Demand of rooms can be divided into clear market segments.

• Each of these segments are prepared to pay different amounts for the rooms.

> Physically identical product can be sold to different market segments for different booking condition.

• Marginal cost of selling an additional room is low.

> Demand for the room fluctuates and can’t be predicted with a high degree of uncertainty.

Role of Revenue ManagerImplements revenue

management strategies in order to maximize and optimize the revenue.

Focuses on multiple tasking during his

daily work extended to weekly task.

Train property mangers in

pricing strategies.

Guides sales and marketing teams in most effective positioning for

selling strategies.

Analyze the data to identify trends and

making a decision of the hotel rates.

Yield Management Team

Role of Team# To predict the demand of rooms.

# To assess whether to take transients/groups.# To decide the level of rates to open or close.

# Feedback sessions helps as a guide for future improvement

Sales Manager

R.D.M./F.O. Manager

Reservation Manager

Factors such as Historical Data,

Expected Walk-ins, Business Volume at Different Rates, etc are also considered.

Opportunist Selling

Benefits of Yield Management

Identification of market segment demand & Identification of new market.

Improved seasonal pricing & Inventory decisions.

Establishment of a value-based rate structure.

Increased coordination b/w Front Office & Sales department.

Determination of discounting activities.

Improved forecasting

Measuring Yield

Actual Revenue Potential Revenue

= (Total no. of rooms) * (Rack Rate)

Revenue which could be generated if all the rooms

were sold on rack rate.

=(Rev PAR) * (Total Rooms)

Revenue generated by sale on discounted rate.

Note:

Rev PAR = (Occupancy%) * (Avg. Daily Rate)

OR

Rev PAR = Total Room Revenue

Total Rooms

Potential Revenue - A tricky thing

Case 1: Presuming all rooms are sold on double occupancy & at the

rack rate.

Case 2: Presuming some rooms are sold on single occupancy and some

at double occupancy.

Yield = Actual Revenue Potential Revenue

Revenue Management ToolsRoom Sales Mix

Projection• A future forecast of the rooms sale mix.• Controlling & limiting the room supply.

Discount Fixation

• Allowing discount on room rates for a specific period.

• Serves 2 purpose:• Protecting the rooms at a higher rate.• Encourages upselling

• Reservation department refuses the request of reservation made by a guest for one night and accepts other reservation of multiple nights(for higher level of revenue)

Revenue Management Software• Software should be much faster and more accurate.

• System should be able to monitor & mange risk automatically.

• Identify the dates when demand is low/high & revenue is low/high.

• Software should be able to guide about the provision about the special events/festivals etc.

• At last a repot to be printed suggesting about the amendments in terms of rates, occupancy, revenue etc, for maximum benefit of organization.PMS Database Data Collection

Collected Data Screened

Screened Info. Checked & Verified

ANALYSISInfo. Analysis & used for

Deriving Patterns

Revenue Mgmt. Module of Fidelio software system

Conclusion

Revenue management is system that attempts to understand, anticipate and then react to consumer behavior in order to maximize profit. Therefore, a revenue manger should be able to decide a room should be sold on rack rate for a day or two would be more profitable for the same room sold at discounted rate for a longer time which is the main objective of revenue management.

Thus a yield management team should predict the demand of the rooms, allocate the right number of rooms to various market segments by using revenue management tools in order to maximize the occupancy so as

to maximize and optimize profit.