In this first article of the Revenue Management eBook we will go over the definition of what is revenue management in the hotel and hospitality industry. Additionally, we will be covering the fundamentals of revenue and yield management.

What is Revenue Management?

“Selling the Right Room to the Right Client at the Right Moment at the Right Price”

We would like to add the following to that description:

“On the Right Distribution Channel with the best commission efficiency”

So, Why is Revenue Management Important?

Revenue management helps to predict consumer demand to optimize inventory and price availability in order to maximize revenue growth. The purpose of Revenue Management is not selling a room today at a low price to sell it tomorrow at a higher price. Revenue Management also means selling a room at a low price today if you do not expect higher demand.

Revenue Management challenges the resources in the importance of gathering information about the market so that you can be proactive and not reactive. Use the information to divide your market and adjust your products through distribution, to the right customer at the right time and at the right price.

Revenue Management is a concept that not only maximizes revenue in periods of high demand, it also helps stimulate demand in slower periods while avoiding pricing cannibalism. Revenue Management strategies both be focussed on long and short term actions, always weighing revenue and profitability against each other, where low rates even be applied during high demand periods.

What makes hotels suitable to apply Hotel Revenue Management?

Revenue management practices require the following characteristics to be applied effectively, which are all inherently present in the hotel industry.

  • Fixed capacity (a hotel has only a limited number of rooms available)
  • A perishable product, meaning the same room can only be sold on the same day (i.e. tomorrow is a different day, making the product essentially “expired”)
  • High fixed costs and low variable costs
  • The Product can be priced differently
  • Demand evolves (seasons, day to day, weekends vs weekdays etc.)
  • The product can be sold in advance
  • The market can be segmented (e.g. groups and promotions)

Where it all Started: Yield Management & Revenue Management

Note: The difference between Yield Management and Revenue Management is in the overall strategy, including in-depth analytics and forecasting. Yield management denotes the actual price optimization part.

Before being applied in hotels, Revenue Management – or – Yield Management started with the Airline Industry. But today many more industries use Revenue Management in similar ways, mostly to take advantage of opportunities that arise from peaks and troughs by applying price differences and segmentation. Other industries that have adopted the concept of Revenue Management include:

  • Car rental
  • Train companies
  • Theatres and Cinemas
  • Restaurants
  • IKEA (offering lower prices at times when it is least busy)

In essence, almost every industry would benefit in some way from the benefits of Revenue Management techniques.

Continue Reading on Revenue Management

Get a deeper understanding of Revenue Management by reading our free eBook to dive deeper into the concept of revenue management, or contact us directly for revenue management or hotel management services to increase your hotel´s performance.

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