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HOtel Revenue Management Importance

What is Hotel Revenue Management ?

Hotel Revenue Management is about becoming the architect of your own fortune. A hotel room is a perishable product, since the number of hotel rooms is limited. As a result, customer satisfaction and pricing remain the most important dynamic variables, which are subject to Hotel Revenue Management.

Why is revenue management important in hotels?

 Proper utilization of revenue management strategies can play a big role in increasing a hotel's bottom line. Not only does better pricing improve the property's occupancy, it also ensures that the hotel is selling all its rooms at the highest price possible and generating the maximum RevPAR it can at the time. 

What are the goals of revenue management?

 To achieve these goals, a revenue manager has to perform the following key tasks:

  • Market analysis and segmentation.
  • Competitor analysis and Customer buying behavior analysis.
  • Historical and current data analysis.
  • Yield management.
  • Revenue performance forecasting.


What is revenue management strategy?

 Revenue Management is the application of analytics that predicts consumer behaviour at the micro-market level to optimise product availability and price to maximise revenue growth. The primary aim of a revenue management strategy is selling the right product to the right customer at the right time for the right price. 

What is the difference between yield and revenue management?

 Close, but not quite. The difference between revenue management and yield lies in technicalities and definitions. Revenue management is the overall strategy, including in-depth analytics and forecasting, Yield management is the actual price optimization part. 

What is a revenue manager in a hotel?

 Revenue Managers work closely with sales teams, reception desk employees and the hotel general manager in areas of promotion, business planning and reservation costs. They might conduct analyses of prices offered by other hotels to develop competitive prices and discounts. 

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Glossary

Revenue Management Glossary From ADR to yield, and everything in between

 

  • Actual Market Share

    Actual market share is percentage of hotel’s occupancy against the competitive set of hotels occupancy during the same period. This is a critical variable used in conjunction with Fair Market Share to then derive market penetration level for a hotel against the competition set of hotels
  • Average Length of Stay

    Average Length of Stay (ALoS) is the average number of days the guests stay at the hotel during a particular period.
    Average Length of Stay (ALOS) = Number of room nights / Number of booking
  • Average Rate Index

    Average Rate Index is a key performance indicator for hotels that measure the performance of the ARR/ADR compared competition set of hotels ARR/ADR (that are similar in location, target market, segments, etc.) during the same period.  The purpose is to critically evaluate the hotel’s ARR/ADR performance as against the competition set or market.
    Average Rate Index (ARI) = Hotel’s Average Room Rate / Average ARR of the competition set Hotels
    E.g.,  $110 / $100 = 110%  – In this case the hotel has achieved 110% of the competition set which indicates that it has gained more than its fair share of the ARR of the market.
    • ARI Index equals to 100% – The hotel ADR is equal to the average ADR of their comp set
    • ARI Index greater than 100% – The hotel ADR is higher than the average ADR of their comp set
    • ARI Index lower than 100% – The hotel ADR is lower than the average ADR of their comp set
  • Average Daily Rate

    Average Room Rate (ARR) also known, as Average Daily Rate (ADR) is a key performance indicator in hotels, which measures the average rate per occupied room.   Both are used to calculate the average rate of the occupied room and it is a critical KPI to measure the financial performance of the hotel. However, ARR can also be used to measure the average rate for a longer period of time (weekly, monthly and yearly) while ADR may only be used to measure the average rate of one day.
    Average Room Rate (ARR/ADR)= Actual Daily Room Revenue / Total Rooms Occupied
  • Availability

    Availability is the number of vacant rooms a property/hotel has to sell for a specific set of dates or a certain type of accommodation.
  • Best Available Rate

    Best Available Rate is the lowest rate with no restriction and bookable by all guests.  The rate is highly dynamic and changes several times on a daily, weekly and monthly basis.
  • Booking Pace

    Booking Pace also known as Booking Curve is calculated with the speed at which bookings received over a period of time from the booking date to the arrival date.  A visual graphic presentation of the booking pace data is generally called as Booking Curve.
  • Booking Window

    Booking window also known as the Lead Time is the period of time between the date of booking and the actual arrival date to the hotel.
  • Business Mix

    The blend of different market segments that occupy a hotel, measured as a value or percent of occupancy.
  • Channel Management

    All revenues are not equal as the cost of acquiring a customer from different channels is highly variable.  As a distribution strategy hotels try to efficiently manage its demand through different channels such as direct and indirect.   Direct channels are more cost efficient while cost of indirect channels could be high.
    A few examples of indirect channels:  Travel agents, tour operators, wholesalers &online travel agents
    A few examples of direct channels: Hotel reservations, Central Reservation Office& branded websites
  • Closed

    Closed status on a particular day is a restriction placed to prevent from guests booking a hotel.  The hotel becomes unavailable for sale at a hotel level, room type level or at a price level.
  • Complimentary

    Complimentary room or services that are offered to customers without any charge or free of cost that involves future potential business.
    E.g. One Room complimentary for every 10 paying Rooms, Tour Leader Complimentary, etc.
  • Cost of Walk (CoW)

    The cost of turning away a guest when the hotel is unable to provide the promised accommodation, which may include the cost of a hotel room in a comparable hotel, complimentary add on, gifts and potential opportunity loss of future business.
  • Constrained Demand

    The quantity of rooms that are expected to be sold for a date considering the limitations of the hotel’s capacity or restrictions on bookings.
  • CPOR

    Cost Per Occupied Room is one of key performance indicator used in cost analysis to calculate the average cost per occupied room in a hotel. 
    Cost Per Occupied Room (CPOR)= Total Rooms Cost / Number of Rooms Sold
  • Closed to Arrival

    Closed to Arrival (CTA) is a restriction placed on a specific set of days where guests cannot book with an arrival date that has closed to arrival restriction.  This arrival restriction is used to manage the stay through bookings that are either pre-dated bookings or guests already staying at the hotel. 
  • Closed to Departure

    Closed to Departure (CTD) is a restriction placed on a specific set of days where guests cannot book with a departure date that has closed to departure restriction.  This stay restriction is used to manage and control to optimize the length of stay for a particular period/Event.
  • Dynamic Pricing

    Pricing strategy drives the strategy of offering variable pricing in line with demand and supply. Dynamic pricing helps a hotel to achieve incremental room nights during low demand period and optimize yield on high demand / peak days.
  • Fair Market Share

    Fair market share (FMS) is percentage of hotel’s inventory against the competitive set of hotels inventory.
    This is a variable used to derive a key performance indicator called Actual Market Share that further helps to understand the market penetration level for a hotel against the competition set of hotels.
  • Fenced Rate

    Hotels offer a series of optional rate to guests for providing accommodation.  Fenced rate is a price/rate, which is prevented by one or more conditions like non-refundable, non-cancellable, advance purchase, stay over a weekend/weekday.  The guests have an option to accept such fenced rates by agreeing to such conditions.
  • Forecast

    Predicting demand based on quantitative methods and a combination of a decision maker’s experience, logic, and intuition to supplement the forecasting quantitative analysis. Forecasting at an occupancy (To the maximum capacity of the hotel) level is the constrained demand forecast while forecasting the true demand which is not limited to the hotel’s capacity is unconstrained demand forecast.
  • Full Pattern Length of Stay (FPLOS)

    A pattern that indicates whether a rate is available for the arrival date and length of stay
  • Group Evaluation

    A system tool that allows users to enter details about a potential group booking, generate an analysis, and use the resulting data to select the best arrival date and rate that will provide the highest benefit to the hotel.
  • Group Wash

    The difference between the final occupancy for a group and the maximum value of the block from its original booking date.
  • GOPPAR

    Gross Operating Profit Per Available Room is one of the key performance indicator that measure the financial results of the hotel’s performance in terms of profitability for a particular period.
    GOPPAR = Gross operating profit from Rooms / Available Rooms
  • Inventory

    The physical number of rooms available for sale in a hotel is called as Inventory that often relates to Rooms.  Further the inventory is made available for sale or distributes to various channels and market segments to augment the sales and optimize the revenues.
  • Key Performance Indicator

    KPI is an acronym / abbreviation of Key Performance Indicator in the hospitality industry.  KPI includes a set or ratios and formulas that help calculate and indicate the performance and progress of a hotel accordingly to their plans and actions.
    Here are some examples of series of standard Key Performance Indicators to monitor and to benchmark performance of different departments in a hotel.
    • ARR – Average Room Rate
    • ADR – Average Daily Rate
    • Occupancy %
    • Room Nights
    • RevPAR – Revenue per Available Room
    • Average Spend per customer
    • RMSI – Revenue Market Share Index
    • FMS – Fair Market Share
    • AMS – Actual Market Share
    • MPI – Market Penetration Index
    • ARI – Average Rate index
    • RGI – Revenue Generation Index
    • GOPPAR – Gross Operating Profit Per Available Room
    • NRevPAR – Net Revenue Per Available Room
    • RevPAST–Revenue Per Available Space Time
    • RevPOST – Revenue Per Occupied Space Time
    • RevPASH – Revenue Per Available Seat Hour
    • RevPOR – Revenue Per Occupied Room
    • TRevPAR – Total Revenue Per Available Room
    • ProPAST – Profit Per Available Space Time
    • ProPOST – Profit Per Occupied Space Time
  • Last Room Value (LRV)

    The maximum amount of room revenue that a hotel can expect to make from the last room available for sale. Last Room Value is used as a restriction to control low value rates during busy periods and opens all rates during lean period for a hotel.
  • Length of Stay (LOS)

    The number of nights that a guest stays at a hotel. This value is also the difference between the departure date and the arrival date.
  • Market Penetration Index

    Market Penetration Index (MPI) is a key performance indicator to determine the hotel’s occupancy performance as against the pre-defined competitive set of hotels occupancy (that are similar in location, target market, segments, etc.) during the same period.  Market penetration index is determined using the Fair market share and Actual market share of the hotel against the competition set of hotels. The purpose is to critically evaluate the hotel’s occupancy performance as against the competition set of hotels.
    Market Penetration Index (MPI) = Actual Market Share / Fair Market Share
    E.g. 82.5%% / 75% = 110%  – In this case the hotel has achieved 110% of the competition set which indicates that it has gained more than its fair share of the occupancy within the competition set of hotels.

    • MPI Index equals to 100%                 – The hotel Occupancy is equal to the average Occupancy of their comp set
    • MPI Index greater than 100% – The hotel Occupancy is higher than the average Occupancy of their comp set
    • MPI Index lower than 100%                 – The hotel Occupancy is lower than the average Occupancy of their comp set
  • Market segmentation

    Market segmentation (MS) is a marketing strategy that involves dividing a broad target market into subsets of consumers, who have common needs and priorities, and then designing and implementing strategies to target them.
    Now, this market is not uniform in either behavior or requirements. Thus you can segment your market by grouping your customers based on their needs and create sub-groups.
    Basically, you segment the pie that is your customers base into smaller slices that are each a sub-group. The way we do this is by grouping customers with similar needs and other variables into one segment so that this segmented market can be more accurately targeted and reached with a distinct marketing mix. In other words, not only do we divide this pie, but also we divide it based on need, whenever we see a group of people with needs different from others so that we can reach out to them specifically.
    Market segmentation is a key foundation to Revenue Management.
  • Maximum Length of Stay

    Maximum Length of Stay (Max-Los) is a restriction placed on a specific set of days where a guest is allowed to book not exceeding a certain number of days.  This restriction is placed by the hotel to avoid a guest from staying beyond a certain date to protect the other arrivals on the following day.
  • Minimum Length of Stay

    Minimum Length of Stay (Min Los) is a restriction placed on a specific set of days where a guest can only book by committing a certain minimum number of nights.  The hotel to secure a minimum sale from bookings during a specific period generally applies minimum Length of Stay condition.
  • No Shows

    When a customer fails to show up or arrive to fulfill a room reserved, without explicit cancellation.
  • Occupancy

    Occupancy is a key performance indicator used to measure the percentage of occupied/sold rooms against the total number of rooms available to sell in a specific period.
    Occupancy = Rooms Sold / Rooms Available (Inventory)
  • Occupancy Forecast

    The constrained occupancy that the hotel is expected to achieve for a specified period of time. The same may be derived by a percentage or number of rooms occupied against the available rooms
  • Overbooking

    Accepting bookings over and above the hotels physical capacity (Number ofavailable rooms) to account for cancellations and no shows.  The purpose of overbooking is to achieve higher occupancy as close to 100% and maximize revenues for any given day
  • ProPAST

    Profit Per Available Space Time or Meal period.
  • ProPOST

    Profit Per Occupied Space Time or Meal period.
  • Qualified Rate

    A rate that the guest must qualify based on certain commitments and conditions such as volume, lead-time, length of stay, etc.  Example:  Corporate Rate, Promotional Rate, Packages, etc.
  • Rate Shopping

    Rate Shopping is a service provided by a technology platform that fetches real time competitors pricing data and availability to hotels.
  • Revenue Displacement

    In order to effectively manage the business mix the hotel must derive the demand forecast, which is then used to calculate the revenue displacement. 
    Based on the total value of the business hotel has a choice of accepting the high yield business to optimize revenues and deny the low yield businesses.  This is only possible once the revenue displacement is ascertained by evaluating the overall revenue spend of the guests during the stay but not limited to only room revenue. 
    Generally bulk bookings otherwise called as groups tend to book rooms in large quantity with other facilities of the hotel like conference room, Food & Beverage, etc. which helps generate ancillary revenues.  In order to accept groups overall spend is analyzedto calculate the revenue displacement upon accepting the group.
  • Revenue Generation Index

    Revenue Generation Index (RGI) is a key performance indicator for hotels that measure the performance of the room revenue compared to competition set of hotels room revenue (that are similar in location, target market, segments, etc.) during the same period.  The purpose is to critically evaluate the hotel’s Room Revenue performance as against the competition set or market.
    Revenue Generation Index (RGI) = Hotel’s Average Room Rate / Average ARR of the competition set Hotels
    E.g.,  $120,000 / $100,000 = 120%  – In this case the hotel has achieved 120% of the competition set which indicates that it has gained more than its fair share of the Room Revenue of the market.
    • RGI Index equals to 100%                 – The hotel Room Revenue is equal to the average Room Revenue of their comp set
    • RGI Index greater than 100% – The hotel Room Revenue is higher than the average Room Revenue of their comp set
    • RGI Index lower than 100%                 – The hotel Room Revenue is lower than the average Room Revenue of their comp set
  • Revenue Market Share Index

    Revenue Market Share Index (RMSI) is a complex table that assimilates FMS – Fair Market Share, AMS – Actual Market Share, MPI – Market penetration Index, ARI – Average Rate Index and RGI – Revenue Generation Index.  This is the most critical way to evaluate the hotels revenue performance as against the competition set of hotels ((that are similar in location, target market, segments, etc.) during the same period that is globally followed by the hospitality industry.
  • Reputation Pricing

    Pricing science that integrates a hotel’s online reputation, guest reviews and ratings into its revenue management strategy.
  • RevPASH

    Revenue Per Available Seat Hour (RevPASH) is a key performance indicator used to measure the revenue generated for every seat in a Food & Beverage Outlet per Hour.
    RevPASH = Total Food & Beverage Revenue of the Outlet / (Total Number of Seats available x Operational Hours of Meal Period)
  • RevPAR

    Revenue Per Available Room (RevPAR) is a key performance indicator for hotel to ascertain the revenue per every available room for sale.  This is the most critical KPI used to evaluate the hotel room revenue performance and is also a variable that used to judge the ranking of the hotel’s performance against the competition set of hotels.
    RevPAR = Room Revenue / Total number of rooms available for sale / Inventory
                      Or
                      ADR (Average Daily Rate) x Occupancy%
  • RevPAST

    Revenue Per Available Space Time is a key performance indicator used to measure the revenue performance of function space available per function hour.
    RevPAST = Total Revenue from Functions / Total Function space Available for sale
  • Revenue Management System

    Revenue Management System (RMS) is a software application used by hotels to predict customer demand, to control and optimize inventory and price availability, and maximize revenues and profits by managing availability, room types, stay patterns from historic and future data by micro market segments which helps to strategic product sales.
  • Revenue Optimization

    Revenue Optimization is the application of disciplined analytics that predict consumer behavior at the micro-market level and optimize product availability and price to maximize revenue growth while managing risk under current and anticipated market conditions.
  • RevPOST

    Revenue Per Occupied Space Time (RevPOST) is a key performance indicator used to measure the revenue performance of function space occupied per function hour.
    RevPOST = Total Revenue from Functions / Total Function space Occupied for sale
  • Room Nights

    Room Nights are rooms sold or occupied by the number of nights each room is reserved or occupied.
  • Semi-Yieldable Rates

    Rates that can be closed but only when the same room type or length of stay is closed for BAR; for example, Last Room Available accounts.
  • Shoulder Dates

    Shoulder Dates also referred to Shoulder Nights are the low occupied dates in a hotel prior to and followed by peak occupancy.  In a week of 7 days between Monday to Saturday if Monday and Thursday occupancy is less than 60% while Tuesday and Wednesday is above 90% in a hotel.
  • Special Event

    A date or set of contiguous dates for which the hotel has a different business pattern than normal.
  • Transient

    Guests who book individually rather than a group for any length of stay in a hotel is also known as Free Individual Traveler (FIT) or Retail Business.
  • TRevPAR

    Total Revenue Per Available Room is a key performance indicator to measure the overall revenue including the room and ancillary spend (Food & Beverage, Spa, Health Club, etc.) per every available room for sale (Inventory).  This KPI is further used to augment the ancillary spend by the guests staying in the hotel.
    TRevPAR = Total Revenue from Available Room / Total number of Rooms Available for Sale (Inventory)
  • TRevPOR

    Total Revenue Per Occupied Room is a key performance indicator to measure the overall revenue including the room and ancillary spend (Food & Beverage, Spa, Health Club, etc.) by guests in the occupied room.  This helps to understand the average ancillary revenue contributed by occupying guests in a hotel.
    TRevPOR = Total Revenue from Occupied Room / Total Occupied Rooms
  • Unconstrained Demand

    Unconstrained Demand is the demand that is not limited or constrained by the capacity or restrictions of the hotel is also called as True Demand.
  • Unqualified Rates

    Rates that are available by the hotel to guests who do not have an agreed and or contracted rate and that have no booking restrictions or conditions attached.
  • Utilization (Function Space)

    Multiplication of the available area by the number of day or function parts being evaluated.
  • Wash

    The difference between the final occupancy of a hotel at the end of a particular day and the maximum occupancy based on the business on the books from the start of the day.  The revenue wash is contributed by those guests who do not show up for the booked reservations, last minute cancellations, group wash, early departures, amendment of bookings (when length of stay is shortened).
  • Yield Management

    Yield management is a combination of strategies, based on understanding, anticipating and influencing consumer behavior in order to maximize revenue or profits from a capacity and time limited or constrained resources.  Yield management involves strategic control of inventory to sell the right product to the right customer at the right time for the right price through the right channel.awards/distinctions, office locations, shareholder reports, whitepapers, media mentions and other pieces of content that don’t fit into a shorter, more succinct space.


Articles – Good topics for articles include anything related to your company – recent changes to operations, the latest company softball game – or the industry you’re in. General business trends (think national and even international) are great article fodder, too.


Mission statements – You can tell a lot about a company by its mission statement. Don’t have one? Now might be a good time to create one and post it here. A good mission statement tells you what drives a company to do what it does.


Company policies – Are there company policies that are particularly important to your business? Perhaps your unlimited paternity/maternity leave policy has endeared you to employees across the company. This is a good place to talk about that.


Executive profiles – A company is only as strong as its executive leadership. This is a good place to show off who’s occupying the corner offices. Write a nice bio about each executive that includes what they do, how long they’ve been at it, and what got them to where they are.

Glossary of Revenue Management by hotelRevbaba

Glossary of Revenue Management by hotelRevbaba

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