Revenue Management
© 2009, Educational Institute
Competencies for
Revenue Management
1. Explain the concept of revenue management, and
discuss how managers can maximize revenue by
using forecast information in capacity management,
discount allocation, and duration control.
2. Discuss common formulas managers use to measure
and manage revenue.
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Competencies for
Revenue Management
(continued)
3. Explain how revenue management decisions are affected
by group room sales, transient room sales, other revenue
opportunities, local and area-wide activities, special
events, and fair market share forecasting.
4. Discuss the revenue manager’s role and position,
summarize typical revenue meetings, outline potential
tactics to use in periods of high and low demand, discuss
revenue management tactics, and explain how revenue
management software helps hotel managers.
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Benefits of Revenue Management
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Improved forecasting
Improved seasonal pricing and inventory decisions
Identification of new market segments
Identification of market segment demands
Enhanced coordination between the front office
and sales divisions
• Determination of discounting activity
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Benefits of Revenue Management
(continued)
• Improved development of short-term and long-term
business plans
• Establishment of a value-based rate structure
• Increased business and profits
• Savings in labor costs and other operating expenses
• Initiation of consistent guest-contact scripting
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Revenue Management Methods
• Capacity management
Balances risks of overbooking against potential
loss of revenue from reservation cancellations,
early departures, and no-shows
• Discount allocation
Restricts time period and product mix (rooms)
available at reduced or discounted rates
• Duration control
Places time constraints on accepting reservations
in order to protect rooms for multi-day
reservations (which represent higher levels of
revenue)
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Revenue Management Formulas
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Formula 1: Potential average single rate
Formula 2: Potential average double rate
Formula 3: Multiple occupancy percentage
Formula 4: Rate spread
Formula 5: Potential average rate
Formula 6: Room rate achievement factor
Formula 7: Yield statistic
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Revenue Management Formulas
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Formula 8: RevPAR
Formula 9: Identical yields
Formula 10: Equivalent occupancy
Formula 11: Required non-room revenue per guest
RevPAG
GOPPAR
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Potential Average Single Rate
Single Room Revenues at Rack Rate
Number of Rooms Sold as Singles
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Potential Average Double Rate
Double Room Revenues at Rack Rate
Number of Rooms Sold as Doubles
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Rate Spread
Potential Average Double Rate
 Potential Average Single Rate
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Potential Average Rate
(Multiple Occupancy %  Rate Spread)
 Potential Average Single Rate
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Room Rate Achievement Factor
Actual Average Rate
Potential Average Rate
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Yield Statistic Formulas
Formula #1
Actual Rooms Revenue
Potential Rooms Revenue
Formula #2
Room Nights Sold
Room Nights Available
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Actual Average Room Rate
Potential Average Rate
Formula #3
Occupancy Percentage  Room Rate Achievement Factor
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RevPAR Formulas
Formula #1
Actual Room Revenue
Available Rooms
Formula #2
Occupancy Percentage  Average Daily Rate
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Identical Yields
Identical Yield Occupancy Percentage =
Current Average Rate
Current Occupancy Percentage  Proposed Average Rate
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RevPAG and GOPPAR
RevPAG =
Total Revenue
Number of Guests
GOPPAR =
Departmental Revenues – Departmental Expenses
Number of Available Rooms
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Elements of Revenue Management
Strategies
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Group room sales
Transient room sales
Other revenue opportunities
Local and area-wide activities
Special events
Fair market share forecasting
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Revenue Manager Skills and Qualities
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Operational skills
Analytical skills
Strategic skills
Organizing skills
Communications skills
Good listening skills
Team-building skills
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Team-building skills
Training skills
Patience
Creativity
Cooperativeness
Flexibility
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Revenue Management Meeting
Participants
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General manager
Sales managers
Catering managers
Reservations manager
Front office manager
Food and beverage manager
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High-Demand Tactics
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Close or restrict discounts
Apply minimum length of stay restrictions carefully
Reduce group room allocations
Reduce or eliminate 6 p.m. holds
Tighten guarantee and cancellation policies
Raise rates to be consistent with competitors
Consider a rate raise for packages
Apply full price to suites and executive rooms
Select dates that are to be closed-to-arrivals
Evaluate the benefits of sell-throughs
Apply deposits and guarantees to last night of stay
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Low-Demand Tactics
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Sell value and benefits
Offer packages
Keep discount categories open
Encourage upgrades
Offer stay-sensitive price incentives
Remove stay restrictions
Involve your staff
Establish relationships with competitors
Lower rates
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Four Revenue Management Tactics
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Hurdle rate
Minimum length of stay
Close to arrival
Sell-through
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Revenue Management Software
Revenue management software provides:
• Continuous monitoring
• Consistency
• Information availability
• Performance tracking
• Special reports
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