RM - Revenue Management Basics

Revenue Management is complex: following are some of the basic steps to set up a revenue management program.  These should be reviewed frequently to keep your property following best practices to optimize revenues:

1. You need to have a way to generate demand in low patterns and ration the rooms in peaks. This requires dynamic pricing techniques to act as the lever that matches fluctuating demand to a fixed supply of rooms on property.

2. Historical Results: You must look back because demand patterns will follow past patterns. Seasonality and Day of week patterns show up quickly in individual property results reflecting the current market place and the prevailing rate strategies. At a minimum, you should track the last year revenue, Rooms sold and ADR by segment.

3. Start tracking and monitoring your booking pace.  Booking pace measures how many bookings you have on the books at any given time for a future date.  Begin measuring it as soon as possible so you can build up some history on how fast your rooms filled up for each day last year. Then, as this year progresses you will determine if demand is stronger or weaker based on whether the booking pace is a head of or behind the same day last year. This enables you to determine if you should be in a promotional mode or an allocation mode in your sales strategy.

4. Know key market segments that book your property. A market segment is a group of guests who have similar characteristics like booking patterns, interests, etc.  Two segments for example may be "Individual" and "Group" guests.  Other segments would be destinations sources.  These can be further broken down into leisure and business on the individual side and or meetings and conventions on the group side. DON’T RELY ON TOO FEW MARKET SEGMENTS.  If they go bad your property revenue management is in a ‘hole’ hard to get out of!

5. Review current and past pricing and set a pricing structure and strategy. What has sold well and what has not.  The main function of price is to regulate demand.   Most properties today meet this challenge by BAR pricing methods. Properties usually set up a schedule of 5-10 sets of BAR rates. These BAR rates will have a different rate for each level of room type and will have rates for all the qualified segments. Then if demand picks up the property simply shifts to a higher BAR and all the rates escalate uniformly.

6. Start forecasting future revenues by segment and by time frames. In addition to comparing current performance to last year, it is helpful create a revenue and room night forecast so that departments can plan for issue like funds flow, manpower and rate strategies. These forecasts will expose day of week and seasonal variations that need to be considered in rate setting.

7. Define Distribution channels appropriate for your property.  You should concentrate on channels that will bring you volume business.  Also consider the channels cost per booking.  Some channels can cost as high as 49%.  In busy times these high cost channels can be closed out.  Be careful! Some channels censor sales during lean times.  The choice of channels to utilize is a key one to determine not only room nights sold but also net revenues received.

8. Ensure you have group revenue management strategies according to season.