Revenue Management is the application of disciplined analytics that predicts consumer behavior at the micro-market level and optimizes product availability and price to maximize revenue growth.
Other definition would be, selling the right room to the right client at the right moment at the right price from most profitable channel.
Why do Hotels need Revenue Management?
Hotels need revenue management because;
- High fixed costs and low variable costs.
- A fixed amount of inventory is available for sale at any given time.
- Inventory is perishable.
- Different customers are willing to pay a different price for the same perishable Inventory.
- There is some ability to predict future demand for resources.
1-)How Hotels Set Prices
1.1 Firstly, Hotels must track critical data and KPI as follows;
- Inventory sold per each day
- Inventory sold by the day of the week,
- Competitive intelligence,
- Prices in the market.
1.2 Demand forecast based on granular data as follows;
- Analyse past data,
- Monitor market conditions,
- Identify segmentation,
- Analyse weekday & weekend statistic,
- Consider seasonality,
- Consider special events.
1.3 Inventory Management
- Allocation of available inventory
- Optimise price when the demand is high,
- Facilitate sales when the demand is low.
2- ) How Should Hotel Evaluate The Results
Total Revenue / Total Inventory Sold
Total Revenue / Total Inventory Available
Identify correct performance of complete inventory.
2.1 RevPar As a Key Performance Indicator
RevPAR is the total guest room revenue achieved based on total available inventory
Average Daily Rate (ADR) = Hotel’s total room revenue divided by the number of sold rooms,
Occupancy = Number of sold rooms divided by the available hotel rooms
ADR X OCCUPANCY =REVPAR
It is the combination of the ADR and Occupancy,
It allows comparisons with other hotels,
Hoteliers can understand the exact performance of each room.