Revenue management

1. Submittedby-
Arushi chadha
Msc 1st year

2. The Concept of Revenue Management
Hotel Industry Applications
Benefits of the techniques
Areas where this concept is applied
How the concept is applied
Measuring Yield
Yield statistic
Potential Revenue
Potential Average Single Rate
Potential Average Double Rate
Multiple Occupancy Percentage
Rate Spread
Potential Average Rate
Room Rate Achievement Factor
Identical Yields
Equivalent Occupancy
Benefits of Revenue Management

3. “Selling the right product to the right customer at the
right time for the right price.”
-Robert G. Cross Aeronomics
Revenue Management is the art and science of
enhancing firm’s revenues while selling
essentially the same amount of products
or
Revenue Management is a technique to
optimize the revenue earned from a fixed,
perishable resource.

4. Before its emergence BOAC (now
British Airways) experimented with
differentiated fare products.
The concept was pioneered by
Robert Crandall CEO of American
Airlines in the year 1985.
First major users were American
Airlines and Delta Airlines.

5. In 1990 it spread to other travel
and transport companies, specially
at national Car Rental.
By the early 1990s the concept
also began to influence television
ad sales.
The concept was first started in
hotel by Bill Marriott, Jr, CEO of
Marriott International in the 90s.

6. Fixed amount of resources available for sale.
The resources sold are perishable.
Different customers are willing to pay a
different price for using the same amount of
resources.

7. Hotels .
Aviation.
Media/ telecom.
Car Rentals.

8. Cruise Liners.
Financial services.
Apartments.
Medical services.

10. Regional Sales &
Marketing Manager
Business Development
Manager
Asst. Business
Development Manager
Sales Coordinator
Reservation & Revenue
Executive
Reservation & Revenue
Associate

11. Yield Management is based on Demand
and Supply.
The Hotel Industry’s Focus is shifting
from High Volume Booking to High Profit
Booking.
THE CONCEPT OF YIELD
MANAGEMENT

12. The Commodity that the Hotel sells is Time in a
Given Space, and if it is Unsold, Revenue is lost
forever.
Yield Management is composed of a set of Demand
Forecasting Techniques used to determine whether
Room Rates should be raised or lowered, and whether
a Reservation should be accepted or rejected in order
to maximize Revenue.
 In order to maximize Revenue, the Front Office
Manager needs to forecast Information concerning
Capacity Management, Discount Allocation, and
Duration Control.

13. It tries to solve the following Problems:
Controlling and limiting Room Supply
Balancing the Risk of Overselling Guest Rooms with
the Potential Loss of Rooms arising from Room
Spoilage
Determining how many Walk-ins to accept during
the Day of Arrival, given projected cancellations, no-
show and early departures.

14. Involves restricting the
Time Period and Product
Mix Available at reduced or
discounted Rates, and
limiting Discounts by Room
Type through encouraging
Upselling

15. Places time constraints on accepting
reservations in order to protect sufficient
space for multi-day requests.

17. Yield Statistic is the Ratio of the Actual Revenue
(Generated by the Number of Rooms Sold) to
Potential Revenue (The Amount of Money that
would be received from the Sales of Rooms in
the Hotel at a Rack Rate)

18. Formula 1
Actual Rooms Revenue
Potential Rooms Revenue
OR
Room Nights Sold × Actual Average Room Rate
Room Nights Available Potential Average Rate
OR
Occupancy Percentage  Room Rate Achievement Factor

19. It is the maximum revenue that could have
been generated by a hotel in one day.

20. Formula 2:
Single Room Revenues at Rack Rate
Number of Rooms Sold as Singles

21. Formula 3:
Double Room Revenues at Rack Rate
Number of Rooms Sold as Doubles

22. Formula 4:
Number of Rooms Occupied by more than 1 Person
Total Number of Rooms Sold

23. Formula 5:
Potential Average Double Rate
 Potential Average Single Rate

24. Formula 6:
(Multiple Occupancy %  Rate Spread)
 Potential Average Single Rate

25. Actual Average Rate
Potential Average Rate
Formula 7:

26. Formula 8:
Identical Yield Occupancy Percentage =
Current Occupancy Percentage 
Current Average Rate
Proposed Average Rate

27. Formula 9:
Equivalent Occupancy = Current Occupancy Percentage ×
−Marginal cost
Equivalent Occupancy =
Current Occupancy Percentage × Contribution Margin
New Contribution Margin
Rack Rate – Marginal Cost
Rack Rate × (1- Discount Percentage)

28.  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

29.  Determination of discounting activity
 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