DEMYSTIFYING

REVENUE
MANAGEMENT
Vikas Bhatara, MD FCCP CHA

Todays Agenda

What is Revenue
Management
How Rev. Mgmt is applied to
meetings
Revenue Mgmt tools used by
hotels
Best practices for RFPs & hotel
negotiations

Whos going to win

Sunday?

Revenue Management
Definition

A combination of pricing
strategies, stay pattern controls,
and information systems to sell
the right rooms to the right
customer at the right time for
the right price via the right
distribution channelin a way
that maximizes revenue or

Consumer Case

6 Revenue Mgmt.
Attributes
1.
2.
3.
4.
5.

6.

Fixed capacity
High fixed cost, low variable cost
Perishable inventory
Reservations are made in advance
Variance in demand season or day or
length of stay
Some customers price sensitive, some
not (marketable segments)

WHAT OTHER BUSINESS

COULD USE REVENUE
MANAGEMENT?

Rev. Mgmt. Strategic

Levers
1.

Controlling duration - length of stay

a.
b.
c.
d.

2.

Arrival Departure pattern

Open, closed, no arrivals, max/min length
of stay, allocations
Meeting space maximization
Managing wash reminders, deposits,
attrition, cancel fees, overbooking, early
departure policy, blind cuts

Price
a.
b.
c.

Channel/Distribution management
Competitive pricing
Demand based pricing

Rate Fences

Physical rate fence: rates determined by

room location, view, or amenities
Product-line rate fence: rates determined
by product category such as concierge,
business class, standard or double
Restrictive rate fence: lower rate with nonrefundable deposit
Controlled-availability rate fence: rates
determined by coupons, by the guest or
hotel's geographic location, or by distribution
channel
Buyer-characteristic rate fence: senior
discount, frequent customer, AAA, kids, or
special rate for being part of a group

RevPAR Calculation
1.
2.

Room Revenue / Rooms Available or

Average Rate X Occupancy

Example:
.
A 400-room hotel in the month of May
is running 72% at an average rate of
$122.59.
.
400 rooms x 31 days = 12,400 room
nights available. 72% are occupied =
8,928
.
8,928 x $122.59 = $1,094,483.52

Hot/Warm/Cold
Some hotels will assign a value to each
day

Hot dates 90% or greater occupancy

Warm dates 70 89%
Cold dates less than 70%

RevPAR can generally be improved by

increasing occupancy on cold days and
ADR on Hot days. Discounted rate
categories are closed as demand

Demand Control Chart

Source Sherry Kimes, Cornell University

150 room hotel

Booking Curve Forecast

% of Peak
Days before arrival

Group Business Evaluators

Room Blocks
Peak night and pattern (booking
parameters)
Prime, shoulder or distressed periods
Rooms to Space Ratio
# of rooms to amount of space needed
F&B contribution per room night i.e.
$50/optimum
Concessions, rebates, commission

Revenue Management Analysis

Getting on the Same

Page

Business Review Meetings

Attendees

GM, Revenue Manager, DOS, Sales Team, Rooms

Executive, Dir. of Catering, Dir. of Convention
Service
Frequency

Held Daily to evaluate group business

opportunities
Criteria

Dates, Patterns, Future Business, Meeting Space,

Rates, F&B Revenue, Historical Data rates,
booking cycle, RevPar results, city events and
occupancy, Competition Local and National

Group Booking Scenario

400 room Hotel

65% group/35% transient business
10,000 sq ft ballroom
Groups usually book 200 rooms or more
on peak night, book beyond six months
Sun-Thurs 240-200 rooms avail to book

Group

Nationwide Insurance
125 rooms on peak night for 2 nights (Tue
Thurs pattern)
250 ppl classroom
Continental breakfast and 2 breaks for
250ppl

Negotiation Tactic
"If I were a planner, I might ask the
question, 'So how does my meeting
fit into the revenue management
strategy for your property on those
dates? If the reaction is a 'deer-inthe-headlights' one, the planner will
know the salespeople are probably
compensated on the traditional
model."

Other Revenue Meetings

Yield Meeting Once a week Determine pricing & controls strategy.

Review transient booking cycle &
competition for the next 60 90 days
Yield Strategy Once a month looking
one year out.

RevPAR Benchmarking

Beat the Competition!

Micros Opera Rev.

Mgmt Software
4 12% increase in
RevPar with existing
demand.
Re-forecast & reoptimize every hour.
Group optimizer
Used by hotels with
over 100,000 total
installed.

Displacement Analysis
A method of comparing the entire
group value
vs.
the value of other business
(transient or another group) that
would be displaced

Group vs. Transient

40 Group Rooms

40 Transient Rooms

Source: Defining Revenue Management: Top Line to Bottom Line

Displacement Exercise

RFP Overload Case Study

Question - I work in convention sales in a hotel & many
meeting planners are trending towards online RFP's and
response forms. Most often, we receive these type of
leads from a 3rd party who conceals the identity of the
end user, provides limited information on the client &
their true reasons for buying, & never lists who we are
competing against. These RFP's can be distributed to
over 50 hotels across the country & the information we
submit is presented to the client in the form of a grid
with dates, rates & meeting space availability. Has my
ability to sell been taken away? It seems almost
impossible to build a relationship under these
circumstances. I know this is a whine, but, it is very
frustrating because responding to leads this way cuts
into the time I can really sell.

RFP Overload Response

Submit a proposal that shows youll rent out rooms for $1
a night, plus extras. And they have to call you to find out
what the extras are. This will get you a direct response
from the customer. Third-party bidding will never build a
sales relationship until youre either lucky or unlucky
enough to win the bid and meet the customer. I would
call the third party & tell them that its impossible for you
to submit a valid bid until you know the expected
outcome of the meeting. I would also include in the bid as
many customized features as you can that allows the
customer to choose what they want with respect to meals
& other amenities for their event. But in the end, youre
correct. Its a no-win situation, and you have to decide
whether you want to play in that environment or not.
Jeffrey Gitomer www.gitomer.com

Does your RFP get noticed?

Limit the playing field

Pick up the phone
Help them help you
Put all your cards on the table
Be flexible
Give them adequate time
Ask the hotel to sell you
Be empowered
Be timely
Be loyal

Info Needed for a Quality

Bid

Account name, meeting name, URL

Room block & meeting/expo space
requirements
Preferred dates (flexibility)
Competition cities or hotels considered
At least two years of history
Desired properties to include (for CVB)
Concessions, communicated wants
Meeting purpose, critical decision factors
Individual names and roles in decision process
Decision date

Marriott Key Center Rates

Group

Month/Yr

Rate

School of Dental Medicine Alumni CWRU

May-07

$139

34th Annual Natural Areas Conference

Oct-07

$99

Urban Libraries Council

May-07

$139

Midwest School Social Work Council Conference

Oct-07

$139

Assoc. for Iron & Steel Training Seminar

Oct-07

$144

Federation of Tax Administrators Investigation Class

Sep-07

$119

Pri-Med

Mar-07

$129

Pace Ambassadors Conference

Feb-07

$179

Mechanical Construction Student Chapter Summit

Oct-07

$149

Quantify Concessions
Comp

rooms, suites, discounted

staff rooms, 1 per 50s
Upgrades, amenities, airport limos
F&B discounts, other
Put a value on each (x # of nights + tax) and
divide by group rate to get concession /
comp ratio

Negotiating Pitfalls

Negotiating with the wrong person

Not having an alternative, being able to walk away
Negotiating before there is an agreement in
principle
Tossing out the 1st offer with little to no information
Giving concessions without getting something in
return
Poor planning, poor qualifying
Getting emotional
Focusing only on price
Getting hung up on Terms & Conditions

Questions

CONTROLS IN REVENUE
MANAGEMENT

The two strategic levers of hotel revenue

management are Price and Duration.
Your success as a revenue manager is
contingent upon your ability to work with
these levers effectively.
To do this, you must be able to make the
duration of your guests' stays more
predictable.
In this topic, find out how to manage
duration and take some of the mystery out
of guest-stays.

Reducing Duration Uncertainty

Do Not Use in Slow Period

Make them Initial Departure

Date

Not Much In Hotel Industry

Do Not Focus On Cost Much

Focus on Profit

Focus On Customer Satisfaction

Summary - Duration

Controlling Price

Imagine going into a store one morning to

buy a compact disc.
The sign on the rack informs you that the
compact disc you want is priced at $12.75 till
11am, at $15.95 till 5pm, and after 5pm at
$18.50!
This would surprise and probably dismay you
you expect one price.
But if this CD were a hotel night, a cell-phone
minute, or an airline reservation, you might
not be surprised by similar variations in price.

Different Demand

Rate Fences

Everyone Between Age 18-60 will pay

more.
But Less than 18 and Over 60 Pay less in
Movies.

Rate fences

Rate Fences in Hotels will

Include

Who Should Pay What Rate

Summary Pricing

What is Revenue Management

in practice?

When a physically identical product can be

sold to different market segments for different
prices through different channels under
different booking conditions
In order to increase revenue from a fixed level
of capacity
Increased revenue = increased profits

What is a market
segment?

A group of customers with a pattern of buying

behaviour

Price sensitivity
Lead time of booking
Willingness to pre-pay
Need for flexibility, to cancel or modify without
penalty
Length of stay
Different perception of value

What different channels are

there?

Different market segments may book

through the same channels or different
ones

Direct with the hotel

Through hotel website
Via a travel agent/GDS (business or high
street)
Via a 3rd party website (Expedia, Booking.com,
Lastminute, etc)
Via a tour operator

Cost of sale varies by channel

Rate parity for all public rates

What are the different booking

conditions?

Lead time
Prepayment
Limited or no flexibility no cancellation
or modification permitted
Length of stay requirements, minimum or
maximum
Specific nights included
Package rates, to include other elements
Enable discounted rates to be fenced

The core process of Revenue

Management

Analyse existing demand patterns

Predict future demand patterns
Match the right volume of rooms at each
rate level so as to maximise yield
Minimise peaks and troughs to avoid
wasting inventory ie leaving rooms
empty which could have been sold

Forecast or
Budget

Adjust

Plan

Review

Sell/Distribute

Analyse existing demand

patterns
Know your business
Use historical data to identify demand
patterns and trends
Seasonal
By day of week
Lead time
No-show/cancellation rates
Unsatisfied demand, turnaways

Tools for data analysis

Booking pace
Pick up reports, daily weekly, monthly
By market segment

Statistical/historical data on market

segments room nights, ADR
Data relative to past business
performance, factors which may have
contributed

Predict future demand patterns

Know your market

Economic conditions
Seasonal variations
Local sources of business, corporate
offices, conference centres,
entertainment venues, tourist attractions
Local events

Predict future demand patterns

Know your competition

Identify your competitors

Benchmark your product
Establish rate hierarchy
Monitor their activities pricing,
promotions, policies
Changes in supply

Plan

Plan your preferred market mix based on

expected demand levels by segment
How many rooms can you expect to sell to
higher rated market segments, and when?
How many rooms can you afford/do you need
to sell to lower rated segments?
What rate parameters/structure should you be
working within?
When will unconstrained demand lead to
peaks and troughs?

Review and adjust

Monitor booking pace and occupancy

growth - as bookings are received,
update forecast and decide where
changes need to be made
Monitor competition for pricing changes
Monitor local demand levels
Adjust strategy using all tools, not just
pricing
Record all changes

Tools of Revenue Management

Pricing
Discount allocation
Duration control
Capacity management
Supply control
May be applied differently when demand
is stronger or weaker

Price versus Value

There is no right price for your product

It will have a different value for different
customers at different times
Your competitors activities may influence
the customers perception of your value
Know the difference between great
value and cheap rooms

Discount allocation

Ensure discounts are fenced with

booking conditions to avoid dilution
Know when to stop selling discounted
rates to avoid displacement
Use multi night offers to attract business
on hard to fill shoulder nights

Duration control

Avoid peaks and troughs empty rooms

equal lost revenue, especially if avoidable
Use restrictions to avoid selling out on
one night and having to turn away
through bookings
Offer discounts/added value for multi
night stays which include hard to sell
dates

Capacity management

Overbooking
Identify probability of late cancellations and
no-shows
Manage overbooking, dont let it happen by
accident!

Supply control

When demand is strong, sell to room type

Ensure you get premium prices for superior

rooms

When demand is soft, oversell lower room

categories and upgrade

Factors to be considered

Time/resources available
What rate management controls are available
in your PMS, and in your 3rd party partners?
Which distribution channels do you use, and
would you like to use?
What degree of connectivity can you achieve
between your PMS and distribution channels?
Ideal is 2 way interface between PMS/hotel
website/GDS/3rd party partners/IDS