1. © 2009, Educational Institute
Chapter 13
Revenue Management
Managing Front Office Operations
Eighth Edition
(333TXT or 333CIN)

2. © 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.
(continued)

3. © 2009, Educational Institute
Competencies for
Revenue Management
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.
(continued)

4. © 2009, Educational Institute
Benefits of Revenue Management
• 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
(continued)

5. © 2009, Educational Institute
Benefits of Revenue Management
• 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
(continued)

6. © 2009, Educational Institute
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)

7. © 2009, Educational Institute
Revenue Management Formulas
• 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

8. © 2009, Educational Institute
Revenue Management Formulas
• Formula 8: RevPAR
• Formula 9: Identical yields
• Formula 10: Equivalent occupancy
• Formula 11: Required non-room revenue per guest
• RevPAG
• GOPPAR

9. © 2009, Educational Institute
Potential Average Single Rate
Single Room Revenues at Rack Rate
Number of Rooms Sold as Singles

10. © 2009, Educational Institute
Potential Average Double Rate
Double Room Revenues at Rack Rate
Number of Rooms Sold as Doubles

11. © 2009, Educational Institute
Rate Spread
Potential Average Double Rate
 Potential Average Single Rate

12. © 2009, Educational Institute
Potential Average Rate
(Multiple Occupancy %  Rate Spread)
 Potential Average Single Rate

13. © 2009, Educational Institute
Room Rate Achievement Factor
Actual Average Rate
Potential Average Rate

14. © 2009, Educational Institute
Yield Statistic Formulas
Formula #1
Actual Rooms Revenue
Potential Rooms Revenue
Formula #2
Room Nights Sold Actual Average Room Rate
Room Nights Available Potential Average Rate
Formula #3
Occupancy Percentage  Room Rate Achievement Factor


15. © 2009, Educational Institute
RevPAR Formulas
Formula #1
Actual Room Revenue
Available Rooms
Formula #2
Occupancy Percentage  Average Daily Rate

16. © 2009, Educational Institute
Identical Yields
Identical Yield Occupancy Percentage =
Current Occupancy Percentage 
Current Average Rate
Proposed Average Rate

17. © 2009, Educational Institute
RevPAG and GOPPAR
RevPAG =
GOPPAR =
Total Revenue
Number of Guests
Departmental Revenues – Departmental Expenses
Number of Available Rooms

18. © 2009, Educational Institute
Elements of Revenue Management
Strategies
• Group room sales
• Transient room sales
• Other revenue opportunities
• Local and area-wide activities
• Special events
• Fair market share forecasting

19. © 2009, Educational Institute
Revenue Manager Skills and
Qualities
• Operational skills
• Analytical skills
• Strategic skills
• Organizing skills
• Communications skills
• Good listening skills
• Team-building skills
• Team-building skills
• Training skills
• Patience
• Creativity
• Cooperativeness
• Flexibility

20. © 2009, Educational Institute
Revenue Management Meeting
Participants
• General manager
• Sales managers
• Catering managers
• Reservations manager
• Front office manager
• Food and beverage manager

21. © 2009, Educational Institute
High-Demand Tactics
• 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

22. © 2009, Educational Institute
Low-Demand Tactics
• 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

23. © 2009, Educational Institute
Four Revenue Management Tactics
• Hurdle rate
• Minimum length of stay
• Close to arrival
• Sell-through

24. © 2009, Educational Institute
Revenue Management Software
Revenue management software provides:
• Continuous monitoring
• Consistency
• Information availability
• Performance tracking
• Special reports