Chapter 13 Revenue Management

Managing Front Office Operations Seventh Edition (333TXT or 333CIN)

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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.
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Competencies for Revenue Management

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3. Explain how revenue management decisions are affected by: group room sales, transient room sales, food and beverage activity, local and area-wide activities, special events, and fair market share forecasting. 4. Summarize typical revenue meetings, outline potential high and low demand tactics, discuss four revenue management tactics, and explain how revenue management software aids hotel managers.
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Benefits of Revenue Management

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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
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Benefits of Revenue Management

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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
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Revenue Management Methods

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Capacity management Balances risks of overbooking against potential loss of revenue from reservation cancellations, early departures, and no-shows y Discount allocation Restricts time period and product mix (rooms) available at reduced or discounted rates y Duration control Places time constraints on accepting reservations in order to protect rooms for multi-day reservations (which represent higher levels of revenue)
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Revenue Management Formulas

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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

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Revenue Management Formulas

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Formula 6: Room rate achievement factor Formula 7: Yield statistic Formula 8: RevPAR Formula 9: Equivalent occupancy Formula 10: Required non-room revenue per guest

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Potential Average Single Rate

Single Room Revenues at Rack Rate Number of Rooms Sold as Singles

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Potential Average Double Rate

Double Room Revenues at Rack Rate Number of Rooms Sold as Doubles

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Rate Spread
Potential Average Double Rate

 Potential Average Single Rate

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Potential Average Rate

(Multiple Occupancy % v Rate Spread)  Potential Average Single Rate

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Room Rate Achievement Factor

Actual Average Rate Potential Average Rate

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Yield Statistic Formulas

Formula #1 Actual Rooms Revenue Potential Rooms Revenue Formula #2 Room Nights Sold Actual Average Room Rate v Room Nights Available Potential Average Rate Formula #3
Occupancy Percentage v Room Rate Achievement Factor
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RevPAR Formulas
Formula #1 Actual Rooms Revenue Available Rooms Revenue

Formula #2 Occupancy Percentage v Average Daily Rate

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Elements of Revenue Management Strategies

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Group room sales Transient room sales Food and beverage activity Local and area-wide activities Special events Fair market share forecasting
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Revenue Management Meeting Participants

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General manager Sales managers Catering managers Reservations manager Front office manager Food and beverage manager
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High Demand Tactics

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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
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High Demand Tactics

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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

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Low Demand Tactics

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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
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Four Revenue Management Tactics

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Hurdle rate Minimum length of stay Close to arrival Sell-through

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Revenue Management Software

Revenue management software provides:
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Continuous monitoring Consistency Information availability Performance tracking Special reports

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