An Insight Into Revenue Management

Revenue Management is the term used to describe the process of achieving maximum revenue from a fixed or ‘perishable’ asset, such as a seat on a plane, hotel accommodation, or a seat at a show or cinema.

Perhaps the best definition is Wikipedia’s: revenue management is the process of understanding, anticipating and influencing consumer behaviour in order to maximize revenue or profits from a fixed resource.  This encapsulates both the overarching goal of the process, and its crucial relationship to consumer behavior. 

The principles involved have many similarities with running a market stall selling fresh fruit, where the objective is to maximise the revenue from the sale of an asset which is perishable, and which may be worth little, or nothing, if not sold before a given date.

A Revenue Manager will involves a range of processes and techniques, beginning with forecasting the demand, buying and/or managing the appropriate stock or inventory, providing the right product, or bundle of products, at the right price, in the right place with the right promotion.

A Revenue Manager must operate extremely closely with Marketing, Sales and Operations. The techniques involved are a combination of market segmentation, inventory control, data analysis and advanced forecasting, pricing, sales, cost control, performance monitoring and other disciplines.

These sophisticated techniques were developed initially in the Airline Industry in the 80s, then in accommodation and car rental. More recently they are being introduced to other sectors including tour operating and freight.

One of the most important considerations, no matter what tools you use and no matter what your revenue management footprint is, is how to run an effective revenue management meeting.  

Some of the key elements for success are the following:

1. As a Revenue Manager you must have these meetings, and it’s the most important factor for successful Revenue Management implementation at the hotel.
2. Extends ownership beyond just the small team to the executive team.  For instance, it’s important the General Manager knows how important and valuable revenue management is
3. Expands your role of Revenue Manager beyond a simple report person – instead, it’s a critical role in the organisation.
4. Regular Revenue Management meetings play a key role in helping the property adapt to change

So what should happen in a revenue management meeting?  Here are list we think you absolutely need to discuss at some level:

• Performance Review
• Forecast - What is forecasted for the next 30, 60 and 90 days?  Are there any periods of low demand and if so, what are they?  Where are they?
• Market Performance, pricing and so on.