The 10 Steps to Successful

Revenue Management in a
Hotel

Revenue Management Fundamentals

 What is Revenue Management ?

• “Revenue Management is the art and science

of predicting real-time customer demand at
the micro level and optimizing the price and
availability of products.”
– Robert G Cross
– The Founder of Revenue Management in Travel for American
Airlines

• Suggested better way of pricing and inventory management

• Created a more discipline approach at est, $3M cost to generate an est. $30M in
incremental revenue
• Program actually generated $100M incremental revenue in first year.

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 The 10 Steps to a Successful
Revenue Management Strategy
1. Calendar Analysis
2. Competitor Analysis
3. Pricing Matrix
4. Segment Analysis
5. Demand Creation
6. Forecasting
7. Price Planning
8. Distribution Planning
9. Communication
10. Measuring Success

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Calendar Analysis
STEP 1

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 Calendar Analysis
• Review past 2 years Occupancy and ADR by DAY

– What dates did the market and hotel run high occupancies – WHY?
– What dates did the market and hotel run low occupancies – WHY

– What dates did the market and hotel run at a high ADR – WHY?
– What dates did the market and hotel run at a low ADR– WHY

– Look for trends across two-three years – This may indicate a demand
impacting scenario

• Identify HIGH and LOW demand patterns

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Competitor Analysis
STEP 2

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 Competitor Analysis

• Twice a year a hotel should do a full

Competitor analysis.
– Site inspection
– Rate Analysis
– Channel Analysis
– Brand.com Analysis
– Service, Product & reputation Review

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Pricing Matrix
STEP 3

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 Pricing

• RULE # 1 - ALL Prices have impacts across ALL

other prices.

• RULE # 2 – Pricing can impact DEMAND

• Rule # 3 – You cannot set a rate for any

segment without understanding and setting
the rates for ALL segments.
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The Great Distribution Merge
OTA
Channels

Public
Rates

Wholesale
Rates

Travel Agent
Channels

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Segment Analysis
STEP 4

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 Segment Analysis
• All Hotels & Hotel Groups work with different
segments but the Main Market Segments used
are. You need to know how you perform
compared to your Comp Set.

– Transient – Discount & Retail

– Corporate – Dynamic & Contracted
– Wholesale – Dynamic & Contracted
– Corporate Group
– Leisure Group
– Aircrew

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Demand Generation
STEP 5

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 Demand Generation
A hotel generally cannot just open its doors
and wait for the business to come in. They
must do Sales & Marketing activities to
drive Revenues.

The activities that are best suited depends

on where a hotel is located and which
emitting markets their guests come from.

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 Demand Creation
Demand Creation
(Marketing)

Demand Capture Demand Management

(Sales) (Revenue Mgmt.)

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 Demand Creation
• Sales Team in a hotel
– Sales visits to potential clients
• GDS BI Tools are a great lead generator for which markets &
agencies to do sales calls on.
– Getting Corporate & Wholesale accounts to sign annual
contracts with Hotels.
• Segment BI Tools are an excellent market sizing tool.
• GDS Media helps generate awareness and reaches clients also
without contracted rates.
• Consortia Program gets hotels sales visits & listings
• Preference Products to get better ranking.
Don’t just wait for the client to ask HUNT new opportunities and use
market Intelligence to create your “hunting” pipeline

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 Demand Creation
• Marketing
– Driving Transient business into a Hotel
• Websites / Videos – Are the “brochure” of the hotel. The
first impression for your guests
• Your Internet Booking Engine is the New “Call Centre /
Reservations Office” of your Hotel.
• Advertising - Web media & GDS – Drives traffic to the
hotels brand.com website, or through GDS channel
• CRM – Helps drive direct marketing and guest recognition

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Forecasting
STEP 6

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 Forecasting

• A hotels forecast ties all the previous elements

together.

• Forecasts SHOULD be done 12 months ahead

– Daily – For next 30 days plus any LOW or HIGH
demand days over the next 90 days
– Weekly – Review the next 3 months
– Monthly – Review the next 12 months and Add a
forecast for the month just past for next year

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 What is Demand ?

• (def) : The amount of a product or service that

people want, or the fact that they want it .
• Demand can be for a HOTEL, for an AREA, for
a CITY or for a COUNTRY.

• Demand can be
– POSITIVE - Lots of people want it
– NEGATIVE – Few people want it

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 Why do we need to know demand?

• Positive – HIGH DEMAND – We focus on the rate

side of the REVPar. Occupancy will look after
itself.

• Negative – LOW DEMAND – We focus on the

occupancy side of the REVPar. We need to take
business out of our competitor hotels.

Hotels need to FORECAST DEMAND 12 months in

advance - Many hotels in Asia do this just 3
weeks ahead.
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 What are some causes demand
changes
• Public holidays in a city or in the hotels main
emitting countries
• School holidays in a city and in the main emitting
countries
• Events – The days before and after large events
• Weather
• Transport issues – lack of flights, flight
cancellations,
• Price

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 Forecasting
• Steps to Forecasting
– Input Calendar dates from your calendar analysis
– Review Last year Hotel and comp set results. Highlight
any LOW or HIGH demand generators
– Review Booking Pace – Current pace vs last years
pace, comp set pace vs last year
– Forecast using DEMAND inidcators plus changes on
Year on Year on Booking Pace. The closer you get to
the date, the more important OTB information is.
Further out use your DEMAND inidcators

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 Forecasting
• Steps to Forecasting
– Review Pricing of your hotel and your comp set.

– Using all possible data points at hand, the hotel

then should forecast
• Occupancy by day
• ADR by Day
• Segments by day ( rarely done )
• Channels by day ( rarely done )

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Price Planning
STEP 7

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 Price Planning
• Price planning is now the MAIN KEY ELEMENT in
optimising revenues.
– Lower prices “can” help to generate demand for a
hotel, even in periods of low demand for the area. You
“steal” business out of competition, BUT YOU MUST
NOT DO THIS WHERE IT IS EASY FOR YOUR
COMPETITORS TO SEE or you can push a markets
rates down. Use qualified rates / CRM
– Higher Prices are used to maximise price in a period of
High Demand
– Packages help to sell your Unique selling points. Can
be used for both High and low demand times

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Distribution Planning
STEP 8

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 Distribution Planning

• Now that a Hotel has created a forecast &

planned the daily pricing, they now need to
apply distribution planning.

• Distribution planning helps to maximise the

segment mix / the room type mix / the
channel mix and to maximise occupancy &
ADR across all days

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 Distribution Planning

• Main elements of Distribution Planning

– Close segments (X)

– MLOS – Minimum length of stay ( 2 / 3 / 4 )
– CTA – Closed to arrival ( CTA )
– Close Room Types ( X )
– Close out low rate levels
– Close out Distributors / Channels

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 Distribution Planning

Please remember that Distribution planning is a

RESTRICTIVE
approach and is designed to TURN AWAY /
DENY bookings.

These practices should only be used usually

when forecasting high / full occupancy
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Communication
STEP 9

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 Communication
• Creating a climate where the truth is heard
involves four basic practices”

• 1. Lead with questions, not answers.

• 2. Engage in dialogue and debate, not coercion
• 3. Conduct autopsies, without blame.
• 4. Build red flag mechanisms that turn
information into
“ Information that cannot be ignored. “

• Good to Great – Jim Collins © 1998

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 Communication
• Meetings
– Daily – Review Pick up for next 30-60 days and + &
- event periods for next 90 days. Review
Competitor pricing changes. Adjust pricing
accordingly – Duration 15 minutes
• Revenue Manager,
• DOS,
• Reservations Mgr,
• GM

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 Communication
• Meetings
– Weekly Revenue Meeting : Review next 90 days.
Duration 60-90 minutes
• General Manager
• Revenue Manager
• Reservations Manager
• Front Office Manager
• Financial Controller
• DOSM
• Marketing
• E-Commerce
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 Communication
• Meetings
– Monthly Revenue Meeting : Review next 12
months . Duration 90 minutes
• Forecast previous month for next year
• Review top account productivity
• Review OTA & Direct web performance compared to
comp set.
• Review segments for previous month compared to
comp set.
• Review Country of Residence for previous month
• Review Source Reports for previous month
• Review Return Guest Numbers

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Measuring Success
STEP 10

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What are the best measurements

• Budget revenue ?
• GOP ?
• Occupancy ?
• Average Rate ?
• Total Revenue ?
• Forecast ?
• Last Year ?
• .
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 What are the best measurements
• RGI – This measures your performance against
competitors. It balances ADR & OCC %. The ideal is to
have this by segment and by channel.

• Just having total RGI of the hotel creates more

questions than answers and does not help a hotel to
improve.

• FORECAST VARIANCE – This measure how accurate

your forecasting is. Should be measured by day 12
months out, 3 months out, one month out.
• Inaccurate forecast creates negative revenue
outcomes.
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 Measuring Success

How to Calculate
– ARI - Average rate Index - (Average rate is Rooms Revenue/Rooms Sold)
• Your ADR/Comp set ADR

– MPI – Market Penetration Index ( Occupancy is Rooms Sold/# of Rooms )

• Actual Share/Fair Share

– RGI – Revenue Generation Index ( REVpar is Rooms revenue / Ttl # of Rooms )

• Your REVpar/Comp set REVpar

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 The 10 Steps to a Successful
Revenue Management Strategy
1. Calendar Analysis
2. Competitor Analysis
3. Pricing Matrix
4. Segment Analysis
5. Demand Creation
6. Forecasting
7. Price Planning
8. Distribution Planning
9. Communication
10. Measuring Success

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Maria Taylor
Regional Vice President SEA
TravelClick
Thank
You
[email protected]
+65 9647 0391

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