Resource # 1
What is revenue and yield management?
“It doesn’t matter when you start..just start! “
Revenue and yield management is a process made up of many elements such as –
- Market segmentation and booking lead times
- Product pricing
- Channel management and inventory control management
- Forecasting Analysis
- Customer Reviews
This process aims to drive maximum return on investment for all the accommodation rooms an owner has as their asset. It also relies heavily on effective internal rate management structures and a strong revenue management culture driven from the top down.
It is applied across many industries, however, they all have one thing in common which is they sell a perishable product. A perishable product means once the night passes the product can never be sold again.
RevPAR (revenue per available room) is a common industry metric that shows the return on investment (the physical space one owns as an investment i.e. every accommodation room in this example). It is the output of different occupancy and average rate combinations.
On its own, this figure does not mean very much, however, when compared to another RevPAR figure, Revenue Managers can determine which occupancy and average rate scenario produced the most revenue. Average rate provides no indication of revenue performance.
A word of caution though – RevPAR does not reflect profit.
Revenue Managers need to:
Closely monitor their distribution channels and mix of business and factor in the impact of cost of acquisition against available demand to ensure both profits and revenue are performing well.
Total Revenue Management:
Is about optimising all revenue streams a property can generate including the total value of a customer which factors in in-house spend and not just the room rate paid.
Revenue Management is RISK Management:
Revenue managers are always trying to determine the best mix of business from all available booking sources and determine the most profitable mix. They are constantly looking at what to take but also what they may be displacing.
Opportunity cost (revenue and profits lost due to taking one piece of business over another) is a large source of revenue loss and often goes unseen.
Projected forecasts when completed regularly, help revenue managers determine where they may need to flex pricing or adjust their inventory management strategy. This level of detail allows revenue managers to look for opportunity and work on marketing initiatives.
Comparing current bookings held for the future against what was held same time last year helps them determine if their property is ahead or behind what would be a reasonable booking pace.
This, coupled with a daily pick up (bookings made within the last 24 hours for future months), helps determine demand projections for each future month.
In the current global crisis historical booking patterns are not helpful until the market becomes somewhat predictable and stable again. For now current trends, daily pick up patterns coupled with regulatory changes, advice and flight schedules is important.
Without a projected forecast an operator may be fearful of agreeing to participate with certain distribution partners as they can’t clearly identify opportunity and/or calculate potential displacement.
Forecasting demand has become harder with the online booking space as it is difficult to determine the reason for travel and segments are often blurred across each other.
The industry is focusing on “behavioural segmentation” which is identifying groups of customers willing to accept certain booking conditions at certain points in time and aligning pricing and offerings around these behavioural patterns/needs and wants.
Demand forecasting is also incredibly difficult in the current global crisis with unpredictable patterns and forces controlling the market beyond price and supply drivers. Daily pick up reports and short-term forecasts revised and adjusted frequently are still essential.
In stable markets booking pace trends, daily pick up patterns, historical data, guest reviews and current market knowledge helps avoid operating in a reactive environment and remain in a strategic space.
Identifying opportunity as far in advance as possible allows revenue managers to adjust their strategy and pricing initiatives in enough time to capitalise on peak booking windows, rather than react with short-term discounts. Operating strategically also helps revenue managers have the right price points on the market at any given point in time and reduces their dependency on certain booking channels to shift distressed inventory.
What’s important to remember is that even though the core discipline is the same for all properties with a perishable asset, the way in which each property manages and applies revenue and yield management strategies will be different.
This is due to the different nuances that can exist in different markets and by business model type such as hotels, motels, serviced apartments and holiday parks.
Accommodation operators also have access to different software solutions that dictates the level and speed at which properties can react and implement changes.
Further, chains and independent properties can be impacted in different ways in regard to contract negotiations and rate management.
The key – do not leave any stone unturned for your property, know your markets well, know your competitive set well, keep up with change and ensure that you are applying a revenue and yield management focus to the best of your abilities and with the data you have available to you.
Most importantly revenue and yield management is not a set and forget discipline. It requires attention 24 hours a day, 7 days a week. It also never takes a holiday so ensure you provide adequate coverage when key staff are on leave.
With daily monitoring, regular forecasting and analysis and optimal communication across all revenue generating departments you can ensure your best chance of success.
To upskill and complete your ARMA Certificate in Revenue Management Foundations click – HERE
© Melissa Kalan, ARMA 2020