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REVENUE MANAGEMENT

By Patrick Ortiz,2014-06-13 13:12
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REVENUE MANAGEMENT

    REVENUE MANAGEMENT

? Yield Management is a Technique used to Maximize Room

    Revenues

    ? Yield Management (Revenue Management) presents a more Basic Measure of Performance because it combines Occupancy

    Percentage with Average Daily Rate (ADR) into a Single Statistic called the Yield Statistic

    ? Yield Management is an evaluative Tool that allows the Front Office Manager to use Potential Revenue as the

    Standard against which Actual Revenue can be Compared

I- THE CONCEPT OF YIELD MANAGEMENT:

    ?Yield Management is based on Demand and Supply ? The Hotel Industry’s Focus is shifting from High Volume Booking to High Profit Booking

1. Hotel Industry Applications:

    ?The Commodity that the Hotel sells is Time in a Given Space, and if it is Unsold, Revenue is lost forever ?Yield Management is composed of a set of Demand Forecasting Techniques used to determine whether Room Rates should be raised or lowered, and whether a Reservation

    should be accepted or rejected in order to maximize Revenue ? In order to maximize Revenue, the Front Office Manager

    needs to forecast Information concerning Capacity Management, Discount Allocation, and Duration Control

Capacity Management ? tries to solve the following Problems:

    ? Controlling and limiting Room Supply

    ? Balancing the Risk of Overselling Guest Rooms with the

    Potential Loss of Rooms arising from Room Spoilage ? Determining how many Walk-ins to accept during the Day of

    Arrival

    Discount Allocation ? Involves restricting the Time Period

    and Product Mix Available at reduced or discounted Rates, and limiting Discounts by Room Type through encouraging

    Upselling

    Duration Control ? Places Time Constraints on accepting

    Reservations in order to protect Sufficient Space for Multi-

    Day Requests ? “A Reservation for a One-Night Stay might be rejected, even though Space is Available that Night”

2. Measuring Yield:

? The Yield Statistic is the Ratio of the Actual Revenue

    (Generated by the Number of Rooms Sold) to Potential Revenue

    (THE Amount of Money that would be received from the Sales

    of Rooms in the Hotel at a Rack Rate)

Formula 1: Potential Average Single Rate:

    ?Potential Average Single Rate = (Single Room Revenues at Rack Rate) / (Number of Rooms Sold as Single)

Formula 2: Potential Average Double Rate:

    ?Potential Average Double Rate = (Double Room Revenue at Rack Rate) / (Number of Rooms Sold as Double)

Formula 3: Multiple Occupancy Percentage:

    ?Multiple Occupancy Percentage = (Number of Rooms Occupied by more than 1 Person) / (Total Number of Rooms Sold)

Formula 4: Rate Spread:

    ?Rate Spread = (Potential Average Double Rate) (Potential

    Average Single Rate)

Formula 5: Potential Average Rate:

    ?Potential Average Rate = (Multiple Occupancy Percentage * Rate Spread) + (Potential Average Single Rate)

Formula 6: Room Rate Achievement Factor:

    ?Room Rate Achievement Factor = (Actual Average Rate) / (Potential Average Rate)

Formula 7: Yield Statistic:

    1. Yield Statistic = (Actual Rooms Revenue) / (Potential

    Rooms Revenue)

    2. Yield Statistic = ((Rooms Nights Sold) / (Rooms Nights

    Available)) * ((Actual Average Room Rate) / (Potential

    Average Rate))

    3. Yield Statistic = Occupancy Percentage * Achievement

    Factor

Formula 8:Identical Yields Occupancy:

    ?Identical Yields Occupancy = (Current Occupancy Percentage) * (Current Rate / Proposed Rate)

Formula 9:Equivalent Occupancy:

    1. Equivalent Occupancy = (Current Occupancy Percentage) *

    ((Rack Rate Marginal Cost) / (Rack Rate * ((1

    Discount Percentage)) Marginal Cost) 2. Equivalent Occupancy = (Current Occupancy Percentage) *

    ((Contribution Margin) / (New Contribution Margin))

II- ELEMENTS OF YIELD MANAGEMENT

    ?While developing a successful Yield Strategy, the

    following Elements are very important:

    ? Group Room Sales

    ? Transient (FIT) Room Sales

    ? Food and Beverage Activity

    ? Local and Area-wide Conventions

    ? Special Events

1. Group Room Sales:

    ?Group Booking Data ? Determines whether the Group blocks already recorded in the Reservation File should be modified

    or not and adjusts expectations by reviewing the Group’s

    Booking History

    ?Group Booking Pace ? Watches out for the Rate at which Group Business is being booked (Consider Historical Trends) ?Anticipated Group Business ? Watches out for repetitive Group Patterns and act accordingly in order to forecast the Pressure on the Market, and hence adjust Selling Strategies

    ?Group Booking Lead-Time ? Measures how far in advance of a stay Bookings are made. This is very important in

    determining whether to accept an Additional Group and at

    what Room Rate to book the New Group

?Displacement or Transient Business ? Occurs when a Hotel

    accepts Group Business at the Expense of Transient Guest.

    This might engender Profitability Problems and Bad

    Reputation

2. Transient Room Sales:

    ?The Front Office Management shall monitor the Booking Pace

    and Lead-Time of Transient Guests in order to understand how

    Current Reservations compare with Historical and Anticipated

    Rates

3. Food and Beverage Activities:

    ?All local Food and Beverage Functions should be viewed in

    light of the Potential for Booking Groups that need Meeting

    Space, Food and Beverage Service, and Guest Rooms

4. Local and Area-wide Activities:

    ?Even when a Hotel is Not in the immediate Vicinity of a

    Convention, Transient Guests and Smaller Groups displaced by

    the Convention may be referred to the Hotel (as an Overflow Facility) and this may have a tremendous Impact on Hotel’s

    Revenue

5. Special Events:

    ?In Special Events (Concerts, Festivals, and Sporting

    Events), Hotels might decide to benefit from High Demand by

    restricting Room Rate Discounts or requiring a Minimum

    Length of Stay

III- USING YIELD MANAGEMENT:

    1. Potential High Demand Techniques:

    ? Try to define the Right Mix of Market Segments in order

    to sell out the Highest Possible Room Rates ? Monitor New Business Bookings and use these changed

    Conditions to reassign Room Inventory (As Occupancy

    increases, consider closing out Low Room Rates and open

    them Only when Demand decreases)

    ? Consider establishing a Minimum Number of Nights per Stay

    ? Select the Group that offers the Highest Total Revenue ? Try to displace Price-sensitive Groups to Low Demand Days

2. Potential Low Demand Techniques:

    ? Carefully design a flexible Rating System that permits

    Sales Agents to offer lower Rates under Certain

    Situations

    ? Strive to accurately project expected Market Mix ? Management shall closely monitor Group Bookings and

    Trends in Transient Business ? Do Not close off lower

    Rate and Market Segments arbitrarily

    ? As Low Occupancy Periods become inevitable, open Lower

    Rate Categories, solicit Price Sensitive Groups, promote

    Corporate, Government, and other Special Discounts, and

    Develop New Rate Packages

    ? Consider maintaining High Room Rates for Walk-in Guests

    ? A Non-Financial Technique involves upgrading Guests to

    nicer Accommodations than they are entitled to by virtue

    of their Room Rate

? In order to implement these Tactics, Management needs to

    establish the Hurdle Rate (The Lowest Rate for a Given Day) below which it is impossible to sell any Room

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