FRONT OFFICE OPERATIONS – Year 2 – Semester 3 / 4 2015 - 18
DEFINITION OF REVENUE MANAGEMENT
Revenue Management is the technique of selling the right product to the right customer for the right
price at the right time. In the hotel industry, it is a technique used to maximize rooms revenue by taking
into account, all factors influencing business trends. This can be done by understanding, anticipating and
influencing customer behavior by analyzing available business data of past trends. The desired result
must be maximizing profits from a fixed perishable resource (hotel rooms / restaurants).
ROOMS FORECASTING
Forecasting is the primary step and a very important aspect of Revenue Management in hotels. It is the
technique of providing statistical information on the expected occupancy levels for a specific future
date. Forecasting requires current and historic reservations data to be analyzed to accurately estimate
future demand. Rooms forecasting is very important to successful operations of a hotel for numerous
reasons.
Staffing Levels : Knowledge of expected occupancy helps all departments in the hotel to
estimate and fulfill their staffing requirements. It also helps department managers to plan work
schedules of their staff.
Scheduling Maintenance Cycles : While minor maintenance issues can be dealt with on a daily
basis, major maintenance and renovation cycles should be planned keeping in mind the
occupancy. For example, noisy maintenance work must be planned during low occupancy to
reduce guest complaints. Forecasting can help the management to plan such work more
effectively.
Material Requirement : Hotels purchase their material requirement in bulk quantity to avail of
better prices. Most of the material required in operations is perishable in nature (for example –
food material for F&B). Having knowledge of expected demand helps the F&B manager and
Executive chef in purchasing the right quantity, thereby reducing wastage and saving costs.
Cost Estimates : The hotel’s management has to set aside funds for various expected
expenditure. Forecasting occupancy helps the management to arrive at an accurate estimate of
expenses expected.
Pricing Strategy : Forecasting has a direct impact on the pricing of the hotel. The hotel can price
its rooms and facilities more effectively if accurate estimates of demand are available. If high
occupancy is forecasted, the hotel can decide to sell at its Rack rates. Similarly, when low
occupancy is forecasted, the hotel has sufficient time available to reduce its prices and make
package offers to get comparatively higher business demand.
ACCOMMODATION STATISTICS
A hotel’s performance can be evaluated on the basis of data for revenue generated by its
accommodation options. Every hotel establishes a set of KPI (Key Performance Indicators) to evaluate
its performance against targets.
Author : Yadnyadatta Walimbe (For Use By IIHM Pune For Educational Purpose Only)
FRONT OFFICE OPERATIONS – Year 2 – Semester 3 / 4 2015 - 18
The revenue formulae mentioned below are commonly used indicators for evaluating the performance
of revenue operations in the hotel.
REVENUE FORMULAE :
OCCUPANCY PERCENTAGE = (No. Of Rooms Occupied / No. Of Rooms Available For Sale) X 100
Note : No. Of Rooms Available For Sale Means All Rooms Including Already Occupied Rooms But
Excluding Out Of Order Rooms.
AVERAGE DAILY RATE (ADR / ARR) = Total Rooms Revenue / No. Of Rooms Sold
Note : Total Rooms Revenue Must Exclude Any Room Revenue Rebates / Allowances Done In
The Day.
RevPAR (Revenue Per Available Rooms) = Total Rooms Revenue / No. Of Rooms Available For
Sale
YIELD STATISTIC = Actual Rooms Revenue / Potential Rooms Revenue
Note : Potential Rooms Revenue is No. Of Available Rooms X Rack Rate
To better understand the above formulae, it is essential to understand the below mentioned
terminology used commonly in revenue operations.
Rack Rate : This is the published tariff of the hotel and the highest rate at which, the hotel can
sell the specified room category during the time period mentioned. Some hotels are in location
which face seasonal demand and may need to change their Rack rates as per the season. A hotel
can change its Rack rate by providing advance written intimation to the local / regional revenue
regulatory authorities.
BAR : The Best Available Rate is a rate which is lower than the Rack rate for the same room
category. This rate may be deployed by a hotel to generate higher demand on days when the
occupancy is forecasted to be low. On a high occupancy date, hotels must usually sell at their
Rack rates only.
Yield Statistic : This is a comparison of the actual rooms revenue against the potential room
revenue. Yield Statistic is counted as a ratio on a scale of 1. For example, if the actual room
revenue if 9 lacs against a potential room revenue of 10 lacs, the hotel has earned 90% of its
potential room revenue. As such, the Yield Statistic would be 0.9 on a scale of 1.
Author : Yadnyadatta Walimbe (For Use By IIHM Pune For Educational Purpose Only)
