EHL Insights
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Business Management
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Q : What is Revenue Management?

Revenue management involves the use of analytics and performance data to help those in the hotel industry predict their customers' behavior. The data is then utilized to make appropriate decisions in regards to pricing and distribution strategies. The ultimate goal of revenue management is to have the right room for the right person at the right time and place. When this occurs, you will be more likely to maximize your revenue, and in turn, your profit.

The information gained on how your customers think and perceive value will be ultimately used to match your supply to their demand. This will help you determine when it is best to hold onto a room until you can achieve a higher price and how to recognize a drop in demand, signaling the time for discounted rates.

The ultimate key to an effective revenue management strategy is having a way to make proper forecasts of your likely consumers' spending habits and the demand for your product. This can consist of past and current bookings, weather forecasts, tourism numbers and other industry data. With this information, you will better be able to make informed adjustments when necessary.

 

Where did the concept of Revenue Management come from?

The concept was originally designed for the airline industry so that the different companies could find ways to anticipate their customers' needs and demands, and then create dynamic pricing. Once discovered, it was soon considered  applicable and beneficial to any type of industry that involves customers who are willing to pay different prices for the same end product, when there is only a certain amount of that item to be sold, and it must be sold during a certain time, such as a hotel room.

 

How do Revenue Management and Yield Management differ?

Both yield management and revenue management are useful tools in the hotel industry. Yield management is a type of price strategy that can help a hotel to achieve the maximum turnover. In short, you are going to use the data you have from bookings and competitors in the industry to find the right room for the right guest at the highest price, if possible. With yield management, hotel owners understand that a good pricing strategy often involves selling the same product at different prices. Factors used for price distinction involve the dates of the stay and how early in advance the room is booked.

Revenue management is very similar to the concept of yield management, though it is considered much broader with the ultimate goal of optimizing the sales of the room so that the hotel revenues are maximized. Since it delves deeper into the overall revenue of a hotel, instead of just the amount of turnover, it requires more detailed data analysis. Data and key performance indicators are used to come up with a future forecast. This forecast will not only involve room usage but other sales aspects of the hotel as well, such as revenue from restaurants and spas.

The primary difference between the two is that you get the big picture with revenue management, while yield management provides you with the proper price optimization, which is just a small part of revenue management.

 

Why is Revenue Management important?

Revenue management can be exceedingly important to a hotel as it enables to make the most out of room inventory and it maximizes the revenue that can be made. And this is all done by making calculated decisions from data, instead of guesswork. Since hotels have fixed costs, whether their rooms are sold or not, they can make sure that they meet their costs and price their services to allow them to be profitable.

Revenue management can also lead to greater innovation by providing data about services that the hotel could benefit from that they may not have previously looked into. Further reasons why revenue management is important: it can improve the efficiency of the hotel, drive down costs, improve demand forecasting, help decision-makers determine the right balance of staff and give the hotel an edge over their competition.

Revenue management is a vital component of hospital management and one that can help hotels to become more profitable while providing their customers with the service and amenities they need. 

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