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Why Revenue Management Is So Important For The Hospitality Industry

Apr 20th 2015 at 1:46 AM

Yield management or revenue management is a way by which a limited quantity of goods like hotel rooms, rental cars, airplane seats etc. is managed in such a way that they yield high profits. Revenue management is said to be successful when the product is sold in a manner that is price competitive, timely and channelized towards the target customers. Revenue management for the hospitality industry has recently emerged as a vital tool to facilitate economic competitiveness in fields like hospitality that are otherwise saturated.


The principle on which the concept of hospitality revenue managementis based is that of demand and supply.  When there is paucity of supply, prices soar, and when the supply is high, prices dip. Revenue management is a well researched upon methodical concept,by which customers are placed within the supply demand sphere, to ensure good yields for the products they buy. For instance, a passenger who has a rigid travel plan is the customer who is likely to pay higher fares for airplane tickets or higher hotel room prices. Whereas, acustomer who is flexible with his plans is less likely to pay higher rates.

Most hotels gauge their achievement in the field by their occupancy levels, but it may not be a very good way to determine success. One more method of measuring a hotel’s performance is by calculating its revenue per available room. You get the value for revenue per available room by dividing the total collected revenue by the number of rooms available.

Doesn’t this task look a little daunting? Well, not so much for those who are apt in it. And these people who manage yield revenue are called a revenue manager. Their job is to make sure that each available room earns maximum possible revenue by selling the rooms to the right customers, at the most appropriate time, and at the most beneficial price.

Revenue is said to be successfully managed if, certain important factors are kept in mind like what is the hotel’s achievement target, the nature of the hotel, what are the expectations of the customers, what is the hotel’sUSP, what is its ultimate goal(maximizing occupancy at whatever prices or maximizing rates no matter what the occupancy).  An ideal revenue manager will take all these factors into account to do his job.

 

There are different tactics a revenue manager will have to employ. For example if he is handling a mountain resort with skiing and snowboarding facilities, he will keep the prices highest during winters, medium mid-season, lowest during summers when lowest sales are made. By creating such seasonal rates,they maximize their overall profit for a given year. The bottom-line is that, staying competitive in a business field like the hospitality industry is the order of the day. Anyone owning or managing a hotel must understand the importance of revenue management to be able to compete and stand out. The staff members of the hotel must also be trained well so as to make them understand why a particular customer pays what he pays.

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