What Business Leaders Need to Know about Revenue Management
By Trevor Stuart-Hill President & Founder, Revenue Matters | July 21, 2013
As a business leader in the hospitality industry, have you ever noticed that expectations for your role have increased exponentially in recent years? General Managers in particular often find themselves needing to become well versed in such diverse topics as union relations, the rake of newly ordered banquet chairs, social media engagement, pool PH levels, cash handling procedures, wine varietals, sheet thread counts, distribution strategies, parking contracts, seasonal marketing programs and much more. Here are some things you should know about revenue management along with some things to avoid:
What is Revenue Management and When Does it Apply?
A lot of people (including those of us in the revenue management profession) have struggled with developing a comprehensive definition that adequately addresses the multi-faceted nature of the discipline. In fact, it is probably a bit easier to define what it is not vs. what it is given that the practice has evolved dramatically in the past two-plus decades. My preference is to think of revenue management as a business process designed to optimize the financial performance of your operation through all market conditions. Notice that nowhere did I state that demand has to exceed supply in order for revenue management principles to apply. In fact, only four conditions need to exist for revenue management principles to have a positive impact on a business:
- A fixed amount of inventory (or resource) is available for sale at any given time.
- Inventory (or resource) is perishable.
- Different customer types are willing to pay different prices.
- There is some level of ability to forecast future demand.
With the above premise, it is easy to understand how revenue management techniques can be applied, not only to airlines, car rentals or hotels, but a whole host of other businesses such as parking lot management, smart phone application marketing, apartment complex management, advertising and product distribution.
What Are the Components of Revenue Management?
When we speak of revenue management, many interpret this to mean pricing. Revenue management and pricing are not synonymous and it is a mistake to think that they are. Remember, revenue management is a business process and pricing is just one element of that process.