What is revenue management?
Undoubtedly, it's a more challenging question to answer than explaining the various concepts that arise from it. But, in summary, and surely you've heard it more than once, the theory can be described as that set of data that allows us to establish the best possible strategy to sell the right product to the right customer at the right time, at the right price, and through the correct channel. Ultimately, the primary objective of implementing a revenue management strategy is revenue maximization.
As mentioned earlier, revenue management—also known as Yield management—can be considered a science in itself. However, it's important to note that it's not an exact science, and therefore, it's possible to maximize revenue through different approaches. In other words, there's a clear methodology on how to achieve a strategy, but there isn't a single strategic application to achieve the expected results.
A little bit of history...
The pioneers in applying this methodology were companies in the airline sector in the early 1970s. They began to speculate on prices as they sold out seats on their planes. As a result, this allowed them to increase their revenue per flight. A decade later, this approach extended to the hotel sector, which began to implement variable pricing strategies for room sales.
However, the golden age of this science came at the beginning of this century, when more and more companies, both within and beyond the tourism sector, invested in incorporating human resources specialized in revenue management into their commercial departments. For example, today we find revenue management strategies in almost every sector of transportation and hospitality. But also in supermarkets, vehicle parking companies, wineries, and sports events.
The Revenue Manager
The person responsible for both creating and implementing the strategy is the Revenue Manager - we will delve into the different specializations one day. In this way, to sell the maximum inventory possible at the correct price and thus maximize revenue, the Revenue Manager will try to predict consumer purchasing behavior for that specific good or service. And how will they carry it out? Through two phases. We will make this clearer with an example.
Example: Let's imagine you want to sell hotel rooms for a specific period of the year.
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He will gather as much information as available that directly impacts the acquisition of the rooms to be sold. For example, some of these relevant data points could include: segmentation, available inventory, demand anticipation, price and occupancy history, demand calendar, competitors in the area, room types sold, number of guests accommodated, among others.
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He will consolidate all the information gathered beforehand and conduct a thorough analysis of each aspect. As a result, the overall strategy will emerge for achieving higher profitability from direct room bookings.
For this reason, currently, we consider that the competencies a Revenue Manager should possess include: strong analytical skills; proficiency in data processing and management; knowledge of key metrics and indicators; attention to detail; and advanced technological and software competencies.
And you, still not applying a revenue management strategy?
If you’re still unsure how to implement an effective strategy, or whether your current approach is the right one, we’ve created a completely free resource to help answer your questions and improve your revenue profitability.
Introducing The 10 steps to profitable revenue: the ultimate checklist for building a successful strategy.
This document includes a practical, clear and straightforward list of the key steps that every effective revenue management strategy should follow. It will help you assess whether your current approach is on track or if important adjustments are needed.
As you’ve seen, increasing your accommodation’s profitability is in your hands. We’ve given you the knowledge, the tools and the steps to follow — now it’s up to you to take action.
