Business & Finance

The Revenue Journey – Part 1: Taking the plunge

We all know that revenue management has been around for a while. When we book our airline tickets, prices change based on the time, demand, class of booking, routing and other factors. Then, about 25 years ago, hotels started to come on board and apply the basic principles of revenue management. It was generally understood that yield management (as it was called at the time) could add significantly to a hotel’s top line. By Derek Martin.

And after hotels came car rental companies and car parks; however, subsequent application of revenue management to other businesses has been slow. Many industries are reluctant to apply revenue management principles, mistakenly thinking that it cannot apply to them or will not be accepted by their customers.

History has shown, though, that revenue management can be implemented in ways to drive revenue and be accepted by customers.

What is revenue management?

The discipline of revenue management is the structured approach to:

  • Create a detailed demand forecast, and
  • Interpret this forecast and make pricing and inventory decisions.

Pricing of your products is one of the key aspects in getting the maximum revenue out of your product.  In addition, if there is limited availability of what you are selling, you can make strategic decisions to optimize that inventory.

So getting the price right is key?

Yes, pricing is the key to begin optimizing your revenues. By basing your pricing decisions on a detailed demand forecast, you can optimize both your volume of business, as well as avoid leaving money on the table over busy days. This is the first step of your revenue management approach to driving revenue.

Does revenue management apply to your business?

Revenue management can be applied in any business, provided there is fluctuating demand, the customer can buy the product ahead of consumption, and there is a perishable, capacity-constrained inventory that loses revenue opportunity if unsold today.

Some airlines, hotels and car park companies are prime examples of this. One of the next logical sets of businesses that could apply revenue management principles would be theme parks and attraction parks. There is an opportunity to price differently on low, shoulder and high demand days and customers can buy admission tickets ahead of time. Additionally, the number of people allowed into the parks due to safety regulations may be restricted to a certain maximum capacity.

What other businesses can revenue management be applied to?

Another good example would be recreation parks and campsites. There are a limited number of spaces available for customers to book – and bookings can also be made ahead of time. Bowling Alleys are another good example since there are a restricted number of lanes available at the property, with people booking in advance to secure available space for them to play. I could continue mentioning things like bungee jumping, bridge climbs, glass-bottom boat excursions, movie theatres, water parks and much more.

The areas where revenue management concepts can be applied are numerous, the question is whether you believe it can work for you.

Curious but not convinced?

Answer these few easy questions for your company:

  • Does demand for your product fluctuate?
  • Can customers book your product ahead of consumption?
  • Do you have a limited capacity perishable product available for sale?

If you answered ‘Yes’ to two or all three of these questions, you can safely conclude that revenue management principles can be applied to your business, with revenue management being a strategic approach to increasing your company’s revenue.

Start your revenue management journey today! Driving top line revenues is important, and it is the single most important component in driving profits for your company.

About the Author: Derek Martin is the founder and CEO of TrevPAR World a hospitality data analytics company that specialises in total revenue management as well as hotel distribution including sales, marketing and social media.

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