Revenue Management: Maximizing Profitability through Optimization

This report discusses the concept of revenue management and how it can help companies in certain industries drive additional revenue and achieve higher profitability. It covers the attributes of revenue management, the role of a revenue manager, and the metrics that companies need to measure to reap the full benefits of revenue management. The report also includes a revenue manager report for the month of October 2018 for the Sydney Palace hotel.

REVENUE MANAGEMENT 1
REVENUE
MANAGEMENT

REVENUE MANAGEMENT 2
Contents
Introduction:...............................................................................................................................3
Revenue Manager Report:..........................................................................................................5
Findings:.....................................................................................................................................7
Discussion:.................................................................................................................................8
Conclusion:................................................................................................................................8
Recommendation and implementation:......................................................................................8
References..............................................................................................................................9

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Introduction:
All of the industries are more competitive more than the others. There are many of the
industries that have some high fixed costs which are necessary to cover the expenses,
irrespective of how lean the companies when compared with the other companies in the same
industry. The concept of revenue management employs the optimisation concept wherein the
mythology helps these companies in certain types of the industries which exploit the
characteristics to drive an additional amount of revenue with the aim of achieving a higher
amount of profitability.
The process of revenue management is the practise of maximisation of revenues of the
company while selling the same amount of the products or rendering the same amount of the
services. This is also known as the yield management, both of which are considered to an art
and a science. This technique employs the mix of the pricing strategies and the systems that
maximises the yield. These industries have products that expire and also the services that
expire. The examples could include the hotel rooms, banquet halls and also the meeting
rooms in the hotel industry and also the airline seats that utilises this technique in the utmost
efficient manner.
The attributes of this technique include the fact that the perishable inventory and the fixed
capacity are combined and are used as the revenue management. In order to illustrate, a hotel
has a certain set of the hotel rooms that are available and then there are some of the fixed
costs that markets in the customers that discriminate on the price with an approach which is
useful.
This approach is also useful for the companies that have a fixed amount of costs but have a
lower amount of variable cost also find this approach very useful. With the help of the price
discrimination, there are some of the customers that seek a lower amount of price and a

REVENUE MANAGEMENT 4
minimum number of services and they are ready to pay in a higher amount for the services
that are being rendered or for their convenience level. For example, the car rental industry,
the tour industry all of these have these attributes.
The management of revenue leads to an innovation. This is so because this technique leads to
the creation of new products or services and also their prices. This is the technique of
innovation which leads to an increase in the amount of revenue from the source companies
that were not explored earlier. As per the article in the Hospitality Upgrade, the revenue
management accounts to 3 to 6% of the total amount of the revenue, there are also some of
the hotels that experience a higher impact on the same.
The focus of revenue management is a method which focuses on each one of the group or the
department within the company which actions that need to improve the profitability. The
company which successfully is able to make this technique a part of its daily operations
would surely reap its benefits by earning a higher amount of margin and achieving a higher
amount of profitability. There are some of the computer information systems that could help
these companies in implementing the process of revenue management and the procedures but
then these are the tools that assist and drive the technique of revenue management.
For the purpose of reaping the full benefits of the revenue management, any company must
be able to measure some of the variables. These are the metrics that differ from one industry
to another. But the bottom line is the fact that it should be able to indicate how well each
company is able to use its revenue management that affects the profitability of each company.
The culture of measuring, comparing and making the adjustments covers many of the aspects
of the business. This makes the company in total an efficient company which drives down the
costs and also increases the profitability of the company (Small business chron, 2018).

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The team of revenue management if very important to be in place in the hospitality industry.
This is due to the fact that the team would make sure of an increased amount of market and
also of the profits. There is so much competition in the industry and also there are many of
the channels that these travellers are looking forward to explore. The revenue management is
the process of using in this data so that the consumer behaviours could be predicted for the
purposes of enhancing the availability of each products and also increase the amount of the
revenue.
In order to illustrate, a general manager of a hotel wants to know the profitability of the hotel
in the next week. He has been given the data which includes in the prices of the various
competitors, the demand in the market, the availability in the market. This data helps in
deciding the prices of the hotel for the maximisation of the revenue. He needs to have a
revenue manager, operational management, the team of sales, the line level employees.
Each and every company needs a revenue manager. This is the role that has been developing
over the years since the hospitality industry need to use this technique.
The main role of the revenue manager is the maximisation of the opportunities of the
business for the purposes of revenue and profits. The revenue manager must collect the data
with regard to the business along with that of its competitors and then analyse the same to
reach at the apt strategy for the maximization of revenue.
Hs is the one that considered the data with regard to the competitors as well. They keep up
with the changes that takes place in the market and also identifies in the trends.
For the hotels, there is an STR report which comes out on a weekly basis that compared about
5 to 7 hotels in any area and give the hotel data as to how these are performing on the basis of
other competitors when it comes to earning the revenue. This is a highly used report for the
managers that manage the revenue in the business of hotel. If the hotel has not been

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performing well, then this is an indication that the revenue manager needs to change his
strategy to keep up with the competition. This lets the revenue manager know the need to
change his thinking. This helps him in focusing on the fact of what’s going around so that he
is able to ready and price accordingly (Study, 2018).
Revenue Manager Report:
The following is the desired table with workings:
SYDNEY PALACE, REVENUE MANAGER
REPORT, Month of October 2018
Cu
rre
nc
y:
Month to date
Year to
date
A
U
D
Act
ual
For
eca
st
Budget Las
t
Ye
ar
AC
T
vs.
FC
ST
%
AC
T
vs.
AC
T
vs.
LY
%
Act
ual
Bu
dge
t
Last
Yea
r
A
C
T
vs
.
A
C
T
vs
.
BU
D
%
B
U
D
L
Y

REVENUE MANAGEMENT 7
%
To
tal
Ro
om
s
Re
ve
nu
e
17,
22,
477
.00
16,8
9,32
7.00
15,17,40
9.00
14,
07,
086
.00
101
.96
%
11
3.5
1%
122
.41
%
144,
27,4
23.0
0
139
,97,
968
.00
120
3,64
,910
.00
10
3.
07
%
11
6.
68
%
Oc
cu
pa
nc
y
0.8
9
0.86
7
0.785 0.8
28
102
.65
%
11
3.3
8%
10
7.4
9%
83.2
0%
80.
40
%
74.8
0%
10
3.
48
%
11
1.
23
%
A
D
R
179
.61 180
.87
179.57 157
.8
99.
30
%
10
0.0
2%
113
.82
%
176.
89
177
.74
168.
72
99
.5
2
%
10
4.
84
%
Re
vP
A
R
159
.93
156.
85
140.89 130
.65
101
.96
%
11
3.5
1%
122
.41
%
147.
21
142
.83
126.
16
10
3.
07
%
11
6.
69
%
F& 5,9 6,65 5,09,483 5,5 89. 11 122 48,0 45, 43,8 10 10

REVENUE MANAGEMENT 8
B 4,7
95.
00
,133
.00
.00 1,7
79.
00
42
%
6.7
4%
.41
%
1,06
8.00
15,
007
.00
5,18
6.00
6.
34
%
9.
48
%
Re
ve
nu
e
F&
B
To
tal
Ex
pe
nse
s
4,6
2,3
83.
00
5,03
,677
.00
3,96,504
.00
4,1
7,1
27.
00
91.
80
%
11
6.6
1%
11
0.8
5%
38,9
6,58
6.00
34,
82,
319
.00
35,1
3,93
8.00
11
1.
90
%
11
0.
89
%
De
pt.
Pr
ofi
t
1,3
2,4
12.
00
1,6
1,4
57.
00
1,12,979
.00
1,3
4,6
52.
00
82.
01
%
11
7.2
0%
98.
34
%
9,04
,482
.00
10,
32,
688
.00
8,71
,248
.00
87
.5
9
%
10
3.
81
%
Ma
rgi
n
22.
30
%
24.3
0%
22.20% 24.
40
%
91.
77
%
10
0.4
5%
91.
39
%
18.8
0%
22.
90
%
19.9
0%
82
.1
0
%
94
.4
7
%

REVENUE MANAGEMENT 9
Gr
oss
23,
74,
455
.00
23,9
8,56
7.00
20,82,67
6.00
20,
09,
834
.00
98.
99
%
11
4.0
1%
118
.14
%
197,
32,2
16.0
0
190
,91,
337
.00
172,
17,8
12.0
0
10
3.
36
%
11
4.
60
%
Op
era
tin
g
Re
ve
nu
es
Gr
oss
14,
64,
170
.00
15,3
4,33
1.00
13,17,11
2.00
13,
17,
019
.00
95.
43
%
11
1.1
7%
111
.17
%
124,
42,9
30.0
0
118
,33,
941
.00
114,
55,5
74.0
0
10
5.
15
%
10
8.
62
%
Op
era
tin
g
Ex
pe
nse
s
G 9,1 8,64 7,65,565 6,9 105 11 72,8 72, 57,6 10 12

REVENUE MANAGEMENT 10
OP 0,2
85.
00
,237
.00
.00 2,8
15.
00
.33
%
8.9
0%
13
1.3
9%
9,28
6.00
57,
396
.00
2,23
8.00
0.
44
%
6.
50
%
G
OP
PA
R
84.
52
80.2
4
71.08 64.
33
105
.33
%
11
8.9
1%
13
1.3
9%
74.3
8
74.
05
58.7
9
10
0.
45
%
12
6.
52
%
The above table quotes ADR. This is the term which is refers to the statistical unit which
indicates the average rent per room at any given point of time. This is the occupancy of the
property which forms the foundation of the financial performance of the hotel.
The term REVPAR is the revenue which is earned per room which is available. This is
calculated using the average daily room rate multiplied by the occupancy rate.
The actuals are the figures that have been incurred and that have been earned during the
period. The forecast is the standard are the figures that the hotel expected to incur and earn
before the start of the period. The last year’s figures are the ones that have been the actuals of
the previous year.
The revenue management helps in the predicting of the demand of the customers which helps
in the optimisation of the inventory and the availability of the prices for the purposes of
maximising the growth for revenue. The main aim of this management is to sell the room at a
lower price if the demand for that room is not high. The importance of gathering resources is
challenged since the resources are pro active.
It means dividing the market and making an adjustment to the products through the
distribution to the right customer at the right time and also at the right place.

REVENUE MANAGEMENT 11
Findings:
The above report fails to include the date with relation to the competitors of the hotel. The
revenue management is all about changing the strategies when the performance of one hotel
is being compared with its competitors.
From the above table, the following could be stated:
 The total revenue form the rooms is much more than what was anticipated and also
more than what was incurred in the previous year
 The room occupancy has been 102.65% of what was forecasted and also more than
what was incurred in the previous year
 The average daily rate is lower than what was forecasted for this hotel and also more
than what was incurred in the previous year
 The food and beverage costs are lower than what was forecasted but more than what
was incurred in the previous year
 The margin is less than what was forecasted and also less than what was earned
during the previous year.
 The gross operating revenues are more than what was forecasted and more than what
was earned in the last year.
 The gross operating margin is much more than what was forecasted and more than
what was earned in the last year which is good.
When the date of year to date is being compared, we could conclude the following:
 The total revenue form the rooms is much more than what was anticipated and also
more than what was incurred in the previous year
 The room occupancy has been 102.65% of what was forecasted and also more than
what was incurred in the previous year

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 The average daily rate is lower than what was forecasted for this hotel and also more
than what was incurred in the previous year
 The food and beverage costs are lower than what was forecasted but more than what
was incurred in the previous year
 The margin is less than what was forecasted and also more than what was earned
during the previous year.
 The gross operating revenues are more than what was forecasted and more than what
was earned in the last year.
 The gross operating margin is much more than what was forecasted and more than
what was earned in the last year which is good.
Discussion:
The following are some of the strategies that could be considered:
 The revenue cycle could be sped up by the way of aligning the recognition of revenue
with the actual product and the service industry. The faster this cycle is, the faster is
the cash in hand of the hotel. And the faster one would be able to use this cash to
grow the value of the business (Capterra, 2018).
 A limitation of this report is the fact that the information is stored in the spreadsheets
on the computer. This complication is even worse when the hotel is offering many of
the different services which have to be recognised in some specific manner. This is a
common practise of making the changes to the orders after the initial contract has
been signed.
 If the hotel does not have an access to a great amount of information, then the
mistakes would take place and this is the sole reason that the hotels recognises the
revenue with the most robust quote to cash solution benefit from the ability that pull

REVENUE MANAGEMENT 13
out the automatic business rules that governs in the process of sales to the assessment
of prices and also uses the contract data like the dates of delivery and the terms of
pricing which helps in the creation of an accurate billing and forecasting of the
revenue in the most efficient way.
 If the above table is used, then the revenue manager of the hotel would struggle with
an accurate pricing of the future finance of the hotel. This would also hinder in
obtaining in a real time visibility of the facts all across the hotel, thereby failure of
tenure success and the failures of the current business strategies and also in the
management of the financial risk (Ideas solutions, 2018).
Conclusion:
It is tough to make a strategy to improve the profitability and the revenue of the hotel. But
from the above tables, it could be concluded that the hotel has earned more than what was
forecasted and what was earned and incurred in the previous year.
Recommendation and implementation:
The hotel could plan strategies to increase the revenue of the hotel. It could offer lucrative
discounts and also undertake some special activities or programs that would be able to attract
new visitors to the hotel. Also, the hotel should have the STR report which shows its place in
terms of performance when compared with the other hotels in the same area.

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References:
Best Revenue Management Software | 2018 Reviews of the Most Popular Systems. (2018).
Retrieved from https://www.capterra.com/revenue-management-software/
Revenue Management and Pricing Software for Hotels | IDeaS. (2018). Retrieved from
https://ideas.com/solutions/products/ideas-revenue-management-systems/
Revenue Management Teams: Roles & Responsibilities | Study.com. (2018). Retrieved from
https://study.com/academy/lesson/revenue-management-teams-roles-
responsibilities.html
The Importance of Revenue Management. (2018). Retrieved from
https://smallbusiness.chron.com/importance-revenue-management-71942.html