DeMystifying Revenue Management

PCMA POWER Chapter September 12, 2007

Today’s Agenda

What is Revenue Management How Rev. Mgmt is applied to

meetings Revenue Mgmt tools used by

hotels Best practices for RFP’s & hotel

negotiations

Who’s going to win Sunday?

Revenue Management Definition

A combination of pricing strategies, stay pattern controls, and information systems to sell the right rooms to the right customer at the right time for the right price via the right distribution channel…in a way that maximizes revenue or yield.

Consumer Case

6 Revenue Mgmt. Attributes

1. Fixed capacity2. High fixed cost, low variable cost3. Perishable inventory4. Reservations are made in advance5. Variance in demand – season or day

or length of stay6. Some customers price sensitive, some

not (marketable segments)

What other business could use revenue management?

Rev. Mgmt. Strategic Levers

1. Controlling duration - length of staya. Arrival – Departure patternb. Open, closed, no arrivals, max/min length of

stay, allocationsc. Meeting space maximizationd. Managing wash – reminders, deposits, attrition,

cancel fees, overbooking, early departure policy, blind cuts

2. Pricea. Channel/Distribution managementb. Competitive pricingc. Demand based pricing

Rate Fences Physical rate fence: rates determined by room

location, view, or amenities Product-line rate fence: rates determined by

product category such as concierge, business class, standard or double

Restrictive rate fence: lower rate with non-refundable deposit

Controlled-availability rate fence: rates determined by coupons, by the guest or hotel's geographic location, or by distribution channel

Buyer-characteristic rate fence: senior discount, frequent customer, AAA, kids, or special rate for being part of a group

RevPAR Calculation

1. Room Revenue / Rooms Available or2. Average Rate X Occupancy

Example: A 400-room hotel in the month of May is

running 72% at an average rate of $122.59. 400 rooms x 31 days = 12,400 room nights

available. 72% are occupied = 8,928 8,928 x $122.59 = $1,094,483.52 $1,094,483.52 / 12,400 = $88.27 RevPAR

Hot/Warm/Cold

Some hotels will assign a value to each day Hot dates – 90% or greater occupancy Warm dates – 70 – 89% Cold dates – less than 70%

RevPAR can generally be improved by increasing occupancy on cold days and ADR on Hot days. Discounted rate categories are closed as demand increases.

Demand Control Chart

Source – Sherry Kimes, Cornell University150 room hotel

Booking Curve Forecast

0

20

40

60

80

100

-1 0 7 14 21 28 35 42 56 70 84 98

2006

2005

Days before arrival

% o

f Pe

ak

Group Business Evaluators Room Blocks Peak night and pattern (booking parameters) Prime, shoulder or distressed periods Rooms to Space Ratio # of rooms to amount of space needed F&B contribution per room night – i.e.

$50/optimum Concessions, rebates, commission

Revenue Management Analysis

Getting on the Same Page

Revenue

Management

Operations

Sales & Marketing

Business Review MeetingsAttendee’s GM, Revenue Manager, DOS, Sales Team, Rooms

Executive, Dir. of Catering, Dir. of Convention Service

Frequency Held Daily to evaluate group business opportunitiesCriteria Dates, Patterns, Future Business, Meeting Space,

Rates, F&B Revenue, Historical Data – rates, booking cycle, RevPar results, city events and occupancy, Competition – Local and National

Group Booking Scenario

400 room Hotel 65% group/35% transient business 10,000 sq ft ballroom Groups usually book 200 rooms or more

on peak night, book beyond six months

Sun-Thurs – 240-200 rooms avail to book

Group

Nationwide Insurance 125 rooms on peak night for 2 nights

(Tue – Thurs pattern) 250 ppl classroom Continental breakfast and 2 breaks for

250ppl

Negotiation Tactic

"If I were a planner, I might ask the question, 'So how does my meeting fit into the revenue management strategy for your property on those dates?‘ If the reaction is a 'deer-in-the-headlights' one, the planner will know the salespeople are probably compensated on the traditional model."

Carol Verret – Consultant/Trainer

Other Revenue Meetings

Yield Meeting – Once a week - Determine pricing & controls strategy. Review transient booking cycle & competition for the next 60 – 90 days

Yield Strategy – Once a month looking one year out.

RevPAR Benchmarking

Beat the Competition!

Tab 2 - DaySTAR Summary - My Hotel vs. Comp SetAny Hotel 123 Any Street Any City, Any State 90210 (555) 555-5555

STR # 98765

Period ending: July 17, 2004

My Property 64.3% 15.8 84.0% 18.5 97.6% 18.5 97.9% 1.8 90.0% -4.3 83.9% -7.5 92.2% 3.3 87.1% 5.4Comp Set 81.6% 14.7 93.9% 12.2 98.0% 3.3 97.5% 1.2 92.3% -0.2 84.6% -5.7 92.1% -1.1 91.4% 3.0Index 78.8 1.0 89.5 5.6 99.6 14.6 100.4 0.6 97.5 -4.1 99.2 -1.9 100.2 4.5 95.3 2.3

My Property $161.17 0.9 $172.50 1.5 $181.10 7.2 $181.54 10.7 $171.01 9.0 $156.48 2.6 $163.30 9.6 $170.32 6.6Comp Set $177.60 -2.5 $191.85 0.8 $197.46 4.7 $198.13 8.8 $191.83 6.0 $177.44 3.4 $179.67 1.6 $188.19 3.6Index 90.7 3.5 89.9 0.7 91.7 2.4 91.6 1.7 89.1 2.8 88.2 -0.8 90.9 7.8 90.5 3.0

My Property $103.69 16.9 $144.85 20.2 $176.75 27.0 $177.80 12.7 $153.97 4.3 $131.31 -5.0 $150.58 13.2 $148.42 12.3Comp Set $144.97 11.8 $180.09 13.1 $193.56 8.2 $193.19 10.1 $177.15 5.8 $150.17 -2.5 $165.40 0.5 $172.07 6.7Index 71.5 4.6 80.4 6.3 91.3 17.4 92.0 2.4 86.9 -1.4 87.4 -2.6 91.0 12.7 86.3 5.3

ADR

RevPAR

Occupancy

July 11, 2004 - July 17, 2004

Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total% Chg % Chg % Chg % Chg % Chg % Chg % Chg% Chg

Tab 3 - Daily Data For MonthPeriod ending: April 21, 2007 Date Created: April 25, 2007

Su Mo Tu We Th Fr Sa Su Mo Tu We Th Fr Sa Su Mo Tu We Th Fr SaApr Run

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 MTDMy Property 87.3 86.7 89.3 92.0 91.3 91.3 88.7 76.0 84.0 75.3 77.3 84.0 88.0 81.3 76.0 84.0 75.3 77.3 84.0 88.0 81.3 83.7

Comp Set 72.9 78.7 89.4 91.9 94.5 92.7 78.7 50.8 43.9 41.1 50.2 58.9 61.1 65.5 75.8 78.2 6.2 7.8 14.5 39.6 40.4 58.7Index 119.7 110.1 99.9 100.1 96.7 98.6 112.7 149.5 191.5 183.1 154.1 142.7 144.0 124.2 100.3 107.4 1214.9 994.1 577.6 222.4 201.5 142.7

% ChangeMy Property 8.0 10.5 2.9 5.2 -1.0 -0.3 -3.8 -18.1 -7.7 -13.2 -14.5 -5.2 -7.0 7.0 33.6 97.6 90.6 101.8 92.2 79.2 78.7 11.0

Comp Set 87.9 83.2 86.6 49.3 26.4 9.6 -8.2 -21.8 -37.3 -30.5 -3.5 4.4 -1.8 26.0 152.6 183.2 -88.7 -86.4 -71.8 -0.3 5.6 3.5Index -42.5 -39.7 -44.9 -29.5 -21.6 -9.0 4.7 4.8 47.1 24.8 -11.4 -9.2 -5.3 -15.1 -47.1 -30.2 1584.4 1382.7 580.8 79.7 69.2 7.2

Apr Run1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 MTD

My Property 345.65 337.74 326.16 329.21 307.72 323.85 317.98 306.90 236.13 223.96 229.53 225.63 248.07 222.38 306.90 236.13 223.96 229.53 225.63 248.07 222.38 271.83Comp Set 291.31 271.47 273.01 265.59 280.71 275.32 251.92 222.34 208.17 190.25 183.41 164.33 171.57 163.93 117.68 114.42 122.35 132.30 121.82 116.09 115.21 212.79

Index 118.7 124.4 119.5 124.0 109.6 117.6 126.2 138.0 113.4 117.7 125.1 137.3 144.6 135.6 260.8 206.4 183.1 173.5 185.2 213.7 193.0 127.7

% ChangeMy Property 17.5 42.9 30.9 37.5 16.6 25.2 11.7 9.3 -3.3 -10.9 -10.7 -19.5 -9.1 -24.6 11.6 1.2 1.4 -1.4 5.3 22.1 14.7 -0.3

Comp Set 37.4 36.1 37.7 37.9 54.5 47.6 33.2 11.8 8.3 0.4 3.1 -2.2 3.6 5.7 -20.1 -28.4 -26.9 -19.5 -22.4 -6.0 -6.3 16.7Index -14.5 5.0 -5.0 -0.3 -24.5 -15.2 -16.2 -2.2 -10.7 -11.2 -13.4 -17.7 -12.2 -28.7 39.7 41.4 38.6 22.5 35.6 29.9 22.5 -14.5

Apr Run1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 MTD

My Property 301.87 292.71 291.37 302.87 281.05 295.79 281.94 233.25 198.35 168.71 177.50 189.53 218.30 180.87 233.25 198.35 168.71 177.50 189.53 218.30 180.87 227.65Comp Set 212.49 213.62 244.08 244.03 265.20 255.14 198.24 113.05 91.29 78.29 92.02 96.71 104.84 107.38 89.16 89.52 7.59 10.29 17.72 45.94 46.50 124.91

Index 142.1 137.0 119.4 124.1 106.0 115.9 142.2 206.3 217.3 215.5 192.9 196.0 208.2 168.4 261.6 221.6 2223.9 1724.6 1069.7 475.2 389.0 182.3

% ChangeMy Property 26.9 57.9 34.6 44.7 15.5 24.8 7.4 -10.5 -10.8 -22.7 -23.6 -23.7 -15.4 -19.4 49.0 99.9 93.3 99.0 102.3 118.9 105.1 10.6

Comp Set 158.1 149.4 157.0 105.9 95.3 61.8 22.3 -12.6 -32.1 -30.2 -0.5 2.1 1.7 33.3 101.7 102.7 -91.7 -89.0 -78.1 -6.3 -1.1 20.8Index -50.8 -36.7 -47.6 -29.7 -40.8 -22.9 -12.2 2.5 31.4 10.8 -23.2 -25.3 -16.8 -39.5 -26.1 -1.4 2235.2 1716.4 823.2 133.6 107.3 -8.4

RevPAR

Occupancy (%)

ADR

Daily Indexes for the Month of April

92

592

1092

1592

2092

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Micros Opera Rev. Mgmt Software

• 4 – 12% increase in RevPar with existing demand.

• Re-forecast & re-optimize every hour.

• Group optimizer• Used by hotels with

over 100,000 total installed.

Displacement Analysis

A method of comparing the entire group value

vs.

the value of other business (transient or another group) that would be displaced

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Other

A/V

F&B

Room Revenue

Group vs. Transient

40 Group Rooms 40 Transient Rooms

Source: Defining Revenue Management: Top Line to Bottom Line

Displacement Exercise

The Displacement Template

Hotel size 500 Rooms displaced 65ADR $135.00 Contribution per room $100.00Variable cost per room $35.00 Displaced contribution $6,500.00Room contribution $100.00

Other contribution $5,600.00Department Revenue Margin Contribution Total contribution needed $900.00Room rental $2,000.00 90% $1,800.00F&B $7,500.00 40% $3,000.00 Number of group rooms 225AV $2,000.00 40% $800.00 Minimum contribution per room $4.00

TOTAL $5,600.00 Variable cost per room $35.00

Minimum rate per room $39.00

Dates Forecast Group SizeDisplaced

Rooms1 300 75 02 465 75 403 450 75 25

Total 225 65

Room Contribution Analysis

Other Contribution Analysis

Displacement Analysis

Rate Calculation

RFP Overload – Case Study Question - I work in convention sales in a hotel & many

meeting planners are trending towards online RFP's and response forms. Most often, we receive these type of leads from a 3rd party who conceals the identity of the end user, provides limited information on the client & their true reasons for buying, & never lists who we are competing against. These RFP's can be distributed to over 50 hotels across the country & the information we submit is presented to the client in the form of a grid with dates, rates & meeting space availability. Has my ability to sell been taken away? It seems almost impossible to build a relationship under these circumstances. I know this is a whine, but, it is very frustrating because responding to leads this way cuts into the time I can really sell.

RFP Overload – Response Submit a proposal that shows you’ll rent out rooms for $1 a

night, plus extras. And they have to call you to find out what the extras are. This will get you a direct response from the customer. Third-party bidding will never build a sales relationship until you’re either lucky or unlucky enough to win the bid and meet the customer. I would call the third party & tell them that it’s impossible for you to submit a valid bid until you know the expected outcome of the meeting. I would also include in the bid as many customized features as you can that allows the customer to choose what they want with respect to meals & other amenities for their event. But in the end, you’re correct. It’s a no-win situation, and you have to decide whether you want to play in that environment or not.

Jeffrey Gitomer – www.gitomer.com

Does your RFP get noticed? Limit the playing field Pick up the phone Help them help you Put all your cards on the table Be flexible Give them adequate time Ask the hotel to sell you Be empowered Be timely Be loyal

Info Needed for a Quality Bid Account name, meeting name, URL Room block & meeting/expo space

requirements Preferred dates (flexibility) Competition – cities or hotels considered At least two years of history Desired properties to include (for CVB) Concessions, communicated “wants” Meeting purpose, critical decision factors Individual names and roles in decision process Decision date

Marriott Key Center Rates

$129Mar-07Pri-Med

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$144Oct-07Assoc. for Iron & Steel Training Seminar

$119Sep-07Federation of Tax Administrators Investigation Class

$139Oct-07Midwest School Social Work Council Conference

$139May-07Urban Libraries Council

$149Oct-07Mechanical Construction Student Chapter Summit

$99Oct-0734th Annual Natural Areas Conference

$139May-07School of Dental Medicine Alumni CWRU

RateMonth/YrGroup

Quantify Concessions

Comp rooms, suites, discounted staff rooms, 1 per 50’sUpgrades, amenities, airport limosF&B discounts, otherPut a value on each (x # of nights + tax) and divide by group rate to get concession / comp ratio

Negotiation ResultsItem Quantity Unit Total Comment

Negotiated group rate down $10 125 $10 $1,438 Staff and speaker room nights. Includes 15% tax3 staff rooms @ 50% 15 $170 $2,933 5 nights each, includes 15% taxNegotiated room rental down $3,000 $3,000 Original quote vs. end result10 Upgrades to club level 40 $35 $1,610 4 nights each, includes 15% tax5% reduction in F&B $6,350 Total spend $100k plus tax & service charge10 Comp Welcome Amenitites 10 $25 $318 Plus tax & S/C20% reduction in A/V $5,350 Total spend $25k plus taxTotal Savings $20,998

Cost AvoidanceItem Quantity Unit Total Comment

Attrition liability waived 47 $170 $10,147 Picked up 78% of block, contractual liability 2%Used hotel table centerpieces 30 $25 $803 Instead of purchasing from floristGuarantee strategy 90 $18 $2,057 Planned for 30 no shows each morningTotal Savings $13,007

Grand Total $34,005

Time Invested 3 Months

Loaded Salary X time invested $15,000

ROI - Savings - Investment/Investment 127%

Negotiated Savings and Cost Avoidance ROI2007 Annual Meeting

Negotiating Pitfalls Negotiating with the wrong person Not having an alternative, being able to walk away Negotiating before there is an agreement in principle Tossing out the 1st offer with little to no information Giving concessions without getting something in

return Poor planning, poor qualifying Getting emotional Focusing only on price Getting hung up on Terms & Conditions

Questions