The “curse words” of Revenue Management… Discover the fundamental terms!

The Revenue Manager, in most cases, is seen as the man of numbers, the one who reads graphs and analyzes trends, who quantifies and predicts everything.

It is undeniable that these aspects constitute an important part of Revenue’s activity, however the activities are much more complex and include a series of professional skills that can hardly be replicated in an “amateur” way.

Here are a number of definitions you’ll need to interface with your trusted Revenue Manager. Don’t be frightened by acronyms or formulas, even if they may seem complicated, they will be incredibly useful to better understand the management of rates.

1. Turnover

It’s the total turnover of your accommodations in a given time segment. This data must be worked in Revenue version, that is, by going to cut bookings at the beginning or end of the segment in question, considering only the nights that are part of it.

2. Room Night

It is the number of stays actually available in the relevant time segment, in other words it is the product between the number of accommodations in question and the number of nights in that segment.

3. Occupancy

It is the occupancy rate, the result of the relationship between sold and actually available housing.

4. ADR. Average Daily Rate

Also known in Italy by the acronym RMC (Revenue Medium Room), comes from the ratio between the total turnover of your accommodation and the total of those sold. As a matter of fact, ADR has the limit of not considering the number of rooms that remain unemployed causing, in addition to an alleged loss of revenue, a real loss.

5. REVPAR. Revenue Per Available Room

This acronym refers to the turnover generated per available accommodation, is the result of the division between the total turnover of each room (net of VAT) and the available accommodation. This indicator is the basis for Revenue Management policies, since it allows you to know your level of performance with respect to the pricing strategy and competitors.

6. REVPAC. Revenue Per Available Customer

It is the turnover generated per available customer, resulting from the ratio between the total turnover of all the collateral services and the number of customers. This indicator calculates the customer’s average expenditure per service (laundry, utilities, etc.). This index is fundamental to establish your rate, because exceeding it at the bottom means not being able to cover the expenses and is equivalent to having revenue losses.

Finally, other useful indicators in structuring a Revenue Management policy:

• Booking window related to your property.
• Average stay of the customer.
• Reputation of your quarters.

Are these indices enough to create your “Revenue Oriented” tariff?

Unfortunately the answer is no, because even if this data can help you, a thorough analysis is needed to understand which tariff to use for each day of the year and create a system of update and optimization.

However, I leave you the 3 basic guidelines to correctly set your tariff plan.

Guideline 1 – Medium Level

The first step is undoubtedly the creation of the Bottom Rate, based on the costs to be incurred for each accommodation. Your fee must never fall below this threshold.

Guideline 2 – High Level

Knowing your market is essential to predict and meet the different needs of potential guests. Know your customers and give them what they want!

Guideline 3 – Advanced Level

Analyze the history of previous years to create the starting rate on all days of the year, paying attention to all event dates in your area (leisure and business). Do your competitor analysis, and study your market positioning.

And if that’s not enough, try asking a revenue manager to figure out what else he does during his day… It’ll be a long talk!