Revenue management is essential to success in today's fiercely competitive hospitality industry, as it is critical in improving your hotel's revenue and profitability. Understanding the nuances of revenue management terms is crucial for revenue managers, hoteliers, and everyone involved. Knowledge of the hotel revenue management glossary can help navigate the vast world of demand forecasting, pricing, customer segmentation, and distribution channels.
This hotel revenue management glossary is a valuable resource for hoteliers like you that can help you with the following:
Optimizing strategic decision-making capabilities - With a clear understanding of revenue management and hotel industry terminology, you can analyze market changes and pricing policies and implement revenue-generating initiatives.
Enhancing pricing policies - If you understand hotel pricing and hotel rate management terminology, you can adjust rates competitively in line with market trends, customer segments, and demand fluctuations.
Improving collaboration and communication - A mastery of terminology related to revenue management aids in facilitating effective collaboration and communication among hoteliers, revenue managers, and industry members, leading to a coordinated approach toward revenue maximization.
Staying ahead of market trends - This glossary is a powerhouse resource that will keep you updated about the constantly shifting market trends and ever-evolving terminology of revenue management.
Understanding hotel revenue management: How does it help you?
Revenue management is a critical aspect of your hotel's success. It is all about selling the right room to the right guest at the right rate via the right channel to increase occupancy and revenue. Let's know more about how it helps your revenue management efforts.
Understanding Demand - The first step in effective revenue management is understanding demand. This means analyzing historical data, market trends, and customer behavior to determine when demand is likely high or low. This information is then used to adjust room rates and inventory levels to maximize revenue during high-demand periods and minimize losses during low-demand periods.
Dynamic Pricing - Dynamic pricing is a key component of revenue management. This approach involves adjusting room rates in real time based on demand, availability, and other factors. By using dynamic pricing, hotels can ensure that they are always selling rooms at the optimal price to maximize revenue.
Inventory Management: It is key to revenue management. It involves tracking the availability of rooms and other hotel amenities to ensure they are sold at the optimal price. Revenue managers must also consider seasonal demand, group bookings, and other events impacting inventory levels and adjust pricing accordingly.
Distribution Channels - Distribution channels are another vital aspect of revenue management. Hotels must carefully manage their distribution channels to ensure they reach the right customers at the right time. This may involve working with online travel agencies (OTAs), travel agents, and other partners to reach a wider audience and increase bookings.
Collaboration and Communication - Effective revenue management requires organizational cooperation and communication. Revenue managers must work closely with sales and marketing teams to develop promotions and campaigns that drive demand during low occupancy periods. They must also communicate with front desk staff and other team members to manage inventory and pricing effectively.
A - Z glossary of hotel revenue management terms
We have already told you why knowing hotel industry terminologies around revenue management is essential.
Let's now look at some of them -
- Analytical market segmentation - A process that divides the overall guest base into segments based on shared behaviors, preferences, and characteristics. It allows easy customization of pricing policies, marketing initiatives, and other services per each segment's needs.
- Ancillary revenue - Sources of revenue apart from revenue generated from room, conference, and banquet services. It includes spa, parking, golf, gymnasium, entertainment, etc.
- Attendee density - Total number of unique attendees / the optimal venue capacity
- Average Daily Rate (ADR) & Average Room Rate (ARR) - Daily room revenue / total number of rooms sold
- Average Rate Index (ARI) - It measures the hotel’s rates against its competitors.
- Best Available Rate (BAR) - It is the lowest rate that a hotel offers to guests. This rate is subject to changes multiple times a week or a day.
- Booking curve - Graph referring to the speed at which bookings happen before the arrival date.
- Booking engine - A system through which bookings are done on a website.
- Booking pace - The speed at which bookings happen over a time frame starting from the date of booking to the date of arrival.
- Booking window - This is the period during which the guests make a reservation and the arrival date.
- Business mix- It is the combination of various market segments present in a hotel. It is measured as a value or percent of total occupancy.
- Central Reservation System (CRS) - A storage system to store data about hotels, inventory details, and rates. It can process and manage reservations for multiple hotels.
- Channel Management (CM) - Allows hotels to manage inventory allocation and rates across multiple distribution channels such as wholesalers and OTAs.
- Competitive set - Hotels that are of similar star category in a hotel’s vicinity.
- Component rooms - A blend of rooms that are convertible into different configurations to create larger and more customized accommodations for guests.
- Constrained demand - Total number of rooms that can be sold per the hotel’s capacity or booking restrictions.
- Cost of Walk (COW) - The cost of refusing a room to a guest when the hotel cannot provide the promised accommodation. This may include the cost of room, food, transportation, and future business loss.
- Customer Relationship Management (CRM) - A system that helps in sales and customer management.
- Day Parts - A policy that divides a day into various parts to accommodate meetings and events in a function space.
- Days to Arrival - Total number of days before the arrival date.
- Demand - Anticipated business for the future dates.
- Demand Forecast - Using predictive analysis to anticipate total consumer demand for a particular product or service.
- Displacement Analysis - A business analysis that is based on the total business value versus the transient business value that would be displaced in case of acceptance of the business.
- Dynamic Pricing - Flexing product price as per market demand.
- Fenced Rates - Rates at which a hotel offers multiple options to guests. This rate is fixed based on fences accepted by guests. These may include advanced purchased, non-cancelable, and non-refundable reservations.
- Forecasting Model - Statistical patterns that are used to forecast demand, occupancy, and revenue.
- Free Sell - Function-only or event-only business restrictions are guidelines placed at a spot in a hotel to ensure the availability of space for groups within their traditional booking window.
- Full Pattern Length of Stay (FPLOS) - Pattern that indicates the availability of a rate for the date of arrival and stay duration.
- Function Space Utilization - Derived by multiplying the area available by the number of day parts being analyzed.
- Global Distribution System - Reservation and travel shopping platforms used by travel agents for booking hotels, cars, airlines, and other travel arrangements for customers.
- Gross Opening Profit Per Available Room (GOPPAR) - a KPI calculated by taking total revenue minus marketing and operating costs, divided by the total number of rooms available.
- Group Demand - The group business expected for a date of occupancy.
- Group Pricing Evaluation - A platform where users can enter details about a potential group booking, leverage an analysis, and use the resulting information to choose the best arrival date and rate to ensure maximum benefit to the hotel.
- Group Wash - This is derived by calculating the difference between a group’s final occupancy and the maximum value of the pickup pace or block pace.
- Group Wash by Group - A system feature that gives you group business data such as occupancy date, rooms blocked, expected wash, etc. It also allows users to override group wash generated by the system.
- Last Room Value (LRV) - The maximum revenue a hotel can expect to generate from the last available room. LRV is used as a restriction control for low rates during peak seasons and opens all rates during off season.
- Length of Stay (LOS) - The difference between the arrival and departure dates.
- Market Intelligence - A company’s market-related information, including competitor rates, customer reviews, and booking patterns.
- Metasearch Engine - A search tool aggregating inventory and rates from other websites like OTAs and hotel websites to generate results. E.g. TripAdvisor and Kayak.
- MICE- Meetings, Incentives, Conference, and Exhibitions. It is a popular acronym used in sales and catering function space.
- Net Rate - This is the room rate after deducting transaction costs and commission.
- No-Show - Instances when customers do not show up after making a room reservation without cancellation.
- Occupancy - The total “fill” capacity of a hotel or the percentage of rooms occupied at any given time.
- Online Travel Agency (OTA) - These are third-party websites that can be used to book hotel, travel, and tour activities. OTAs charge commissions from hotels for booking on their behalf and giving them customers.
- Overbooking - This is the practice of selling more rooms than what is available to combat losses due to last-minute cancellations and no-shows.
- Predictive Analysis - Using advanced analytics to predict unforeseen future happenings.
- Price Sensitivity - It shows how much a customer is willing to pay. The effect of change in price on demand is estimated using historical space data.
- ProPAST - Profit per available space-time.
- ProPOST- Profit per occupied space-time.
- Qualified Rate - A rate the guest is qualified for. This may include a special discount rate, a corporate rate for companies, etc.
- Rate Distribution System - System that distributes inventory and rates of hotels to direct and indirect channels.
- Rate Shopping System - A digital service that gives information regarding competitor rates to hotels.
- Remaining Demand - As of the processing date, the software generates the remaining unconstrained demand for a future arrival date.
- Reputation Management System - A system that is used to manage guest reviews and ratings.
- Reputation Pricing - Practice of integrating a hotel’s digital reputation, ratings, and reviews, into its revenue management policy.
- Revenue Generated Index - An index used to measure a hotel’s share of revenue in its market.
- Revenue Management - The science of maximizing price and availability to optimize revenue.
- Revenue Management System- A software used by hotels to control and manage the price and supply of inventory to gain maximum profit by managing room types, availability, customer behavior, etc.
- Revenue per attendee - Revenue/Total attendees. It is useful to understand space utilization.
- Revenue per Available Room (RevPAR) - Average Daily Rate X Occupancy rates
- Revenue per Occupied Space (RevPOS) - Total event revenue/ gross occupied square feet or square meters
- Revenue Science - The science that combines mathematics with professional expertise to transform data into precise, automated, and actionable revenue-enhancing decisions.
- Sales Conversion - Potential revenue from all inquiries/ revenue booked
- System Override - A value selected by a user to replace the system-created demand value.
- Total Revenue Performance - The calibration of demand across all revenue channels to meet overall financial objectives.
- Transient Business - Individual guests who book rooms.
- Transient Demand - The expected business volume from transient market segment groups.
- TRevPAR - Daily total revenue / Total rooms available
- Unconstrained Demand - The number of rooms that can be sold when there are no constraints such as capacity or booking restrictions. It is also known as true demand and provides a clear picture of overall possible demand.
- Unqualified Rates - Rates offered to guests without an agreed contract and without restrictions or conditions.
- Wash - This is the difference between group block and what the hotel expects it will pick up in reality.
- Yield Management - A group of policies that help realize maximum revenue for capacity-restrained resources. This concept is all about providing the right service to the right customer at the right time.
Market changes are highly rampant in the hotel industry. These changes bring about more industry jargon and acronyms. Keeping yourself updated with key hotel revenue management glossaries and other hotel industry terms is essential. This will help you measure your hotel's performance on all parameters and make informed decisions to drive revenue growth while gaining a competitive edge.