revenue management consulting

revenue management consulting

Maximizing Revenue: Strategies and Best Practices in Revenue Management Consulting

1. Introduction to Revenue Management Consulting

Bridging an organization’s human capital with expert firmware systems and resources is the cornerstone of successful corporate revenue results. Bright, talented people require an arms-length, analytical approach to facilitate accountability from all departments and resources needed to sustain a nimble, competitive strategy to outperform the competition. For years, the hotel revenue consultant business has been dominated by independent consultants with a boutique approach catering not-so successfully to technology-driven issues of the hotel-business culture. In the late 80s, the breakthrough RM revolution began with the emergence of hi-tech modeling programs like Yield Max, On Target, etc., then web-based yield friends (InforTech, etc.), and now major corporations like Deloitte Touche, Agilsys, Ernst & Young, and Accenture are offering some form of profitably maximized yield-affiliated service to their higher-end hotel clients.

Today’s significant gains in organizational profitability and performance come from maximizing revenue. By executing a well-integrated revenue strategy, every customer is given a comparative value proposition at the price that will maximize the success and growth of the corporation. Accomplishing those gains starts with ensuring the core competencies of maximizing return on available space (ROAS) and revenue per occupied room (RevPOR) are optimized. To best ignite the spirit of a competitive revenue guest service culture, hoteliers can expect higher performance results and corporate performance overall by working closely with the expertise of a revenue management consultant.

2. Key Concepts and Techniques in Revenue Management

An essential management information process is monitoring data of the greatest importance to a company’s revenue stream, as an understanding of what generated these data and the knowledge of the patterns involved may lead to more accurate forecasts. When comparing different versions of the same product or service, considered decisions must be made at the time of irregular purchases. Unused capacity cannot be stored and sold at a future time; rather, it must be discarded as fixed costs have been incurred and a decision to accept one passenger, or group of passengers, is to reject others. In a revenue management’s capacity control seed step, demand is systematically turned off within a defined capacity and a range of conditions that would result in revenue loss is clearly defined.

Key techniques in revenue management

As mentioned above, one of the challenges encountered in discussing revenue management is defining the term. While there is no one widely accepted definition for revenue management, the common concepts include products or services with variable and finite capacities, revenue maximization as the objective, no emphasis on cost control, and the use of yields to measure performance data. Other traits include appreciated segmentations, variable prices charged for like products, clearly defined demand cycles, and an understanding of the key determinants of demand and the way they influence customers’ purchase decisions.

Key concepts in revenue management

3. Implementing Revenue Management Strategies in Different Industries

Airlines – Dynamic pricing began in the airline industry and has been successfully implemented over many years. An airline pioneered the concept of protecting low fares at targets consistent with consumer price/band expectations – through opening and closing booking requests at various prices/booking levels in accordance with yield targets (both special promotion offerings and less attractive alternatives, such as full fare). Airlines also have limit fares, which industry studies show as the fare levels beyond which travel drops off to nothing. These structural controls now contain easyREC, which imposes further structural limitations consistent with the principles of revenue management. In today’s airline industry, all airlines are using some form of yield management. From American Airlines at the top of the scale to Southwest at the bottom, almost everyone has learned about these sparing intriguing applications of RM principles, along with the caveat emptor, the airline industry in general has had considerable experience with revenue management.

If there is a common strain in today’s revenue management methods, it is the proliferation of new strategies in new industries. But remember, implementing these strategies can be fraught with problems. Below are the different industries, along with some tips on how to fit revenue management into their respective strategies.

4. Case Studies and Success Stories in Revenue Management Consulting

Case 1: Revenue Management Transformation A global transportation services company wanted to design and implement a revenue management strategy to capture the correct market value of its services but lacked a plan and structure. We performed an assessment of their current practices and systems and created and implemented tailored revenue management processes and systems. The transformation led to an immediate uplift in their revenue quantities and shares, along with significant profitability improvements—all without changing their operating environment, structures or incentives. Their executive and stakeholders recommend the transformative engagement as a template for future success, since everything they implemented could be reused and modified as the business required. Our client increased passenger revenue by 5%-10%, corresponding to over $25 million, and anticipated even more financial benefit in the next year.

Case studies and success stories provide concrete examples and evidence of the value delivered by a provider of specialized services. Below are four cases from revenue management consulting projects. The project goals define success, and the client names have been anonymized for confidentiality. In addition to the success stories below, we have also provided a series of recent client case studies in demand management, forecasting, and revenue management. In these projects, we helped clients of all sizes solve their demand management and revenue optimization challenges and enabled them to improve their management strategies, processes, and systems. Amid the complexities of demand and the crowded field of consulting services and providers, decisions still need to be made quickly and effectively to solve complex challenges.

5. The Future of Revenue Management: Trends and Innovations

One area that is a current focus in revenue management consulting is in the airline business, particularly in the wake of deregulation. In fact, revenue management systems have been shown to generate substantially higher profits from ticket sales than otherwise could have been achieved. The airline business presents some unique challenges, as well as some interesting forecasting problems. New planes are expensive, so having those planes in the air as much as possible is very, very important. However, over 60 percent of revenue comes from business travelers who very often buy last-minute and will pay the most for seats. In fact, a business traveler will frequently pay around ten times the price of an advance purchase ticket just to get a seat. The airline builds its schedule around anticipated demand, as well as expected yield from particular passengers. There will be big problems if business travelers are still paying low rates and continue to get on an oversold flight. Since planes are expensive and the industry is very cyclical, it is very easy to lose money in off-peak periods and to price too high during the peak.

I have worked with many companies, large and small, on designing and developing revenue management models. It is critical that these models be designed to handle changes in the business and economic environments. Revenue management models need to focus on more than just assigning a price to a product. They should also help identify who the customers are, what their real needs are, which customers will yield the highest profits, and how to boost business from those that yield more. To do this properly, the models also need to forecast demand accurately, detect changes as soon as possible, and recognize the patterns of change so they can plan how to handle these changes. It can be very tricky to do all this correctly and consistently to ensure you are always managing throughout the business cycle.