We all know that revenue management has been around for a while. When we book our airline tickets, prices change based on the flight, demand, class of booking, routing and other factors. Then, about 25 years ago, hotels started to come on board and apply the basic principles of revenue management. It was generally understood that yield management (as it was called at the time) could add significantly to a hotel’s topline.
And after hotels came car rental companies and car parks; however, subsequent application of revenue management to other businesses has been slow. Many industries are reluctant to apply revenue management principles, mistakenly thinking it cannot apply to them or will not be accepted by their customers.
History has shown, though, that revenue management can be implemented in ways to drive revenue and be accepted by customers.
What is revenue management?
The discipline of revenue management is the structured approach to:
1. Create a detailed demand forecast
2. Use and interpret this forecast and make pricing and inventory decisions.
Pricing of your products is one of the key aspects of getting the maximum revenue out of your product. In addition, if there is limited availability of what you are selling, you can make strategic decisions to optimize that inventory.
So getting the price right is key?
Yes, pricing is the key to begin optimizing your revenues. By basing your pricing decisions on a detailed demand forecast, you can optimize both your volume of business, as well as avoid leaving money on the table over busy days. This is the first step of your revenue management approach to driving revenue.
But revenue management does not apply to my business!
Revenue management can be applied in any business, provided there is fluctuating demand, the customer can buy the product ahead of consumption, and there is a perishable, capacity-constrained inventory that loses revenue opportunity if unsold today.
Some previously highlighted examples like airlines, hotels and car park companies are prime examples of this. One of the next logical sets of businesses that could apply revenue management principles would be theme parks and attraction parks. There is an opportunity to price differently on low, shoulder and high demand days and customers can buy admission tickets ahead of time. Additionally, the number of people allowed into the parks due to safety regulations may be restricted to a certain maximum capacity.
What are some other types of business where revenue management can be applied?
Another good example would be recreation parks and campsites. There are a limited number of spaces available for customers to book – and bookings can also be made ahead of time. Bowling Alleys are another good example since there are a restricted number of lanes available at the property, with people booking in advance to secure available space for them to play. I could continue mentioning things like bungee jumping, bridge climbs, glass-bottom boat excursions, movie theatres, water parks and may more.
The areas where revenue management concepts can be applied are numerous, the question is whether you believe it can work for you.
I am curious but not convinced!
Answer these few easy questions for your company: Does demand for your product fluctuate? Can customers book your product ahead of consumption? Do you have a limited capacity perishable product available for sale? If you answered ‘Yes’ to two or all three of those questions, you can safely conclude that revenue management principles can be applied to your business, with revenue management being a strategic approach to increasing your company’s revenue.
Start your revenue management journey today! Driving topline revenues is important, and it is the single most important component in driving profits for your company.