Hotel revenue management is all about selling the right room at the right price to the right guest. There are many factors that make hotel revenue management different than other traditional industries such as perishable inventory, fixed capacity, ability to segment the market, and the possibility to forecast demand.
Perishable inventory is the concept that there is a limited window in which to sell a product or service, and once that window closes, the ability to sell that product or service is gone. If you miss the opportunity to sell a room on Wednesday, you have missed that opportunity forever.
Yes, while the concept of revenue management applies to many industries, it is essential for most hotels. Owner-operators often attempt to do it themselves, but as a hotel grows more dynamic, it becomes more important for one team to focus on deliving an exceptional guest service experience and another to handle the pricing and distribution of the hotel inventory (whether that be rooms, banquet space or restaurant seats). All teams must still work together to drive results.
A STR report is a compilation of data that helps to determine a property’s success relative to the properties in its competitive set from a previous week or month. It includes an occupancy index, an ADR index, and a RevPAR index. The name STR comes from Smith Travel Research, the company that compiles the data and produces the report, and is often pronounced “Star” report or simply “Star”.
A comp set or competitive set is the group of hotels with which a property measures its relative success and competes for demand. Typically it includes 4-6 properties that are in close proximity to the hotel in question that provide a similar offering to the subject property in terms of price, amenties, room count, room size, etc.
ADR is your average daily rate. This is the average of how much a room actually sells for on any given day, and includes any promotional discounts or commissions that were applied when the room was sold. ADR = Total Rooms Revenue/Total Rooms Occupied
BAR stands for Best Available Rate, and is the standard, visable nightly rate available to all travelers. BAR is sometimes referred to as rack or retail rate and is the master rate from which all other rate plans are derived, whether they are brand discounts, negotiated rates or package rates.
ADR breakage is the disparity between what the BAR is for any given day and the ADR that is coming in for that day. This is often expressed in a percentage as ADR/BAR. A breakage % nearing 1 is desirable because this means you are capturing an ADR close to what you are selling (i.e. less discounting), however, when someone refers to a “high breakage” that generally mean that your hotel has a large dispartiy between ADR and BAR.
LNR stands for local negotiated rate. These are contractracting rates either fixed or at a % off that are established with local businesses to ensure repeat business for the hotel.
OTA stands for online travel agent, i.e. Expedia.com, Booking.com, etc. This is an additional platform from which to sell rooms, typically at a higher cost to the property than booking direct. While the property must pay a commission to sell through the OTAs, there is a cost to not being listed on an OTA through decreased exposure to potential guests.
When a hotel is in parity, it means that the hotel’s available rates across all channels (Expedia, Booking.com, Hotwire, TripAdvisor, brand.com, etc.) are the same. When a hotel is out of parity, it means its rates are different across different channels. For example, if brand.com says the rate is at $89 while Expedia says $79, the property is out of parity. To maintain rate parity is to offer the same rates and inventory across all platforms – if you offer a discount on one channel, you must mirror it on all channels.
RevPAR is revenue per available room. This is found by dividing the total revenue by total number of rooms or multiplying ADR by OCC% for any given time period. For example, if your property has 87 rooms and sold 57 which resulted in total revenue of $5,984, while the ADR is about $105 the RevPAR is only about $69. For every empty room in the hotel, you still only generated $69. The greater your occupancy, the closer your RevPAR is to your ADR. The goal is for RevPAR to equal ADR, also known as the perfect sell. RevPAR = Total Rooms Revenue/Rooms Available for Sale
The GDS is the global distribution system, which serves as the connection between travel agencies and a property’s central reservation system. The majority of consortias and corporate negotiated rates come through this channel but individual leisure travel can also come through the GDS by way of a travel agency.