Management of Revenue
What the exam expects
Revenue management is the discipline of selling the right room to the right guest at the right price at the right time. Understand RevPAR, ADR, occupancy, yield, and the revenue management triangle: pricing, inventory, and segmentation.
Concepts to master
- Formulas: occupancy = rooms sold ÷ available rooms; ADR = rooms revenue ÷ rooms sold; RevPAR = rooms revenue ÷ available rooms (also ADR × occupancy).
- Segmentation: transient, group, contract, and discount segments; each has different rate fences and displacement costs.
- Rate fencing and restrictions: length-of-stay, advance purchase, cancellation policies.
- Forecasting and overbooking: balancing walk risk against spoilage.
- Distribution: direct vs. OTA channels and the cost of acquisition.
- Displacement analysis: does a group booking raise or lower total revenue versus the transient business it replaces?
Traps questions set
Questions often give you ADR and occupancy and ask for RevPAR-remember RevPAR = ADR × occupancy. Another trap: confusing RevPAR with TRevPAR (total revenue per available room, which includes food and beverage and other revenue). Watch for displacement questions where a high-ADR group looks attractive but blocks higher-value transient demand.
Worked example
A 200-room hotel sells 160 rooms at an ADR of $150. Occupancy = 160 ÷ 200 = 80%. RevPAR = $150 × 0.80 = $120, which also equals $24,000 rooms revenue ÷ 200 available rooms. If a group offers $130 for 100 rooms, compare its total contribution against the transient revenue it displaces before accepting.
Study tip
Write the three formulas down before starting any revenue question-most errors are arithmetic or wrong denominators.