We often talk about a more comprehensive revenue strategy, but before you can get there, you need to understand effective revenue management, which encompasses segmenting, forecasting and pricing. Here is a glossary of terms to get you started, and if you're looking for even more, register and download this white paper, "A Beginner's Guide to Revenue Management."
Glossary of Terms
Average Daily Rate (ADR) - A measure of the average rate paid for rooms sold; calculated by dividing room revenue by rooms sold.
Average Length of Stay (ALOS) – The total room nights in a hotel or segment divided by the number of reservations in the hotel or segment. Formula: Total occupied room nights / Total bookings.
Average Rate Index (ARI) – A metric used to determine whether the property is achieving its fair share of ADR compared to a specific group of hotels (i.e. a competitive set). It is calculated by taking the ADR of the property and dividing it by the ADR of the competitive set (competitive set data collected through a third-party provider such as STR). An ADR of above 1.00 indicates that the property is achieving more than its fair share, while below 1.00 suggests that the hotels in the competitive set are 'eating' into the properties' 'pie'. Note: Traditionally, hotel revenue managers prefer to multiply the number by 100 (or convert into a percentage).
Best Available Rate (BAR) – A commonly used base rate upon which all other priced segments are based. Also the common rate used for comparison between hotels.
Block code – A code attached only to group rooms that are a part of a block.
Block pricing — A non-yieldable rate given to a set number (or block) of rooms held for a particular group.
Booking engine – The technology that allows reservations to be made on a website.
Booking window – The timeframe in which hotel reservations come into hotels for a particular stay date(s).
Budget – Refers to the annual budget prepared in late Fall that sets the financial plan for the property for the next calendar or fiscal year. It includes a daily occupancy, rate and RevPAR by major market segments and feeds into the financial budget for the property. The budget shows percent change vs. last year and previous year by month and quarter.
Capacity – The set number of rooms in a hotel.
Central Reservation System (CRS) – A system or an office that is used by hotels in one chain or organization, or created by a third-party vendor, used to maintain hotel information, inventories and rates and to manage the reservation process.
Channel management – The techniques and systems used by hotels to update hotel information, room inventory and rates in each of the distribution channels.
Channels – Different methods by which a customer books/reserves a room.
Closed to arrival (CTA) – An inventory control mechanism used by revenue managers meaning no new reservations can be taken for guests arriving on this date.
Commissions – The payments that a travel agent receives for each reservation made on their site.
Competitive set – Consists of a group of hotels by which a property can compare itself to the group’s aggregate performance.
Conversion – The transition by a customer from shopping or gathering information to taking an action such as purchasing or making an inquiry.
Day(s) Before Arrival (DBA) – The number of days before the stay date.
Demand – The amount of interest in a product.
Denial – A notification that the hotel has been shopped on the hotel's direct booking engine and a rate was not given because the hotel was sold out or a restriction was placed on the shopped date.
Displacement Analysis – Determining whether it’s beneficial to take rooms out of inventory that could be requested later at a higher rate (usually in a group environment). To analyze, multiply the number of guestrooms that will be denied times the average rate for that segment of business. If that is higher than the group revenue, then the group should be turned away.
Dynamic Pricing – The process of actively applying revenue management by selling the same products at different prices to different customers.
Fenced rate – A rate that involves certain requirements in order to make the reservation, such as nonrefundable and non-cancelable reservations, or advanced purchase reservations. Fenced rates are more easily segmented.
Forecast – Expected revenue results based on analysis (occupancy and average rate included). Forecasts also typically refer to predicted demand.
Global Distribution Systems (GDS) – Four large reservation systems (Amadeus, Galileo, Sabre, Worldspan) originally designed for airlines and now widely used by travel agents only to book all forms of travel. GDS systems generally use older technology and are not connected through the Internet.
Gross Operating Profit Per Available Room (GOPPAR) – A metric that measures total revenue minus operational and marketing expenses per room.
Group Displacement – The process of evaluating a group's total profitability in comparison to the profitability of accepting business from other channels
Leisure traveler – Non-business traveler, or someone traveling for personal reasons and not work.
Length of stay – The number of nights a guest has booked at the hotel.
Look-to-book ratio – Used in the travel industry to show the percentage of website visitors (lookers) relative to the number who book on the website (bookers).
Lose-it Rate – A rate where the hotel would be better off leaving the room unsold than sell at this rate.
Market Penetration Index (MPI) – A metric used to determine whether the property is achieving its fair share of occupancy compared to a specific group of hotels (i.e. a competitive set). It is calculated by taking the occupancy percentage of the property and dividing it by the occupancy percentage of the competitive set (competitive set data collected through a third-party provider such as STR). A MPI of above 1.00 indicates that the property is achieving more than its fair share, while below 1.00 suggests that the hotels in the competitive set are 'eating' into the properties' 'pie'. Note: Traditionally, revenue managers prefer to multiply the number by 100 (or convert into a percentage).
Metasearch – A type of search engine that aggregates inventory from several sources and presents it in a single space.
Minimum Length of Stay (MinLOS) – An inventory control mechanism used to optimize stay patterns, primarily to ensure that a peak demand night does not get filled with one-night stays.
Net rate – The sell rate with commission already taken out, sometimes required for OTAs.
Occupancy – The percentage of available rooms that were sold during a specified period of time. Occupancy is calculated by dividing the number of rooms sold by rooms available. Occupancy = Rooms Sold / Rooms Available.
Occupancy Index – The measure of your property occupancy percentage compared to the occupancy percentage of your competitive set. Formula: Hotel OCC/ competitive set OCC * 100.
Online Travel Agency (OTA) – An Internet-based hotel and travel reservations system. Hotels typically provide inventory to OTAs, which sell the rooms in exchange for a commission.
Opaque – Describes a booking channel where the supplier (hotel) remains hidden until after the purchase is complete.
Open Pricing – The ability to price all room types, channels and dates independently of each other to maximize revenue without having to close any off.
Overbooking – The practice of confirming reservations beyond capacity, either in expectation of cancellations or no-shows, or in error.
Pace – Also called pickup, pace is the rate at which reservations are made for a particular date.
Pay Per Click (PPC) – A marketing technique employed when a marketer establishes links or advertising copy on a web page and agrees to pay a fee each time a web user clicks on those links.
Predictive Analytics – Extracting information from data and using it to predict trends and behavior patterns.
Price Elasticity – An economic measure that shows the responsiveness or “elasticity” of the demand for a product based on a change in its price.
ProPAR – Profits per available room, an emerging metric that calculates not revenue, but net revenue. This factors in customer acquisition costs and other expenses. Net RevPAR is another term for this.
Property Management System (PMS) – Used onsite in an individual hotel to allow for guest check-in and check-out.
Rate parity – The strategy to maintain consistency of rates between sales channels, usually enforced through contractual agreements between hotel companies and third-party vendors.
Regret – A notification that the hotel has been shopped on its direct booking engine and a rate was given, but a guest chooses not to accept the reservation
Revenue per available room (RevPAR) – A metric used to assess how well a hotel has managed their inventory and rates to optimize revenue. Calculated by multiplying occupancy by ADR.
Revenue Generating Index (RGI) or RevPAR Index (RPI) – A metric used to determine whether a property is achieving its fair share of revenue compared to a specific group of hotels (i.e. a competitive set). It is calculated by taking the RevPAR of the property and dividing it by the RevPAR of the competitive set (competitive set data collected through a third-party provider, such as STR). An RGI of above 1 indicates the property is achieving more than its fair share, while below 1 suggests that the hotels in the competitive set are eating into the properties’ pie. Traditionally, operators prefer to multiply the number by 100 (or convert into a percentage).
Revenue Management – The art and science of predicting real-time customer demand and optimizing the price and availability of products to match that demand.
Revenue per Square foot of function space (REVPAS) – A measure of how effectively hotels (especially group and convention hotels) are at renting their function space. Formula: Total Function Room revenue/ Total square footage of function room space.
Revenue Strategy – A more comprehensive approach to revenue management that encompasses not just pricing and demand optimization but also business intelligence as it relates to sales, marketing, distribution and other functions across the hotel enterprise. It also accounts for costs associated with customer acquisition and retention; leverages interdepartmental intelligence to facilitate a collaborative approach to revenue generation; and unlocks behavioral insights through new data sources and price elasticity testing.
STR – A private company that provides a clearing house where hotels can enter their own operating data (ADR, Occupancy and total rooms) and STR then aggregates this information with data from other hotels in the same market and allows participating hotels to compare their KPIs.
Shoulder Date – Nights that are next to full or very compressed dates. If a Friday and Saturday are forecasted to be sold out, and Sunday is not, it would be considered a shoulder date in that example.
Stay Pattern Management – A revenue management process that seeks to make optimum use of hotel capacity by ensuring the stay patterns on the books do not result in un-sellable stay patterns remaining to be booked.
Transient – Non-group business.
Unconstrained Demand – The forecast of how many rooms you could sell if you had an unlimited number of rooms.
Web Shopping Regrets and Denials – When a hotel has been shopped online and a rate was given but the guest did not book a reservation (regret), or a rate was not given at all due to a restriction or sell out (denial).
Yield – The dynamic pricing, overbooking and allocation of perishable assets to maximize revenue.
Yield Management – Sometimes synonymous with Revenue Management, Yield Management is the process of understanding, anticipating and reacting to customer needs and behavior with the intent of maximizing revenue.