Hotel Revenue Management glossary: The definitive A to Z of terms for hoteliers

It takes patience, practice, commercial nous and access to the best data and software available. We hope, that with a good understanding of the topic, the starting point of which is a familiarity with its foremost terms and concepts, you’ll be able to more than exceed 12.5% in your efforts at your hotel.

The hospitality industry is moving faster than ever and new terms will keep popping up over time. So, be sure to bookmark this page, as we will keep on adding and updating definitions along the way.

Now, let’s check in straight away at A.

A-D

Advance Purchase

Advance Purchase refers to a pricing tactic where rooms are offered at a discounted rate, below the Best Available Rate (see below) when they are booked and paid for, a certain number of days in advance of the stay. 

Advance Purchase rates usually come with certain restrictions to protect the hotel's interests. For instance, they are often non-refundable and non-changeable.

Aggregators

See Metasearch.

Allocation

Often associated with Allotment, Allocation is the process by which hoteliers select a number of rooms to make available for sale. They might allocate only a limited number, holding back the rest for periods of higher demand – and therefore higher revenue – later down the line.

Allotment

An Allotment is a designated block of pre-negotiated rooms bought out well in advance and held by a third party such as a wholesaler. As with much in Revenue Management, this practice is an example of bet-hedging, with hoteliers trading occupancy off against revenue and Average Daily Rate. So it must be used sparingly.

Attrition

Attrition refers to a provision in a group booking contract that mandates the party making the booking to guarantee a specific number of room reservations. It's a commitment clause designed to ensure a minimum level of occupancy for the hotel.

For instance, if a company blocks 50 rooms for a conference but only ends up using 40, the attrition rate would be 20%. This can represent a significant loss of potential revenue for the hotel.

To mitigate the risk of attrition, hotels often include an attrition clause in their group booking contracts, stipulating a penalty fee if the actual room pickup falls short of the agreed-upon block.

Average Daily Rate (ADR)

ADR is a measure of the average rate paid for rooms at your hotel. One of the most important metrics both to consider and by which a Revenue Manager is judged, it’s calculated by dividing (gross) room revenue by the number of rooms sold.

Note that this figure only factors in rooms that are actually sold. For an arguably more meaningful figure, you’d need to factor in occupancy to derive Revenue Per Available Room.

Average Length of Stay (ALOS)

Fairly intuitively, ALOS = the total room nights in a hotel or segment divided by the number of reservations in the hotel or segment. Clearly, numbers will vary depending on the period of time you choose to analyze.

Average Rate Index (ARI)

ARI is a simple but important metric used to determine whether your property is achieving its fair share of ADR compared to a specific group of hotels, i.e. your competitive set. 

Data for this competitive set (which isn’t typically broken down by and supplied for individual hotels) is collected and sold to hoteliers by third-party providers such as STR. Your ADR is then divided by the ADR of your compset and multiplied by 100 to generate your ARI.

Note that if:

• ARI = 100, your hotel has its fair share

• ARI is > 100, your hotel is above its fair share, but try not to push the boundaries to breaking point

• ARI is < 100, your hotel is below its fair share, so you might want to review your strategy

Although it will only show advertised rates as opposed to what each hotel actually achieves in sales, you can use a rate shopper to view a snapshot of your compset on any given day and, with caution, adjust your rates accordingly.

Average Rate per Guest (ARG)

To calculate ARG, divide your total revenue for any chosen period by the number of guests for the same period. If there’s a large divide between the average and the extremes, this might indicate that you’re setting some of your prices at levels that could cause some customers to feel they’ve been overcharged, which clearly isn’t good for securing future business.

Benchmarking

Tapping into metrics such as ARI, MPI (OCC) and RPI, and market share more generally, benchmarking is the process of comparing and analyzing your property or portfolio's performance against your compset. 

The benchmarking process draws on robust data sets to provide you with a better understanding of the market and context in which you operate.

Best Available Rate (BAR)

BAR is a very commonly used base rate upon which Revenue Managers use at the foundation for their other priced segments. It’s also the common rate used for comparisons between hotels. 

In Lighthouse products, it’s usually shopped under ‘best flex’.

As the name suggests, it’s the lowest publicly available rate, but this doesn’t mean that lower rates can’t legitimately be obtained through group deals, wholesale, promotions and other less public routes.

Block

A block typically refers to a set of rooms that are reserved for a specific group or event. This is also known as a 'room block' or 'group block'.

Block Code

This is a simple numerical code attached to a group of rooms that are bought as part of a block, e.g. ‘1543895’. Associated activity can then be attached to, associated with and analyzed by this number.

Block Pricing

A block price is a non-yieldable rate that’s given to a set number – or block – of rooms that you hold for a specific group. Not simply the opposite of yield, non-yieldable market segments are bookings you contractually can’t reject even if it would have been possible to get higher rates from elsewhere.

Whether to set them aside and how many to set aside comes down to spreading your bets and your risk appetite.

Booking Curve

Automatically generated by the right software with access to your data, a booking curve is a visual representation or graph of bookings over a given period of time. They can show metrics such as availability, number of bookings, pace, pickup and yield.

Booking Engine

Often supplied by third-party software vendors, booking engine technology enables guests to make reservations on a hotel or chain’s own website. As shorthand and used by Lighthouse et al, the generic term for these websites is‘Brand.com’.

Booking Window

Common to many sectors, a booking window is the timeframe in which customers make reservations. In conjunction with other departments, hotel Revenue Managers will adjust prices for stay dates depending on how far into the future stay dates are. 

For example, discounts might be offered for a certain number of very advanced bookings to guarantee revenue or at the last minute to fill vacancies and cut losses.

Brand.com

See booking engine. 

Breakage

Breakage refers to the difference between the posted rate and the actualized rate. It is calculated by subtracting the actualized ADR from the sell-rate. 

For example, if the sell-rate is $100 and the actualized ADR is $80, the breakage is $20. Breakage is used to compare rate plans and identify discrepancies in pricing strategies. 

A higher breakage percentage indicates a larger difference between the posted rate and actualized rate, which could indicate rate overrides or other factors affecting pricing and would warrant further investigation.

Budget

Usually set through a collaborative effort between Revenue Managers, ownership and other commercial stakeholders; this refers to the annual budget prepared and sets the financial plan for the property for the next calendar or fiscal year. 

It’s likely to include daily occupancy, ADR and RevPAR by major market segments and feeds into the financial budget for your property. The budget shows percentage changes versus the previous year, and for the previous year by month and quarter.

At most hotels, the Revenue Manager will start working on the budget in the summer and get it approved by October or November (or April or May in the southern hemisphere). This then sets the pace of his or her activity for the rest of the year in question and is the main set of numbers by which their efforts are judged.

Business Intelligence (tool/solution)

In the context of Revenue Management, Business Intelligence tools can be used, among other things, to understand your hotel’s performance, help drive the right strategy, automate data collection and streamline your business. 

As with anything, they’re only as good as the data you have access to and your understanding of the discipline, in this case, Revenue Management.

Cancellation

This refers to the act of a guest or a group terminating their reservation prior to their scheduled stay.

Cancellation Policy

Cancellations can have significant effects on a hotel's revenue management strategy. When a reservation is canceled, the room that had been reserved becomes available again. The hotel must then attempt to resell this room to avoid loss of revenue.

To mitigate the potential revenue loss caused by cancellations, hotels often have a Cancellation Policy in place. These policies typically require guests to cancel their reservations a certain number of days before their stay to avoid a cancellation fee.

Capacity

Fairly obviously - this is the total fixed number of rooms in your hotel. It’s worth mentioning because this number, which can only change if you expand your property, factors into every supply and demand consideration you face.

Central Reservation System (CRS)

Created by third-party vendors, a Central Reservation System or CRS is a system used by independent hotels, or those in a chain or organization, to maintain and monitor hotel information, rates and inventories, and manage the reservation process.

Though they clearly shouldn’t be confused with them, they’ll usually be connected to PMSs and RMSs, as well as booking engines.

Channels (cf. cost of acquisition)

Channels are the different routes through which customers can book rooms at your hotel. Examples include Brand.com via your booking engine, over the phone, in person, via Online Travel Agents, traditional travel agents, wholesalers and group bookings through sales reps.

To spread your risks, a healthy Revenue Management strategy is likely to include several channels that yield success in ebbs and flows, and, given issues of cut – or commission – versus reach, each is likely to involve some sort of trade-off between profit and occupancy.

Channel Cost

Channel Cost refers to the cost associated with distributing and selling rooms through different sales channels. 

This includes direct channels like the hotel's own website or front desk, and indirect channels like online travel agencies (OTAs), global distribution systems (GDS), and traditional travel agencies. Each of these channels comes with its own set of costs.

Channel Management

A broad term that overlaps with a number of areas of Revenue Management, this comprises the systems and techniques hoteliers use to add and update information, inventory and rates in each of their various distribution channels.

Channel Mix

The combination of distribution channels a hotel uses to sell its rooms. Each of these channels has its own characteristics, including different costs, market reach, customer demographics, and booking behaviors.

Closed to Arrival (CTA)

A simple mechanism of inventory control used by Revenue Managers, marking a room up as CTA means that no new reservations can be taken for guests arriving on that particular date.

Closed to Departure (CTD)

Closed to Departure (CTD) is an inventory management tool that allows hotels to manage room availability more effectively. This strategy involves designating certain days where guest departures are not permitted. While guests can still check-in or extend their stays over these specified dates, the hotel restricts reservations that include checkouts on these days.

Commissions

See channels and cost of acquisition.

Competitive Set

Usually determined by a Revenue Manager and based on reasons of geography and type, a hotel’s competitive set or compset consists of a group of hotels to which a property can compare itself. These would typically be plugged into your rate shopper, among other tools.

Industry-leading tools now provide a dynamic compset that pivots with market changes, ensuring you're always matched against the most relevant properties.

Conversion

When a customer transitions from shopping around or information-gathering to taking a decisive action, such as calling or emailing to make an inquiry, or actually booking a room, this is considered to be a conversion.

You can’t always easily capture or measure these conversions, but there are strategies that you and your marketing colleagues can put in place to maximize them.

Cost of Acquisition

This simple metric concerns the fees, cuts and commissions attached to a room booking across all direct and indirect channels. This is just a marketing cost, so it doesn’t take into account lots of other overheads that will dent your profit, but it’s nonetheless very useful for accounting and Revenue Management purposes.

Cost per Occupied Room (CPOR)

To calculate CPOR, simply add up all of the costs associated with a room booking. This includes all utilities, cleaning in time for new guests and replacement of sundry items in the bathroom and on the coffee tray. This figure is all important when determining the minimum rate needed for a profitable booking.

Of course, in lean times, if some of these costs are fixed, you might decide to take a booking for a low rate if it helps cut your losses.

Crew

In the field of hotel Revenue Management crew refers to airline crew members who stay at the hotel between flights. 

Airlines often have contracts with hotels to provide accommodation for their crew members during layovers or when they are off duty.

Cut-Off (CO)

Cut-Off is the minimum number of days before arrival that a customer should make their reservation. This restriction is decided by the revenue manager and can vary depending on demand and need not be applied to all rooms and all types of booking.

Demand

Demand is a measure of how much interest there is in your product or service. The concept itself is very simple, but how it’s measured and used in the hospitality space, and what it means for rate-setting at your property, requires art, science, data, constant monitoring and, increasingly, AI. 

There are now predictive market intelligence tools that accurately forecast market demand with forward-looking search data.

It’s also something that isn’t entirely passive; setting the right prices and putting clever marketing strategies into practice can create additional demand for your hotel.

Denial

Denial is a notification on one of your systems that your hotel has been shopped on your direct booking engine and a rate was held back because you were either sold out or had a restriction placed on the date that was shopped. If monitored wisely, it can provide you with intel on where you might want to adjust your strategy. Also see Look-to-Book (L2B) ratio.

Direct Channels

Direct channels are those over which your hotel has direct control, such as your booking engine (Brand.com), your telephone, emails, the mail (ever had a letter in recent years?! It still happens occasionally) and in person at your reception desk. Profit is highest on these channels but reach is generally lower than with OTAs and metasearch.

Direct Sales

Direct sales are those that come through direct channels, therefore incurring no commissions.

Displacement Analysis

Using Displacement Analysis, you can decide whether it’s financially prudent to avoid removing rooms from your inventory if there’s a good chance they might be requested at a higher rate later, perhaps as part of a group booking.

The starting point for your calculation is to multiply the number of rooms that you plan to deny by the ADR for that business segment. Whichever potentially yields higher revenue will inform your decision.

Distribution Health 

This is the effectiveness and efficiency of a hotel's distribution strategy. This includes the hotel's ability to distribute its inventory (rooms) across various channels in a way that maximizes revenue and profitability, while also meeting customer demand and market conditions.

Dynamic pricing

One of the industry’s key pricing strategies and easiest to adopt with the right tools - Dynamic Pricing is increasingly popular as it’s highly flexible. 

Here room rates aren’t fixed but are adjusted based on market demand, competition, time of booking, customer behavior, and other factors that influence booking patterns.

Prices change dynamically using real-time data to optimize your revenue and maximize occupancy rates. This delivers the most accurate room prices for any given time, delivering better ADR or occupancy.

Because it’s not feasible to collect, collate and analyze your data to deliver effective dynamic pricing before the data is outdated, a pricing recommendation tool can leverage AI-driven rate recommendations, allowing you to maximize your bookings and revenue with automated dynamic pricing. 

F-H

Fair (market) Share

Usually expressed as a ratio derived from dividing your performance by that of the average of your compset, and sometimes multiplied by 100 for convenience, fair (market) share can be assessed for a number of performance indicators, including rates, occupancy penetration and revenue, for which these respective indices are used: ARI, MPI (OCC) and RPI.

Fenced Rate

More easily segmented, fenced rates bring requirements to a room booking such as those relating to refundability, cancelability, or advanced purchase reservations. Though it’s clear that they should rarely be applied to all rooms at a property, fenced rates can be useful in moderation.

Flat Rate (AKA Fixed Rate) 

Flat Rate or Fixed Rate refers to a rate that remains static. A fixed price is charged for a room, regardless of the time of booking, the length of stay, or other factors that might otherwise influence the price. This is in opposition to a ‘dynamic rate’ that moves in tandem with the BAR rate.

Flex(ible) Rate 

This is another term for Best Available Rate or BAR.

Forecast

Your forecast is your expected revenue results based on a raft of insights and analytical data factoring in metrics such occupancy, average daily rate and predicted demand. Such data can be historical and forward-looking.

Forecast Accuracy

This is a vital metric that measures how close the forecasted data (like room demand, revenue, etc.) is to the actual data. In other words, it determines the accuracy of your forecasting model.

This is often expressed as a percentage, with a higher percentage indicating a more accurate forecast. 

For instance, if a hotel forecasted that it would sell 100 rooms on a given night and it actually sold 95 rooms, the forecast accuracy would be 95%.

Franchise fees

These are the yearly charges that individual properties trading under particular names must pay to high-profile brands for use of those names, and, where applicable, shared services, such as sales, marketing, legal, payroll and IT systems. 

From a Revenue Management perspective (or that of profit and loss), these could be considered as analogous to the cuts and subsequent trade-offs discussed in the entry above for channels.

Global Distribution System (GDS)

Largely separate from and predating the Worldwide Web, Global Distribution Systems – of which there are four major players – are computerized networks owned or operated by a third-party company that enable transactions between services in the travel industry. 

Originally built for aviation, they’re now also very common in hospitality, providing one of the ways to bridge the gap between travel agents and hotels.

As with all channel considerations, they’re likely to form just a part of your guests’ available paths to your door.

Gross Operating Profit per Available Room (GOPPAR)

With its healthiness dependent on a high RevPAR, this metric measures total revenue minus operational and marketing expenses per room. This figure will be as useful to accountants as it is to Revenue Managers.

You can do this by analyzing your historical data and market trends, future-facing market intelligence, and looking at upcoming events in your region.

Group Displacement

See displacement analysis.

Guarantee Policy

A Guarantee Policy is a reservation policy that requires a guest to pay for the hotel room in advance or provide a credit card guarantee to hold the room. This policy ensures that the hotel will hold the room for the guest, and the guest is committed to the reservation. Hotels may require a first night's deposit or a credit card guarantee to secure the reservation, particularly during high demand periods. 

By implementing a Guarantee Policy, hotels can ensure that guests who book rooms during high demand periods are serious about their reservation and not just holding the room speculatively.

Hurdle Rate/Hurdle Revenue

A Hurdle Rate or Hurdle Revenue is the minimum price point or revenue amount that must be met for a piece of business to be accepted. 

It is an inventive system used by some revenue management systems to ensure that hotels are maximizing their revenue during high demand periods. The hurdle rate is used to yield out any rate plans that are below the desired profit margin.

For example, on a particularly busy night, the "hurdle point" may be $150, meaning that the hotel won't accept any room nights on a particular night if the net revenue doesn't meet or exceed $150. This would in turn yield out any rate plans that are under the $150 amount.

K-P

Key Negotiated Rate (KNR)

This is a special rate that a hotel has negotiated with a particular client or group. These types of rates are often established with large corporations, travel agencies, or other groups that provide a significant amount of business to the hotel.

Key Performance Indicators (KPIs)

KPIs are any metrics by which a Revenue Manager might be judged or which they find useful in their work. 

Leisure Traveler

Leisure travelers are considered to be all those guests who aren’t traveling on business. Though the term might be obvious to deduce, it’s worth considering this group for rate-setting and marketing purposes; after all, it’s their own money they’re using and, to an extent, your and your marketing colleagues’ efforts can create demand more than for business travelers.

Length-of-Stay (LOS)

LOS refers to the number of nights a guest books a room at a hotel. It is a critical metric in the hospitality industry as it directly impacts revenue. For example, if a guest books a room for three nights, the length of stay is three. 

You might want to offer discounts of varying levels of generosity for longer lengths of stay, at least during periods of lower demand, when occupancy might be a concern.

Locally Negotiated Rate (LNR)

This refers to a special rate that a hotel has negotiated with a local business, organization, or institution. This rate is typically lower than the standard rate, and it is offered in exchange for a consistent flow of business from the local entity.

Look-to-Book (L2B) Ratio

L2B is the ratio of potential guests who look at the rates on your website (‘lookers’) to actual guests who go on to book. The closer the number is to one-to-one, the better. If your L2B is too high, price is likely to be a factor – but be careful to avoid being drawn into a race to the bottom. 

Similarly, the absolute number of bookers is ultimately more important, and if you’re filling all of your rooms at a good rate, perhaps you’re just getting a high L2B because you have good SEO.

Note that you might only have access to Brand.com analytics, so be careful not to apply changes that detrimentally affect other channels. Also see denial.

Lose-it Rate (AKA Walk-away rate)

This is the rate below which selling a room becomes loss-making. Clearly, this figure should be front-and-center in any Revenue Manager’s head when setting and amending prices, but do bear in mind that the rate might change, depending on variable costs.

Loyalty Program

This is a marketing strategy that rewards guests who frequently stay at a hotel or a chain of hotels. These rewards often come in the form of points that can be redeemed for free or discounted stays, upgrades, meals, or other services.

Loyalty programs are designed to encourage repeat business by offering incentives for guests to return.

Market Penetration Index (MPI)

MPI is used to measure your hotel’s occupancy relative to another group of properties, usually your compset. Designed to gauge whether you’re achieving a fair share, the metric is calculated by dividing your occupancy by the average of the compset, as supplied by a third-party provider like STR.

Similar to ARI, if:

• MPI = 1.00, your hotel has its fair share

• MPI is > 1.00, your hotel is above its fair share

• MPI is < 1.00, your hotel is below its fair share, with the competition taking too much of your potential business

Note that some hoteliers prefer to multiply MPI by 100 so that they don’t need to deal in decimals.

Market Share

Market share is the percentage of business your hotel takes in bookings compared to other properties in the market. How you define the market is up to you. It could be your competitive set, and it’s up to you whether you apply a weighting to your analysis based on the number of rooms, and – assuming you can find out – how much actual revenue was made, not just occupancy rates.

So this metric should be treated with caution and is also dependent on the availability of third-party-provided data, as discussed in the Average Rate Index entry.

So this metric should be treated with caution and is also dependent on the availability of third-party-provided data, as discussed in the Average Rate Index entry.

Markup

Fundamental to whether your hotel is actually profitable, markup is the difference between the total cost of providing a room and the final rate you charge. This is your basic measure of profit on the sake of rooms (and services).

Usually expressed as a percentage, markup = (sales price minus net tariff) / production costs.

Maximum Length of Stay (MaxLOS)

Max LOS is a restriction that limits the number of consecutive nights a guest can book a room. This strategy is often used during peak demand periods to optimize the hotel's revenue and room availability.

Metasearch

Metasearch engines present in one place the results of aggregate searches of inventory from countless other sources. Typically, a user will either go directly to their preferred metasearch website to perform their search or be drawn on to whichever has the best SEO, having searched first on a generic search engine, such as Google.

Once on the aggregator site, they can view their full results before being directed to an OTA or Brand.com site to complete their booking once they’ve made a decision.

Market leaders include Tripadvisor and Kayak, as well as Expedia, which is also an OTA.

While OTAs generally take cuts on bookings, metasearch operators are as likely to generate revenue through click-based advertising and subscriptions, and it’s worth investigating your options on how to exploit them as part of your marketing mix.

Minimum Accepted Rate (MAR)

MAR is the lowest rate at which a hotel is willing to sell its rooms. This rate is typically determined by considering the hotel's operating costs, desired profit margin, and market conditions.

Minimum Length of Stay (MinLOS)

Built into various types of Revenue Management software systems, MinLOS is an inventory control mechanism. It refers to the minimum number of nights a guest must book for a certain period. 

Designed to optimize stay patterns, its primary function is as a safety net to prevent the booking of single nights during periods of peak demand.

Month to Date (MTD)

Not to be confused with Month-over-Month or MTD is the timeframe that starts on the first day of the month you’re currently in and ends at your current date. It can be used to look at revenue (achieved or due), occupancy or any other useful metrics for which you have data.

Month-over-Month (performance) (MoM)

See same time (or period) last year.

Negotiated Rate

A Negotiated Rate is a special rate that a hotel agrees upon with a specific client or group of clients. These clients could be corporate clients, travel agencies, government entities, or any other group that promises to deliver a certain volume of business to the hotel.

Net Rate

The net rate of a room is its price once you’ve deducted commissions from other channels, including OTAs travel agents.

Net Revenue per Available Room (Net RevPAR)

A simple but important metric, net RevPAR is calculated by multiplying ADR by occupancy, then subtracting all associated costs and overheads attached to that single room booking.

Occupancy

One of the most fundamental metrics by which a Revenue Manager will be judged, occupancy is simply the percentage of rooms sold during a given time period of your choosing. Dividing the number sold by the total available gives you the magic number, but clearly this figure in isolation provides little indication as to how profitable you are.

Occupancy Index

See market penetration index, which is essentially the same thing. But some hoteliers prefer quoting this metric, which is often shortened to OCC.

Online Travel Agency (OTA) (cf. metasearch)

The dominant force in hotel searching and booking for the past 15 to 20 years, OTAs are simply reservation systems supported by websites on which guests can find and reserve rooms (and travel). The key benefit they offer consumers is the ability to quickly compare the market based on selected criteria.

Unlike wholesalers, OTAs don’t buy inventory to sell on; they take a cut negotiated with hotels and chains whose rooms they promote and take bookings for.

An Internet-based hotel and travel reservations system. Hotels typically provide inventory to OTAs, which sell the rooms in exchange for a commission. See channels and a short discussion on trade-offs.

High-profile examples include Expedia and Booking.com, who operate something approaching a duopoly, but there are many others in this space.

On-the-Books (OTB)

OTB data refers to the amount of room revenue that is already booked and confirmed for future dates. Though it’s of course separate from past data, it will often be compared with the latter to see how well your Revenue Management activities are paying off. 

Typical metrics considered include rates, occupancy, revenue and number of bookings. Meaningful analysis is as dependent on good software as it is good data.

Opaque

An opaque booking channel is one for which the supplier hotel’s name is kept hidden until the purchase has been completed.

Open Pricing

Now standard in dynamic pricing environments and supported by the associated software, open pricing allows Revenue Managers to price all room types, channels and dates independently of each other. This enables them to maximize their revenue without having to close anything off.

Overbooking

Also common in other sectors with fixed supply, overbooking is the practice of confirming reservations beyond capacity. A deliberate tactic that guards against expectations of cancellations or no-shows, it can also be the result of an error if you’re not using the right systems.

Pace

Pace is a measure of one’s current or future room revenue compared to the same time period in the past. Similar comparisons can be made for ADR or room nights.

It’s often viewed alongside pickup but note that it doesn’t indicate how successful you have been; rather, how successful you’re likely to be, given that room bookings are usually made well in advance.

Perfect Sellout 

This refers to a situation where all available rooms in a hotel are sold for a given night at the optimal price that maximizes total revenue.

This is the ultimate goal for a Revenue Manager!

Pickup

Going hand-in-hand with pace, pickup describes the number of bookings made in a given time period. You might, for example, want to review pickup for the past 24 hours every day, or your weekly pickup every week, all of which is done to compare current with past performance, and to adjust prices and other activities accordingly if you’re not achieving your goals.

Predictive Analytics

Predictive analytics is a catch-all term that describes the practice of deriving information from extracted data, which Revenue Managers use to predict trends and patterns of behavior that are used for better rate-setting, promotions and channel management. 

Clearly, the better data you have access to and the more granular it is, the more accurate your predictions are likely to be, with forward-thinking Revenue Managers using solutions backed by forward-looking search data. 

Price Elasticity

Simple in theory but complex in practice, price elasticity is the notion that consumers react to prices in an individualized manner. Rather than only external demand factors such as seasonality and events, price elasticity puts consumer behavior at the center of pricing decisions.

In other words, consumer behavior is not always rational; a lower room rate doesn’t always increase bookings.

ProPAR

See Net Revenue per Available Room.

Property Management System (PMS)

A PMS is a piece of software used for managing and integrating an individual hotel’s rates, channels, reservations and other operations related to reception, cleaning, maintenance and accounting.

Not Revenue Management-related systems in their own right, they are usually bi-directionally integrated with RMSs, as well as CRSs.

Pricing Recommendation Tool

Usually AI-driven, pricing recommendation tools automate tailored, dynamic pricing at your property. They are designed to allow independent hoteliers to unlock more revenue opportunities and optimize their prices without diverting them from their other day-to-day responsibilities.

Playing to the ‘Revenue Management Lite’ approach and often used in hotels without dedicated Revenue Managers, as they’re much less complex than other commercial solutions. 

Profit per Available Room (ProPAR)

An emerging KPI, ProPAR shows your profit earnings for each available room at your hotel. Based on operating profit, it accounts for movements in both revenues and expenses, and factors in economic phenomena that RevPAR alone is blind to.

To calculate ProPAR, simply divide your annual operating profit by daily available rooms.

R-T

Rate Efficiency

This is a key metric that measures how close a hotel's actual Average Daily Rate (ADR) is to its potential or optimal average daily rate. 

For instance, if a hotel's actual ADR is $100, but the potential ADR was $120, the rate efficiency would be approximately 83.33%.

Rate Evolution

The changes in room rates over time, as rates often fluctuate based on factors such as demand, seasonality, competition, and overall market conditions.

Rate Parity

Requiring close monitoring, rate parity is the strategy and policy of maintaining consistency of rates between Brand.com and other sales channels. Though it should usually be enforced by contractual obligations between hotels and third-party vendors, such as OTAs, it can be abused by unscrupulous players. This is called rate disparity.

Rate Plan / Rate Code

A rate plan or rate code refers to a specific pricing structure for hotel rooms. Each rate plan has a unique code that identifies it in the hotel's management system.

Rate Shopper

In its most basic form a rate shopper is a software solution that allows Revenue Managers (among other commercial staff) to compare their room rates with those of their competitors.

They are an increasingly essential tool for Revenue Managers, given the levels of competition in the market and how easy it is for travelers to compare prices and book accordingly.

By choosing the right rate shopper and selecting an appropriate compset, revenue managers can review and analyze their competitors’ rates for any given period, applying whatever parameters they choose and for any booking window, then decide with confidence whether and how to adjust their prices.

Reach

Reach is a term used in revenue management to quantify the gap between two metrics, such as the budget and the actual revenue or the forecasted revenue and the actual revenue in order to evaluate performance. 

For example, if a hotel's March budget is $350,000, and their current revenue for the month of March is $325,000, then their "reach to budget" is $25,000. Similarly, if the hotel's forecasted revenue for March was $355,000, then their "reach to forecast" would be $30,000.

The "reach to pace" would be the difference between the revenue achieved and the revenue needed to stay on track to meet the target revenue for a given period. 

Redemption

Redemption refers to the act of a customer using or redeeming their loyalty program points or rewards to book a hotel room or benefit from other services offered by the hotel.

The redemption process is an important aspect of managing and analyzing a hotel's loyalty program.

Redemption stays are sometimes put together in a redemption segment and from there you can do things such as assess the effectiveness of a loyalty program.

Regret

Built into some software systems, regret is a notification that your hotel has been shopped – as in viewed – on its direct booking engine (Brand.com) and the user was presented with a rate, but that would-be guest chose not to complete the booking. Clearly, if you have too high a regret-count, it’s worth looking at your rates in comparison to the competition.

Revenue Management

Hotel Revenue Management is a strategic, data-led approach to pricing rooms and services with the aim to maximize total revenue.

It factors in variables such as demand, competition, customer segmentation, and distribution channels, and is critical to the commercial operation of a hotel for a number of reasons, such as:

• It can provide a competitive advantage through the understanding of trends and market behavior, enabling you to outperform competitors

• Through the use of demand forecasting it can help you plan operations more efficiently, leading to cost savings and improved guest satisfaction

• Hotel rooms are a perishable commodity – unsold rooms don’t generate revenue if empty – Revenue Management ensures consistent occupancy

Revenue Management System (RMS)

Generally used by the larger hotels and chains with dedicated Revenue Managers, an RMS is a suite of advanced tools that facilitate, simplify and partially automate Revenue Management. 

With features such as detailed analysis and pricing recommendations, they’re typically built to be integrated with a range of traditional and more modern systems at your hotel, drawing in your data and data from third-party vendors.

The size of your property and granularity of staff members’ roles is likely to determine whether you have a sophisticated RMS or a simpler-to-use pricing recommendation tool.

Revenue Manager

Revenue managers are responsible for setting and managing rates to maximize occupancy and profit. Deploying all the tactics and strategy in the Revenue Management playbook, they are usually senior members of staff working for individual properties or chains and working alongside distribution managers and marketers. 

But in smaller hotels, their responsibilities might be subsumed by general managers, for whom simple software like pricing recommendation tools could be useful.

Revenue Generating Index (RGI) or RevPAR Index (RPI)

Much like ARI and MPI (OCC), RPI is a metric used to compare your results with those of your compset. In this instance, it’s concerned with your fair share of revenue.

As you’d expect, given knowledge of those other metrics, it’s calculated by dividing your property’s RevPAR by the average of your competitors, as supplied by a third-party vendor, so:

• RPI = 1.00, your hotel has its fair share of revenue

• RPI is > 1.00, your hotel is above its fair share

• RPI is < 1.00, your hotel is below its fair share

Note that some hoteliers prefer to multiply RPI by 100 so that they don’t need to deal in decimals.

Revenue per Available Room (RevPAR)

A straightforward formula to calculate RevPAR is by dividing the total room revenue for the night by the total number of rooms available in your hotel.

RevPAR = Total room revenue / Total number of rooms available for sale.

For example, you have a boutique hotel with ten rooms each night your hotel brings in an average income of $2000. With a quick calculation of $2000 ÷ 10, your RevPAR stands at $200.

You can also calculate it by multiplying ADR by occupancy.

RevPAR is often viewed as the ‘North Star’ of Revenue Management. It serves as a reliable gauge of your business performance, demonstrating your ability to optimize both occupancy and room rates. It offers a succinct, reliable, and actionable metric for evaluating financial performance.

Room Night

This term barely needs an explanation – it’s simply a measure of the number of rooms multiplied by number nights at your hotel for any given period, broken down by segment where applicable – but because it’s referenced in entries such as ALOS and wholesalers, and will be front-of-mind to all Revenue Manager, it’s worth a namecheck in this glossary.

Run-of-House (ROH)

ROH is a type of room booking where the guest agrees to be assigned a room of any type upon check-in, based on availability. This means that the hotel reserves the right to provide any room type to the guest, which could be a standard room, a deluxe room, or even a suite for example.

It is used to give hotels flexibility in managing their room inventory.

Same Time (or period) Last Year

A core element of revenue management is comparing set periods of time with the same time last year. Common periods to analyze include Month-over-Month (MoM) and Year-on-Year (YoY).

Bear in mind, of course, that factors beyond your control – such as one-off events and the weather – might significantly affect demand in otherwise similar periods.

Segmentation

A pillar of revenue management, segmentation recognises that different travelers have different needs and buying habits. By segmenting your guests into different groups, you can tailor your pricing and marketing strategies accordingly.

Traditional segmentation focuses on two broad groups: transient business and group business. In contrast, modern segmentation factors in changes brought about by technology, including purpose, benefits sought, channels, time and loyalty.

Sellout

A sellout refers to a situation where all available rooms in a hotel are sold for a given night. This means that the hotel has reached its maximum occupancy for that particular date.

Sellout Efficiency

Sellout efficiency is how often a hotel sells out when the opportunity is presented.

You can calculate it by dividing the number of perfect sellouts over the number of technical sellouts, over a specific date range.

SMERF

SMERF stands for Social, Military, Educational, Religious, and Fraternal groups.

These groups typically represent non-corporate segments of a hotel's business, often booking for group events such as reunions, conferences, retreats, educational seminars, religious gatherings, military functions, and other similar events.

SMERF groups are known for being price-sensitive, often booking in advance and typically during off-peak times when hotels have more availability.

Technical Sellout

A technical sellout is an arbitrary threshold that a hotel defines for itself to designate itself "sold out" for purposes of reimbursement, operational goal tracking, or some other reason.

To use a common example, a brand may reimburse a hotel for points stays on nights where the hotel exceeds 97% occupancy, making this the technical sellout threshold.

Total Revenue Management (TRM)

Total Revenue Management or TRM refers to optimizing all revenue-generating streams within a hotel, not just limited to room sales.

It also includes revenue from other sources such as food and beverage, spa services, parking, event space rentals, and any other ancillary services a hotel might provide.

The concept of TRM extends the traditional Revenue Management approach of selling the right room to the right client at the right moment for the right price. TRM considers all revenue streams of a hotel to maximize profitability. It's about selling the right product to the right customer at the right time for the right price through the right distribution channel with the best cost efficiency.

Transient

Transient guests refers to individual travelers who are not part of a group or contract booking. These can be business travelers, vacationers, or any other individuals who are booking rooms independently

Turn Cost

This refers to the cost associated with preparing a product or service for the next customer. In a hotel, the turn cost could include the time and resources spent cleaning and preparing a room for the next guest after one guest checks out.

W

Walk-In

Their route to market being an example of the most direct of direct channels, walk-in guests are those without a reservation who literally walk in off the street and book a room there and then at the reception desk. Assuming you have space for them, what you charge depends on factors such seasonality, current occupancy and brand expectations.

Wash

Wash is often used to describe the occurrence of reservations that are made but not fulfilled. This could be due to guests not showing up (no-shows), guests canceling their reservations, or guests checking out earlier than originally planned.

Week-over-Week (performance) (WoW)

Unlike MoM and YoY analysis, when analyzing WoW performance, Revenue Managers are generally reviewing one week to the next, as opposed to one week one year compared to the same week the previous year.

Wholesalers

Wholesalers are third-party organizations that sell hotel room nights on behalf of hotels with whom they have a contract. Buying rooms in bulk to guarantee hoteliers a certain level of occupancy, they then sell them on to OTAs and travel agents.

Wholesalers are B2B operators, so they don’t sell directly to members of the public. When dealing with wholesalers, it’s important to keep an eye on rate parity.

Y-Z

Year-over-Year (performance) (YoY)

See same time (or period) last year.

Year-to-Date (YTD)

As with Month-to-Date but for the year. Not to be confused with Year-on-Year (performance).

Yield

Yield is revenue made at a hotel. But don’t be fooled by the simplicity of this explanation, as it includes money generated from other activities and outlets operating at or connected with your hotel. It can also refer to the profitability of individual departments.

Yielding

In Revenue Management discussions, the term Yielding is used to describe the act of modifying a rate, segment, channel, etc. so as to influence its booking or stay pattern.

Yield Management

Put simply, Yield Management is the business of optimizing prices of your hotel’s inventory within the field of Revenue Management.

Of course, this explanation is simpler than the practice, hence the number of related entries and concepts in this glossary on which it’s dependent, such as segmentation, channels, rate-setting and occupancy monitoring.

Zzzzz

This is the happy sound that permeates through every single room at your hotel at night when you maximize your Revenue Management strategy.