Revenue Management Glossary

Advance Purchase refers to a pricing tactic where rooms are offered at a discounted rate, below the Best Available Rate 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 example, they are often non-refundable and non-changeable.

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 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.

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.  ADR is calculated by dividing gross room revenue by the number of rooms sold.

ALOS equals the total room nights in a hotel or segment divided by the number of reservations in the hotel or segment. For example, 1,000 room nights divided by 335 reservations would equal 2.98 ALOS.

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 broken down by 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.  Also see Market Share.

Note that if:

• ARI = 100, your hotel has its fair share
• ARI is > 100, your hotel is above its fair share
• ARI is < 100, your hotel is below its fair share

Benchmarking is the process of comparing and analyzing your property or portfolio’s performance against your comp set or other group of metrics.  Large management companies sometimes benchmark groupings of hotels within their own portfolio, such as benchmarking all their resorts or city center hotels against a particular asset within that class. 

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

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. 

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, qualified discounts, and other less public routes.  Another term for BAR is Retail Rate.

First conceived by major hotel chains, Best Rate Guarantees are a promise made by a hotel to guests that they will receive the lowest available rate for their stay when booking through the hotel’s direct channels, such as Brand.com. This can be a powerful tool for hotels to build trust with potential guests and encourage direct bookings. ‍BRG became a necessity due to OTA and wholesale channels undercutting hotel-direct rates.  Also see Rate Parity.

All major brands now carry penalties that are imposed on hotels who violate BRG policies.

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’.

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. Non-yieldable rates are bookings you contractually can’t reject even if it would have been possible to get higher rates from elsewhere, until either the block is full or after a certain date (Cutoff Date) has passed.

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.  A booking curve is often used when contracting large group blocks over a period of days.

Often supplied by third-party software vendors, booking engine technology enables guests to make reservations on a hotel or chain’s own website. Booking engines are usually part of a larger Central Reservation System (CRS).

Common to many sectors, a booking window is the timeframe in which customers make reservations. Hotel Revenue Managers monitor booking windows to adjust prices for stay dates in the future. 

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

Brand.com is a general term used to describe the website booking engine for chain hotels.  The term may also be applied to independent properties.  Hotel operators prefer to receive most of their bookings through Brand.com due to it typically being the lowest cost booking channel. 

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.

Usually set through a collaborative effort between Revenue Managers, ownership and other commercial stakeholders; this refers to the annual budget 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 includes other departmental revenue sources and expenses for your property. A budget typically shows variances and percentage changes versus the previous year for comparison purposes.

At most hotels, the commercial team 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 for their activity for the rest of the year in question and is the main set of numbers by which their efforts are judged.

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 quality and accuracy of the data they have access to and the user’s ability to use the information.

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

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. In addition, hotels often practice Overbooking strategies to compensate for expected cancellations.

Capacity is the total fixed number of rooms in a hotel. It’s worth mentioning because this number, which can only change if a property increases or decrease their room inventory, factors into every supply and demand consideration they face.

Capacity can also refer to meeting rooms and sleeping rooms, in terms of the maximum number of people allowed in each space.  In the case of meeting rooms, capacity charts differ based on seating arrangements.  In the case of sleeping rooms, the capacity refer to number of maximum guests for the bedding arrangement.

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 and guest information, rates and inventories, and manage the reservation process.

Though they shouldn’t be confused with them, they are usually be connected to Property Management Systems (PMS) and Revenue Management Systems (RMS), as well as Booking Engines.

Channels are the different routes through which customers can book rooms at a hotel. Often referred to as Distribution Channels.  Examples include Brand.com via your booking engine, over the phone, in person, via Online Travel Agents (OTAs), traditional travel agents, wholesalers and group bookings through sales teams.

A healthy Revenue Management strategy is likely to include several channels.  Given issues of costs – or commissions – versus reach, each is likely to involve some sort of trade-off between profit, occupancy and ADR. See Channel Cost for more on this.

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.

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.

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.  Channel Mix is often displayed as a percentage of the total occupancy, ADR, and Room Revenue for a hotel.

A 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 a particular date.  The use of CTA as a strategy is typically to balance occupancy over two or more days to mitigate “spikes” in occupancy around one or more otherwise less full days.

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.

See Channels and Cost of Acquisition.

Usually determined by a committee, including ownership, management, and hotel commercial teams; and based on reasons of geography and hotel type, a hotel’s competitive set or comp set consists of a group of hotels to which a property can compare itself. These would typically be plugged into your benchmarking tools like a rate shopper and STR reports, among others.

Industry-leading tools now provide a dynamic comp set that pivot with market changes, ensuring you’re always matched against the most relevant properties.

When a customer transitions from shopping around or information-gathering to taking a decisive action, such as actually booking a room, this is 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.

This 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 other overheads that will make a dent in profit, but it’s nonetheless very useful for accounting and Revenue Management purposes.

To calculate CPOR, simply add up all of the costs associated with a room booking. This includes all utilities, guestroom supplies, such as in the bathroom and on the coffee tray, and labor costs for cleaning and maintaining the room. 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. You may also reduce services or amenities to reduce the CPOR.

In the field of hotel Revenue Management Crew refers to airline or rail crew members who stay at the hotel between scheduled flights or train departures. Airline crews are more common due to the significant amount of daily flights.

Airlines often have contracts with hotels to provide accommodation for their crew members during layovers or when they are off duty.  For some hotels, crew business is an important market segment and is considered as “base business”, allowing a hotel yield up rates due to less inventory available to sell to other guests.

Cutoff is the minimum number of days before arrival that a customer must make their reservation by. This restriction typically applies to room blocks, such as for groups or wholesalers, and is decided by the revenue manager or director of sales and can vary depending on demand.  Cutoff dates can range as low as 7 days before arrival to as many as 60 days before arrival, but generally are 14-30 days before arrival, depending on the block type.

Demand is a measure of how much interest there is in a 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 a property, requires science, data, constant monitoring and, increasingly, AI or machine learning. 

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 a hotel.

A Denial is a notification generated from a central reservations system that a hotel has been shopped on its direct booking engine and a rate was held back because the hotel was either sold out or had a restriction placed on the date 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 are those over which your hotel has direct control, such as your booking engine (Brand.com), your telephone, emails, website inquiry forms, the mail (this was more common before the internet) and in person at your reception desk. Profit is generally higher on direct channels but reach is generally lower than with OTAs and metasearch.  Exceptions to lower reach with direct channels are Brand.com from major chains, which can sometime match or exceed OTAs.

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

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

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. 

However, simply taking ADR into consideration may not always yield the best revenue decision for a hotel.  A full displacement analysis should also consider all revenue streams impacted, such as food & beverage contribution and ancillary revenues.  In some cases, a group block with a lower ADR, but high ancillary revenue contribution may be the better choice over other market segments with higher ADRs but lower total revenue contribution.

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.  Ways to measure Distribution Health is through audits of all distribution channels and primary revenue systems.

One of the industry’s key pricing strategies and easiest to adopt with the right systems, 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, length of stay, 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, such as a Revenue Management System (RMS), can leverage AI-driven rate recommendations, allowing a hotel to maximize their bookings and revenue with automated dynamic pricing. 

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

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 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 demand or other hotel strategies.

This is another term for Best Available Rate or BAR.

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

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%.  Revenue Managers typically wish to actualize within 3 percentage points of their forecasts.

These are the fees that individual properties identified under particular brand names must pay to high-profile chains for legal use of those names, and, where applicable, shared services, such as sales, marketing, legal, loyalty programs, and I.T. systems. 

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

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 airline industry, they are now also a very common channel in hospitality, providing one of the ways to bridge the gap between travel agents and hotels.

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

This metric measures total revenue minus operational and marketing expenses per available room. This figure is as useful to accountants as it is to Revenue Managers. Whereas RevPAR only looks at Revenue Per Available Room and takes no consideration for profitability, GOPPAR informs on profitability.

See displacement analysis.

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. It is common for hotels to require a first night’s deposit or a credit card guarantee to secure a reservation. 

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.

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 $300, meaning that the hotel won’t accept any room nights on a particular night if the net revenue doesn’t meet or exceed $300. This would in turn yield out any rate plans that are under the $300 amount.

(See Capacity)

KPIs are any metrics by which a Revenue Manager might be judged or which they find useful in their work. Examples include occupancy percentage, ADR, RevPAR, and ranking statistics.

Leisure travelers are any guests who aren’t traveling on business. Though the term might be obvious to deduce, it’s worth noting that strategies for attracting leisure travelers often differ from those for attracting business travelers, since leisure travelers are spending their own money and are traveling for different purposes.

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. 

Some hotels 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.

Refers to negotiated rates for local companies, as compared to larger, national or global businesses. See Negotiated Rate.

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 ratio is 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.

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 rates but do bear in mind that the rate might change, depending on variable costs.

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 to a particular hotel or remain loyal with a particular chain.

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.  Also see Market Share.

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 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.

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 definition.

Fundamental to whether your hotel is 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 for the sake of rooms (and services).

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

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, or to flatten or prevent peaks (spikes) in occupancy.

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 decided.

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 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.

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, forecast, and market conditions.

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.

Not to be confused with Month-over-Month, 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.  Also see Year-to-Date.

Month-over-month (MoM) is a financial metric that compares data from one month to the previous month. It’s used to measure the rate of change in a metric over time, and is often used in business and finance to analyze trends and identify patterns. MoM may also refer to comparing one month to the same month a year earlier.

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.  Also see LNR.

The net rate of a room is its price once you’ve deducted commissions from other channels, such as wholesalers and OTAs.

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.

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

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

The dominant force in hotel searching and booking for the 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.

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.

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

Typical metrics considered include rates, occupancy, revenue and number of bookings.

An opaque booking channel is one for which the supplier hotel’s name is kept hidden until the purchase has been completed.  Examples of opaque channels include Priceline or Hotwire.  Hotels may use opaque channels to help fill last-minute unsold inventory. Opaque rates tend to be discounted but are fenced.

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 a hotel is negligent with its inventory management.

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 pick-up 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.

This refers to a situation where all available rooms in a hotel are sold for a given night.  The goal for a Revenue Manager to have a perfect sell at the optimal price that maximizes total revenue.

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

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. 

Simple in theory but complex in practice, price elasticity shows exactly how responsive customer demand is for a product based on its price. Rather than only external demand factors such as seasonality and events, price elasticity puts consumer behavior at the center of pricing decisions.

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

Not to be confused with Revenue Management-related systems, they are usually bi-directionally integrated with RMS’, as well as CRS’.  Some newer PMS’ are fully integrated all-in-one systems that handle the functions of CRS’ and RMS’.

Usually AI-driven, pricing recommendation tools automate tailored, dynamic pricing at a property. They are designed to allow 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 or RMS’, pricing recommendation tools are much less complex than other commercial solutions. 

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.

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%.  Revenue Managers often use Rate Efficiency to measure ADR to their selling rates.

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

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.  Also see Best Rate Guarantee.

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.

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 rates and book accordingly.

By choosing the right rate shopper and selecting an appropriate comp set, 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 is a term used in revenue management to quantify the gap between two metrics, such as the budget and the actual revenue or the forecast 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 forecast 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 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. For high volume Redemption hotels, Revenue Managers must have strategies in place to maximize the revenue generated from these bookings, as redemption values are typically lower than a hotel’s true ADR.

Built into some Central Reservations Systems, regret is a notification that your hotel has been shopped on its direct booking engine (Brand.com) or through the reservation call center and the customer was presented with a rate, but that would-be guest chose not to complete the booking. Clearly, if a hotel has too high a regret-count, they should look at their rates in comparison to the competition, as it may indicate rates are set too high.

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

Revenue Management 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 hotels to outperform competitors
• Through the use of demand forecasting it can help hotels 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.

Generally used by the larger hotels and chains with dedicated Revenue Managers, an RMS is a computerized system that facilitates, simplifies; and in some cases, automates Revenue Management functions, such as pricing and restrictions. 

With features such as detailed analysis and pricing recommendations, RMS’ are typically built to be integrated with a range of traditional and more modern systems at a hotel, drawing in PMS and CRS data and data from third-party vendors, such as rate shopping tools.

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 sales, distribution managers, and marketers to maximize a hotel’s commercial strategy. 

But in smaller hotels or in markets where such talent is hard to acquire, their responsibilities might be outsourced to third-party service providers like TCRM.

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. 

Also see Market Share.

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.

Calculated by multiplying ADR by occupancy, RevPAR is often viewed as the ‘north star’ of Revenue Management.  For a more precise way to calculate RevPAR to avoid rounding errors, divide total room revenue by total available rooms.

Understanding this number helps Revenue Managers compare their results on a level playing field against larger or smaller competitors.

This term is a unit of measure for the number of rooms multiplied by number nights at a hotel for any given period, broken down by segment where applicable.

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.

ROH is less often used these days, as many CRS’ and PMS’ inventory rooms very specifically based on their attributes, therefore rooms are rarely sold as ROH.

A core element of revenue management is comparing set periods of time with the same period of time last year. Common periods to analyze include month-to-month and year-to-year. 

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.

Other things to bear in mind are calendar shifts, which may impact these comparisons significantly.

A pillar of revenue management, segmentation recognises that different travelers have different needs and buying habits. By segmenting their guests into different groups, hotels can tailor their 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.  In the United States, hotels should be guided by the Uniform System of Accounts for the Lodging Industry (USALI).

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 date.  Also see Perfect Sell and Technical Sellout.

Sellout efficiency is a unit of measurement used to show how often a hotel sells out when the opportunity is presented.

It is calculated by dividing the number of perfect sellouts over the number of technical sellouts then multiplying by 100, over a specific date range. 

For example, if a hotel had 15 opportunities to sell out, but only had 5 perfect sellouts, one could say they have a 33% sellout efficiency.

SMERF is a group market segment that 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.

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 reimbursement stays on nights where the hotel exceeds 97% occupancy, making this the technical sellout threshold.

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

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.

USALI, or the Uniform System of Accounts for the Lodging Industry, is a publication that provides a standardized framework for financial reporting and analysis in the hospitality industry. It’s published by Hospitality Financial and Technology Professionals (HFTP) and the American Hotel & Lodging Educational Institute (AH&LA).

Walk-in guests are those without a reservation who literally walk in off the street and book a room at a hotel reception desk. Assuming a hotel has space for them, the rate charged depends on factors such seasonality, current occupancy and brand expectations.  A walk-in reservation is also considered a direct channel booking.

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.  Wash plays an important role when hotels overbook.  Revenue Managers and Revenue Management Systems take historical wash factors into account for determining how many rooms to oversell by.

Week-over-Week refers to comparing performance for a given week against that of a different week.  The comparison week may be the week prior or the same week in the year prior.  Also see Month-over-Month and Year-over-Year.

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.

See Month-over-Month or Week-over-Week.

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

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 a hotel. It can also refer to the profitability of individual departments.

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

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.