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Revenue Management Overview

Updated

 

Revenue Management 

Contents:

Overview

Revenue Management is a discipline that analyzes current and past performance to predict demand and adjust operations and offerings to optimize revenue. Simply put – Selling the right product to the right customer at the right time, at the right price.

Through Avero's Revenue Management solution, we provide detailed insights, empowering you to optimize your sales performance.  The hour-by-hour sales view gives you the visibility you need into every dollar of revenue generated at a check level.  The table-by-table view makes it easy for you to identify opportunities within your operation (like re-positioning of tables!). 

Some key benefits to the Revenue Management module are as follows: 

  • Manage to Demand.  By utilizing the Revenue Management module, you can run targeted promotions during low-demand hours and focus on turn time when the restaurant is at its busiest!
  • Set Operating Hours.  You can drive incremental sales by expanding hours during busy season and decreasing labor costs by closing early on the slower days. 
  • Improve Table Performance.  Through this module, you will see the performance of every table in your dining room - from the spend per minute to table occupancy - and as a result, find the tables that are hurting your profits. 

Need additional information?  Watch this video for more:

 

Revenue Management Reports

 

What is Revenue Management?

Revenue Management is a discipline that analyzes current and past performance to predict demand and adjust operations and offerings to optimize revenue.
In hospitality, this is most frequently used to determine hotel room rates and availability, but it is also very useful for Restaurants to analyze demand, determine pricing strategies, and forecast the effects of proposed changes to operation. 

Simply put– Selling the right product to the right customer at the right time, at the right price.

 

How does Revenue Management apply to Food & Beverage?

Revenue Management is typically used by Hotels & Casinos – these businesses have the ability to restrict supply, employ multiple pricing strategies, and utilize multiple channels to generate customers, and, most importantly, their inventory is perishable.

How do these strategies apply to restaurants?

  • Price
  • Demand
  • Service Capacity
  • Table Turnover
  • Menu Engineering
  • Promotion

Helpful Terms, Defined

  • ADR - Average Daily Rate, a metric to analyze the sell rate of hotel rooms
    • Example: A hotel with 100 rooms sells 40 rooms at $150 and 40 rooms at $200 today. The ADR for this date would be $125
    • Calculated: (40 Rooms * $150 = $6000) + (40 Rooms * $100 = $4000) / (80 Rooms Sold) = $125
  • RevPAR - Revenue per Available Room, a hotel metric for reviewing the revenue realized compared to the available inventory. 
    • Example: Let's use the same hotel example above, A hotel with 100 rooms sells 40 rooms at $150 and 40 rooms at $200 today. TheRevPar would be
    • Calculated: (Revenue for all rooms sold = $10000) / (Total Number of Rooms = 100) = $100
    • Do you see the difference between ADR and RevPAR? Why would you want to look at both for a hotel?
  • Seat-Hour - A metric for available inventory for restaurants. A seat-hour is one operating hour (you are open for business) per seat (potential to seat a guest). 
    • Example: A restaurant has 40 seats at 10 tables and is open from 5PM-10PM. They have 40 seats available for every hour they are open (5 hours), or 200 seat-hours.
    • Calculated: (Total Seats = 40) * (Total Operating Hours = 5) = 200
    • Tip: Seat-Hours don't take into account the table count. 10 4-tops or 20 2-tops would both have 40 seats. This helps you to normalize revenue across available space and adjust your table sizes or seating plans to optimize revenue generation!
  • RevPASH - Revenue per Available Seat-Hour, this is the restaurant-version of RevPAR, restaurant inventory is determined by "Seat-Hours" (see above) and this metric compares total revenue to available seat-hour (inventory). 
    • Example: Continuing with the above restaurant. Let's say they did $5000 in sales yesterday, their RevPASH would be $25. This means they made $25 per chair for every hour they were open. 
    • Calculated: (Total Revenue = $5000) / (Total Seat-Hours = 200) = $25
  • Turn Time - How long a table is occupied, the duration of a guest's time in the restaurant (at the table).
    • Example: A table seated at 2:00pm that leaves at 3:30pm has a turn-time of 90 minutes / 1.5 hours

What types of Revenue Management analysis might I do with Avero?

  • Group Hourly Sales or Sales by Hour :  Available in: Essentials and Professional subscriptions
    • Volume – Identify typical periods of high and low volume
    • Creating a Baseline – Create an understanding of the average performance under current operating conditions
    • Predictive – Forecast demand for the near future, holidays, or to model potential operational changes
    • Comparative – Group Sales by Hour can be used to benchmark locations against each other
    • Incite Demand – Low-volume opportunities may benefit from the addition of a demand driver
  • Item Sales by Hour - Available in: Professional subscriptions
    • Pricing Strategy – Price Fencing, Variable Pricing, Dynamic Pricing
    • Increase Occupancy – Promotion targeted to day parts or physical areas can increase overall restaurant occupancy
    • Predictive – Forecast demand for the near future, holidays, or to tighten par levels and ordering
    • Menu Engineering – Optimizing menus by day parts is a key use case to increase menu utilization and decrease turnover time, this may also be used to create demand
    • Turnover– View items by time to produce – longer production items may be hurting total revenue in high occupancy times
  • Table Performance - Available in: Professional subscriptions
    • Note: Not all POS systems provide table information, if your POS has this limitation you will not be able to use the Table Performance (such as Micros Simphony - Oracle Cloud Hosted or Infogenesis ASP Cloud System)
    • Price – Identify spend/minute to understand your revenue as driven by guest location. Use the Popularity of items (from the Hourly PMIX!) to influence where demand drivers are needed and where promotions may be undercutting organic revenue generation.
    • Demand – Understand the organic drivers of location demand, remediate low demand tables, optimize high demand tables
    • Capacity – Optimize available seating for the party-size and timing demands
    • Turnover – Establish baselines for forecasting, recognize internal variation, plan for efficiency in turning tables to reduce time between turns (an Avero metric!)
    • Seating Procedures – Codified operating procedures about which tables are seated and when, reduce customer choice

Time to give it a try!

  • Pick one of your outlets or businesses and determine:
    • Your total seat-hours (you'll do this outside of Avero)
    • Your RevPASH for a recent time frame
    • Compare this to a similar time frame - what differences do you notice? What do you think the reasons are for the changes you observe?

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