Managing Distribution and Revenue Management in the Hospitality Industry is an incredibly complex beast in its own right due to the variables that affect supply and demand at any one point in time. Depending on the property, seasonality, geography, socio and other economic and external factors all play a part.
With so many variables at play, the complex function of Distribution and Revenue Management is awash with buzzwords, acronyms and equations that can baffle newcomers into the Industry as well as people working in other functions of the business within the Industry.
Here is our guide to the key terminology that underpins Distribution and Revenue Management:
This is the strategy of selling the right room, to the right person at the right price. It allows property owners to anticipate demand and optimise availability and pricing, to achieve the best possible financial results
Percentage of occupied/sold rooms
Equation = Total Occupied Rooms / Total Rooms Available
Average Daily Rate
Equation = Rooms Revenue / Number of Rooms Occupied/Sold
Note: Occupancy and ADR are often used as a shorthand way of measuring the success of a property, but these metrics alone are a poor measure of the sales volumes they generate.
Revenue Per Available Room
Equation = Total Rooms Revenue / Total Rooms Available
RevPAR is a more accurate view of hotel performance as it combines both occupancy and ADR into one statistic.
Total Revenue Per Available Room
Equation = Total Revenue generated by a room / Total Rooms Available
TRevPAR is a metric used to analyse the revenue performance as it combines both occupancy, ADR and incremental spend into one statistic. This figure will include breakfast, dinner, beverage, spa, etc.
Total Revenue Per Occupied Room
Equation = Total Revenue generated by a room / Total Rooms Occupied
TRevPAR is a metric used to analyse the revenue performance as it combines both occupancy, ADR and incremental spend into one statistic. This figure will include breakfast, dinner, beverage, spa, etc.
Gross Operating Profit Per Available Room
Equation = Gross operating profit / Total Rooms Available
GopPAR is a metric used to analyse the revenue performance that includes the cost of sale. This is a particularly useful figure as it provides an idea of the value of a hotel as an asset. There does not seem to be an industry standard to which certain costs are included in this calculation — for example: commission, housekeeping, system costs, reservations and reception costs, heating, lighting.
Average Rate Index
Equation = (Property ADR / Competitive set ADR) x 100
ARI is a metric used to determine whether a hotel was achieving its fair share of ADR compared to competitor set.
An ARI of over 100% indicates that a property is achieving more than their fair share of the market
Market Penetration Index
Equation = Property Occupancy / Competitive set Occupancy
MRI is a metric used to determine whether a hotel was achieving its fair share of occupancy percentage compared to competitor set.
As MRI of over 100% indicates that a property is achieving more than their fair share of the market.
Revenue Generating Index or RevPAR Index (RPI)
Equation = Property RevPAR / Competitive set RevPAR
RGI is a metric used to determine whether a hotel was achieving its fair share of revenue compared to competitor set. An RGI of over 100% indicates that a property is achieving more than their fair share of the market.
Revenue per square foot of event space
Equation = Total Event Space Revenue / Total square footage of event space
A metric of how successful a hotel is doing in meeting and events department.
Best Available Rate
Often refers to the base rate, that a hotel would base other rates upon.
The BAR for many properties is the flexible rate, the terminology is confusing as this is not the lowest rate.
This is the strategy of using flexible pricing for a room/apartment based on market demand, comp set and pick up.
Demand increase = rate increase
Demand decrease = rate decrease
The strategy of setting controls that assist in maximising revenue potential. Developing a relatively even occupancy pattern during high demand dates.
Minimum length of stay
A reservation requires to be more than a specific number of nights stay.
The MinLOS assists in protecting the revenue from a high demand night being diluted by shoulder nights.
Closed to Arrival
A reservation is restricted from arriving on a specific date
A rate that requires various requirements to make a reservation.
Length of Stay
The number of nights that have been booked in one reservation
Due to cancellations and no-shows, the practice of selling more bookings than are available.
The strategy to have the same rate across all channels.
Dates that surround a peak/high demand night.
Competitor Set
These are the properties that are viewed as being competition to the Hotel/Apartment. Those that the potential booker/guest may consider.
These are events that influence demand either positively or negatively.
For example, a large music festival will bring higher demand to an area, whereas school holiday dates within a city centre can cause less demand.
The timeframe in which hotels reservations are received for a particular stay date.
Online Travel Agent
Online companies that sell hold rooms via their websites. Accommodation providers work with OTA’s to market their rooms worldwide. OTA’s make money by charging commissions.
The main OTA’s are Booking.com. Expedia, Agoda, HRS, AirBnB
Global Distribution System
GDS grew up initially in the Airline industry. GDS is the channel that is used by Travel Agents to book hotels/apartments, car hire and air travel.
There are three main GDS – Travelport (Galileo, Apollo, Worldspan), Amadeus and SABRE.
Property Management System
PMS is the hotel administration system that is used to control onsite property activities. It is used for reservations, availability, inventory management, check-in/out, guest profiles and reporting.
Examples of PMS systems are: Opera, Guestline, Mews, StaynTouch, Protel, Clarity, HotelTime, Cloudbeds,
A channel manager is a system that is used to distribute rates and inventory from the PMS to OTA’s, GDS and other channels. It allows a property to manage online distribution effectively and in a timely fashion.
Examples of Channel Manager systems are Siteminder, EZYield, D-Edge, Cubilis, RateTiger, SynXis
Smith Travel Research Report
Smith Travel Research is the leading hospitality industry analytics company. The STR report is a benchmarking tool that compares a hotel performance against a group of chosen competitor properties.
A budget is a financial plan for a property set for the following calendar year or fiscal year. The budget for rooms is separated into daily occupancy, rate and RevPAR by major segments. The room budget would feed into the overall property budget.
Expected occupancy, ADR and RevPAR results. Built using rooms already booked, and predicted demand.
The cost of a reservation which includes the commission for channels and system fees.
This is usually used for group enquiries. It is the analysis that determines whether a booking should be taken at a particular rate.
A search engine that pulls rates and availability for several sources and presents the information in one place. For example – Google MetaSearch, Trivago, TripAdvisor.
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