The what and why of Revenue Management. We would like to introduce you to the concept of Revenue Management and its applications within organizations It becomes clear what Revenue Management is, why it is increasingly used, when it can be used, what needs to be done to successfully apply it and who can apply it within an organization.
What is Revenue Management?
Revenue management is a process that greatly improves the financial results of a company. It is used to maximize the revenue or margin of a product or service. It does not equate to a simple price increase, it is about the optimal mix between price and inventory management.
For example, hotels use Revenue Management to determine the optimal price of a room every time. Airlines use it to decide how many of the seats to sell at what price.
When implemented correctly, Revenue Management helps companies to better streamline their commercial processes, better align their (price) proposition to customer groups, align campaigns with the latest market developments and increase their profitability.
Why is Revenue Management applied?
The main reasons why more and more companies in more and more sectors are adopting Revenue Management are;
- Revenue Management leads to more turnover and margin. The growth that can be realized is often double digit.
- Revenue Management is data-driven. Working with data leads to many insights that improve the commercial process.
- In many companies, especially in a B2B environment, pricing is done by people. It is therefore by definition subjective and that is usually undesirable. Revenue Management leads to objective pricing based on data.
- In many sectors, the stock is so complex and dynamic that it is no longer possible for the human brain to oversee. Revenue Management not only ensures an optimal price, but also an optimal distribution of the remaining stock after the sale.
- Revenue Management makes it possible to accelerate order management cycles. The (potential) customer has a quote that better suits his needs.
Where can Revenue Management be applied?
Revenue Management is applied within a wide range of industries, including:
- Hotels and resorts
- Theaters and stadium
- Media distributors
While in retail it’s about having the right product available in the right place, in many other sectors it’s about managing perishable stocks. For example, an airline cannot sell today’s empty seat tomorrow. A media business can’t sell its reach tomorrow next week
Revenue Management is applied when the demand for a product or service is variable – for example due to seasonal influences – where the inventory is more or less static and where the marginal cost of an extra sale within that fixed inventory is low.
What needs to be done to successfully apply Revenue Management?
Successful Revenue Management starts with the right insights. This concerns real-time information about, among other things;
- Sold and still available stock
- Demand developments, by customer segment
- Demand forecasts
The faster and more detailed the insights are available, the better. The right tooling and the right data on which the tooling can work is essential. It is good to know that this type of tooling is usually fairly easy to integrate into the existing IT infrastructure.
There is a high probability that existing commercial policies and processes will need to be modified to some extent to enable optimal Revenue Management.
n the next phase, triggers from the Revenue Management tooling can be used to automatically initiate campaigns, find out competitors’ pricing, make automatic price adjustments, etc.
Who applies Revenue Management within the organization?
Revenue Management in many organizations is a combination of Marketing and Sales. We argue for an independent Revenue Management role, provided with a sufficient mandate to be able to act quickly – within frameworks. Control takes place both strategically (pricing strategy) and tactically (pricing) and operationally (starting campaigns and sales activities).
It is important to place the role of Revenue Manager not as part of but next to the Marketing and Sales departments. Optimal results can be achieved if this trinity seeks out the mutual tension to translate this energy into optimal scenarios for the company and the customers.
We see with our clients that the new insights that Revenue Management provides are also valuable for operational and financial departments, for example with regard to investment issues.
Revenue Management significantly improves the commercial results of many companies. Therefore, it is used in an increasing number of sectors. We are happy to tell you more about it.
Want to read more yourself? Then take a look at these insights about Yield Management or this article about Dynamic Price Optimization.
RevenueMindz focuses on the development of commercial business by applying Revenue Management principles, processes and tooling.
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