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The Revenue Management Game

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Posted by Marco Fonseca
November 16, 2016

Whenever we present at a conference or give a talk, we play a little game to break the ice. It’s called The Revenue Management Game and it helps property owners and managers think about the impact of revenue and yield management.

In this game, each participant receives an availability calendar for a fictional property that represents one week. You, the game player, act as the hotelier and you will receive requests for reservations for the period (called out one by one by the organizer). These requests reservations include; the number of nights, date of check-in and daily rate. The only information you receive before the game begins is that average daily rate, which for this example will be $80.

It’s up to you to accept or reject each reservation at the provided daily rate and, if you accept it, to assign the reservation to a room, filling out the cell with the rate for each day. After a reservation is accepted and assigned, you cannot replace it with another or move the reservation to another room.

Since you don’t know how many reservations you will receive in total, if you simply accept all reservations from the beginning, you may not have any vacant room for future reservations. Keep in mind, that all the rates and reservations are different, both higher and lower.

The winner is the one who earns the greatest total revenue.

Let’s Play!

As we cannot hide the questions on this page, we trust that you will not read ahead and act upon each reservation before moving to the next one. At the end, we will also present a surprise to make this text-only version a bit more interesting!

Let’s go – print out or create a table like this one below:

rmgame_table

Remember: for each reservation below, you may decide to ignore (and save your empty rooms for other reservations) or accept and assign. After assigning a reservation, you must not change it.

Also, write down the reservations you have rejected.

Reservation 1: 3 nights at US$ 80 / night, arriving on Thursday.

 

Reservation 2: 4 nights at US$ 75 / night, arriving on Monday.

 

Reservation 3: 2 nights at US$ 90 / night, arriving on Friday.

 

Reservation 4: 3 nights at US$ 90 / night, arriving on Friday.

 

Reservation 5: 4 nights at US$ 85 / night, arriving on Tuesday.

 

Reservation 6: 4 nights at US$ 100 / night, arriving on Wednesday.

 

Reservation 7: 2 nights at US$ 120 / night, arriving on Saturday.

 

Reservation 8: 4 nights at US$ 80 / night, arriving on Monday.

 

Reservation 9: 2 nights at US$ 70 / night, arriving on Monday.

 

Reservation 10: 3 nights at US$ 90 / night, arriving on Monday.

 

Reservation 11: 2 nights at US$ 65 / night, arriving on Wednesday.

 

Reservation 12: 2 nights at US$ 70 / night, arriving on Saturday.

 

Reservation 13: 1 night at US$ 150 / night, arriving on Sunday.

Ready? Did you follow the rules?

Now, the surprise: if you have accepted reservation #6 (4 nights at US$ 100 arriving on Wednesday), apply a 40% discount, and change the rate to US $60. If you accepted reservation #3 (2 nights at US$ 90 arriving on Friday), the guest just cancelled – change the amounts to zero on those days.

Then, add up all the daily rates of the reservations you have accepted for the whole table.

How much did you get in total? I’d say numbers above 1500 are quite good. You may notice variances of more than US$ 300 in a week period, more than 20% for 3 rooms only!

Test your staff and compare results, make it a contest!

Learnings

This game is fun, and helps understand the concept of revenue and yield management a bit better. Revenue Management is the study (and execution!) of different possible rates and room assignments, with the objective of maximizing total revenue. It is based on the fact that you can never recuperate the revenue you failed to collect when a room stays empty for a night.

You will never recover lost revenue for rooms that remain empty on any given night. But at the same time, if you lower your revenue too much aiming for higher occupancy, you may lose the opportunity to earn more for each booked room.

In addition to that, it’s possible to understand the importance of properly allocating reservations to the rooms in the most advantageous way possible. In our game, we oversimplified the scenario because each room had the same capacity/size. In the real world, you would have different sizes and types (single, double, triple, etc), as well as rooms with special features such as view to the ocean, high floor and others, which add more complexity.

By using a system like myfrontdesk, you can easily change rates, create promotions, assign rooms, block rooms, create courtesy holds and even use the powerful shared inventory functionality, all of which have the potential to increase your sales.