From Yield Management, Revenue Management to Profit Management

Neil Salerno suggested profit management will become the “future” of hotel revenue management. Theories of yield management and revenue management were introduced to the service industry decades ago in helping decision makers manage fixed and perishable capacity. Yield management is about reacting to demands. When demands increase, rates of a hotel room or airline seat go up. Managers in hotels, for example, need to control room prices and allocation of rooms to different market segments according to estimated demands. The goal is to yield a high occupancy and maximize revenue. Often, yield management is also referred to as revenue management in the lodging industry.

According to Neil Salerno, profit management focuses more on “profit” rather than “revenue.” Its goal is to “maximizes gross revenue while optimizing potential room profit.” Under profit management, a hotel may prefer 78% occupancy with an ADR of $94 to 84% occupancy with an ADR of $87. Here, “profit” is the key.

No matter a hotel wants to apply yield management, revenue management, or profit management in operations, managers’ decisions count on a good rate structure, reliable forecasting, and good understanding of the market segments. Do you agree with Neil Salerno that profit management is the future?

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