Revenue Management Glossary
The world of revenue management is chock-full of acronyms and incomprehensible jargon. Use this glossary to understand every single term!
ADR (Average Daily Rate)
Average daily rate is an index used to calculate the average price of each room sold.
The ADR formula is: turnover of rooms / rooms sold = ADR.
ALOS (Average Length Of Stay)
The average length of stay (i.e. number of days) for guests can be calculated for either a subset of rooms or the entire hotel.
The ALOS formula is: total nights occupied / total bookings = ALOS.
All inclusive is a type of rate in which all services (accommodation, food, drink etc) are included.
Allotment is a term used to describe a certain number of rooms, optioned or purchased from wholesalers, tour operators, travel agencies or OTAs under specific negotiated conditions. These conditions usually include: the sale price, the number of rooms assigned, the allocation period and the release date, also known as “Release”.
ARG (Average Rate per Guest)
Since rooms can be sold for 2, 3, or 4 people, in some cases it may be useful to calculate the average rate per person rather than the rate per room.
The formula is: total room revenue / total number of guests = ARG
ARI (Average Rate Index)
This is an index that represents the average selling price of a property (i.e. ADR) in comparison to competing hotels. If the ARI is greater than 1, then the average rate of the property is higher than the market average. If not, then the average rate is lower than the market average.
The formula is: your property ADR / average competitor ADR = ARI
B2B (Business to Business)
This describes the sale of products or services from one company to another, as opposed to from a company to individual customers. Examples of B2B bookings are those that arrive from Tour Operators, Travel Agencies, and Wholesalers.
B2C (Business to Customer)
This describes the sale of products or services from a company to an individual customer or consumer.
BAR (Best Available Rate)
The BAR is the best flexible rate available to the public. By flexible, we mean that the rate does not cover advance payments, commissions or any penalties that are triggered with the booking. For example, a non-refundable booking cannot be the BAR.
B&B (Bed and Breakfast)
This is a property or hotel rate plan that provides complimentary breakfast in the room price, in addition to accommodation.
These are dates in which no discounts, conventions and promotions of any kind are active. They coincide with periods of high traffic during peak season or, occasionally, when large-scale events attract higher-than-expected occupancy rates during the year.
A booking engine is the software installed on, or connected to, a property’s official website that allows potential guests to check the availability of rooms and to make direct and independent bookings, in addition to purchasing any related services.
This is a key metric that indicates how frequently bookings are made on a specific date over time. This booking “rhythm” reveals whether the current offer (i.e. tariff) is suitable for the current demand. It is therefore a useful tool for monitoring and optimizing dynamic tariffs.
The booking curve is a graphical representation of bookings over a specific period of time. The curve usually shows the number of bookings made or the property’s availability (i.e. rooms unsold).
BW (Booking Window)
This is the number of days between a customer reserving a room and actually arriving at the property. Understanding the natural booking windows throughout the year is essential for optimum revenue management.
BR (Bottom Rate)
The bottom rate represents the price below which a property can never afford to sell its rooms. It is the minimum possible rate a property can set without losing money.
A property’s budget defines its revenue targets. The budget is built based on a hypothetical “simulation” of likely market scenarios combined with the property’s expected strategies and resources. To be reliable, the budget must be estimated using models and values from real historical market scenarios.
Blank For Full
This is an optional contract between a property and an intermediary. The contract usually establishes a number of rooms—reserved for the intermediary—and an agreed price. However, there is no release option and the rooms will be paid for, in full, regardless of whether they are eventually occupied by the intermediary or not.
A property’s capacity is the total number of resources (i.e. rooms or apartments) that it can physically sell, at a given point in time.
CRM (Customer Relationship Management)
This is a customer care software used to collect data from customers (and prospects) for the purpose of marketing and sales campaigns.
The channel manager is a piece of software that allows any property to market and sell its rooms on multiple different platforms simultaneously, including OTAs and the property’s own website. Channel managers also allow users to manage all room rates.
A complimentary room is any room in the hotel in which a guest is staying free of charge.
A property’s conversion rate is the ratio between the number of prospects (e.g. by website visits, email campaigns, organic search) that become leads (by performing a specific action, such as requesting a quote or booking a stay).
This is a communication strategy that targets customers that have already purchased their stay and which aims, through various actions and tactics, both before and during their stay, to sell additional services. Examples of such services are car rentals, airport transfers, wellness center bookings etc.
CTA (Closed to Arrival)
This is an inventory control tool that allows a property to prevent bookings with arrivals on specific dates—regardless of the length of stay.
CTD (Closed to Departure)
This is an inventory control tool that allows a property to prevent bookings with departures on specific dates.
CO (Cut Off)
The Cut Off describes the minimum number of days, prior to arrival, that customers must make their reservations. For example, a Cut Off of 2 days means that a customer cannot book for today or tomorrow, but can make a reservation for the following day.
The brokerage commission is the percentage fee that is paid to any third party that promotes or resells rooms or services on behalf of the property. Typically, commissions are paid to travel agencies, tour operators, booking portals (OTA) and so on.
This is the group of properties chosen as a “stable” reference point, used to compare the performance of a property with an approximate market average.
DBA (Days Before Arrival)
DBA represents the number of days between today and the arrival date for a specific reservation.
This describes the limited hours, during the day, during which a hotel room may be reserved. The same room can be sold multiple times per day, in specific time slots, to increase profitability.
Demand is the level of consumer interest or need in products or services such as beds, rooms or event spaces.
Displacement analysis is the practice of determining the total “customer worth” of competing aspects of a hotel or property. The aspect which generates the highest customer should be prioritized in most cases.
DSU (Double for Single Use)
“Double room for single use” is the method of selling a double room to a single occupant.
This is a revenue management strategy based on the continuous optimization of hotel rates in response to market demand. Dynamic pricing varies constantly. If plotted, it would typically show significant peaks and valleys, i.e. times of higher or lower room pricing.
This describes room bookings which are made a long time in advance. Many properties encourage early bookings by offering advantageous rates.
FIT Rate (For Individual Travelers)
FIT rates are net rates supplied to intermediaries such as tour operators and travel agencies, to which they will add their own markup. This mark-up may be mutually-agreed in advance or be managed privately at the discretion of the intermediary.
This is an estimate of future tourism demand. The purpose of forecasting is to enable properties to set rates which will be as effective as possible in the most likely future scenario. Properties can create various forecasts, for example allowing for higher or lower than anticipated demand.
FB (Full Board)
This describes a hotel rate plan that includes breakfast, lunch and dinner in addition to accommodation.
F&B (Food & Beverage)
The food and beverage department is responsible for all catering activities. F&B will usually have its own budget, management staff and specific cost and revenue centers that are distinct from the accommodation itself.
This rate includes specific restrictions, conditions or benefits afforded to bookers unders certain conditions. An example of a fenced rate is the non-refundable booking, as well as other reservations which require prepayment.
GDS (Global Distribution Systems)
These are a special type of software that connect to global databases offering rates and availability to travel agencies. This allows agencies to make reservations on behalf of their customers. Note that these databases are not accessible to the public (unlike OTAs) but are reserved exclusively for professional operators.
GOP (Gross Operating Profit)
This is a measure of the difference between a property’s operating revenue and operating expenses. It is one of many different profitability indicators employed in the hospitality industry.
GOPPAR (Gross Operating Profit Per Available Room)
While the GOP is useful, in reality it’s more common to measure the GOPPAR since it makes the direct comparison between properties of different sizes much easier.
The formula is: gross operating margin / rooms available = GOPPAR.
HB (Half Board)
This describes a hotel rate plan that includes breakfast and either lunch or dinner in addition to accommodation.
An incentive is a type of “premium” stay that companies purchase as a form of corporate benefit for employees. They can be augmented with additional services or through upgrading the reservation to be, for example, all-inclusive.
Inventory is the number of unsold rooms within a property at a given time. In practice, inventory is the difference between the total theoretical capacity of the property, and any rooms that have been sold, optioned or made unavailable for any reason.
KPI (Key Performance Indicator)
KPIs are parameters that are considered to be closely linked to the achievement of business objectives. In our industry, traditional KPIs include GOP, GOPPAR, REVPAR and ADR.
This is a type of offer that is used to sell off unsold rooms very soon before the arrival date. The idea is that it’s better to make less margin than no sale at all. It is the equivalent of a market seller slashing the prices of fruit and vegetables just before they go off.
LV (Lifetime Value)
Lifetime value is the total amount of money that one specific customer, or group of customers, spend at your property over their lifetime. It is a useful metric in marketing and, in particular, in the evaluation of customer acquisition costs (CAC).
This is an initiative that aims to increase a customer’s lifetime value. This can be seen in “rewards points” programs and in coupons that incentivize repeat purchases.
One of the many categories used to “profile” customers. As opposed to the business traveler, this customer is usually traveling for pleasure, as opposed to for some corporate purpose. It can generally be assumed that the leisure traveler is more flexible (in terms of travel dates) and less sensitive to price.
LOS (Length of Stay)
The length of stay is the total number of nights that make up a reservation. While simple, it is essential for calculating the average length of stay (ALOS) which, in turn, is fundamental for regulating a property’s tariff strategy.
This is the difference between the total costs of providing a service, and the final price allocated. In other words, it’s the amount of profit hotels make on the sale of rooms and services.
The formula is: (sales price - net tariff) / production costs = mark up.
MPI (Market Penetration Index)
The market penetration index is used to compare occupancy levels between a given property and the market average, usually through direct competitors.
The formula is: occupancy rate / market average occupancy rate * 100%
A metasearch engine is a tool that aggregates data from different sources in one place. Trivago, for example, is a meta engine because it collects various data points on hotels and rental properties, from dozens of sources, and displays them all together.
MICE (Meeting, Incentive, Congress and Events)
This is another market segment (just like business traveler and leisure traveler) which describes guests which are using your property for meetings, conferences, events or corporate away-days.
MinStay or MinLOS (Minimum Length Of Stay)
This is a restriction on the minimum number of nights for which a reservation can be made. It is a useful digital inventory tool: MinLOS can usually be automated on your website and on third-party booking platforms.
This is a revenue management strategy that involves “removing” rooms of a property’s inventory (i.e. making them temporarily unavailable) before reintroducing them, at a reduced price, at a later date.
The net rate is the selling price of rooms after any commissions have been subtracted, or before any markup has been added.
A “No Show” is a guest that fails to arrive and check-in for their stay. The term applies to those who have already paid in full, and those who have yet to pay.
NOREF or Non Refundable
NOREF is a form of fenced tariff. It stipulates that a percentage of room price (from 1% to 100%) must be paid by the customer—even if they later cancel their reservation.
Occupation% or Occupation Rate (OR)
One of the main KPIs for the hospitality sector, occupancy rate describes the percentage of occupied rooms compared to the total number of rooms in a property.
The formula is: rooms sold / rooms available * 100% = OCC
OTB (On The Book)
OTB data refers only to any data tied to future dates, clearly distinguished from “historical data”. Metrics like turnover, occupancy, and number of bookings can all be forecast OTB or viewed in a historical context.
Opaque tariffs are those used by intermediaries selling “package deals”. Customers will see one single price for the entire bundle, rather than the specific price of each element.
Open pricing allows hotels to price all room types, channels and dates independently of each other in order to maximize revenues, by following natural fluctuations in demand.
OTA (Online Travel Agencies)
OTAs like Booking.com and Expedia are virtual platforms that, by charging commission to the properties involved, allow customers to compare offers for hotel rooms and rental properties, make reservations, and view additional services (like transport, insurance or experiences) on one website.
This is a powerful sales technique adopted by some properties to maximize occupancy rate. It consists of selling more rooms than are actually available, in order to avoid unsold rooms.
Oversale is essentially an involuntary overbooking, caused by mis-management of a property’s availability. In practice, oversale occurs when more rooms have been sold than are actually available, and these have not been re-protected in time.
This is a special rate that includes additional services on top of the room reservation, such as access to the spa, beauty treatments, welcome kits or other services provided by the property or external partners.
Pickup is a value that represents the variation in rooms available on a specific date, at two different periods in time—for example, New Year’s week last year compared with the year before. This pickup is used as a reference point for assessing the effect of demand on a hotel's “inventory” of rooms.
PMS (Property Management System)
This software is extremely useful for integrating and managing a property’s rates, distribution channels, reservations and, in general, all operations related to reception, cleaning, maintenance and accounting.
This is a rate policy that allows properties to list consistent and identical prices across all platforms including its own price list, sales portals, OTAs etc.
This rate is defined as the upper reference limit for prices available to the public. In other words, it’s the exact opposite of the bottom rate. While the rack rate can be exceeded, this only happens in special cases and is, generally, the subject of a private negotiation.
This is a management system designed to maximize and optimize revenue for a hotel or property. “Doing revenue management" means, quite simply, managing the prices of your rooms.
This is the person responsible for monitoring and managing prices in any property or hotel.
RevPAR (Revenue Per Available Room)
Considered one of the most crucial KPIs in hospitality, RevPAR combines the value of the sale price and occupancy in a single index.
The formula is: net revenue of rooms / available rooms = RevPAR
This technique is strongly tied to the strategic use of overbooking, and involves purchasing stays at other properties in order to provide a sort-of “guarantee”where they can send excess guests if all reserved parties do actually show up.
RMS (Revenue Management System)
This is a suite of advanced tools dedicated to Revenue Management. An RMS typically integrates with a property’s traditional management software and aims to support and facilitate the work of revenue managers.
RO (Room Only)
This is a specific rate that includes only the overnight stay in the room, not any meals or additional services.
ROI (Return On Investment)
ROI is a profitability index and describes the ratio between the amount invested in a particular activity (usually marketing) and the revenue generated as a direct result of that activity.
The formula is: net profit / invested capital = ROI
When a property has sold all of its available rooms too early (and therefore undercharged due to the unforecast, or poorly forecast, high demand) this is known as spillage. Timely price increases are needed to avoid spillage.
When a property has sold too few of its available rooms close to the arrival date (as a result of overcharging based on an inaccurate demand forecast) this is known as spoilage. Timely price reductions are needed to avoid spoilage.
Shoulder (or Shoulder Dates)
This is the term used to describe dates close to peak dates. For example, if huge demand is expected for Friday and Saturday evenings, then Thursdays and Sundays should be considered "shoulder dates". The management of shoulder dates is important since they tie directly to the value of the average stay and, in particular, weekly occupancy levels.
This is the summation of all revenue from the different areas of any accommodation or property. Typically, sales from restaurants, health clubs, meeting rooms and other areas can be optimized in a similar way to rooms.
TO (Tour Operator)
This is an organization that distributes tourist “packages” that include a stay at your facility, as well as other services such as transport, insurance, and activities.
TrevPAR (Total Revenue Per Available Room)
Closely related to RevPAR, TrevPAR also includes turnover from other revenue centers such as ancillary goods and additional services available at the property.
The formula is: total turnover / number of rooms = TrevPAR
When demand exceeds the property’s maximum capacity, this is known as unconstrained demand. Predicting the quantity and quality of this demand allows owners to optimize occupancy and maximize average room rates, by leveraging their tariff strategies appropriately.
This is a sales strategy aimed at selling a high-end product to a customer that has already purchased a lower-end product. In the hospitality sector, this usually refers to some form of upgrade.
An upgrade is the improvement of a guest’s booking, for example to a room of higher quality, or the addition of new services to the booking. Upgrades happen for many reasons, including paid upgrades as part of a hotel’s upselling strategy.
A walk-in is a guest that visits and stays in a hotel without a prior reservation. The rate for walk-ins varies considerably depending on the season, current occupancy and other factors.
Wholesalers are companies that reserve beds in large quantities at advantageous prices, and then resell them with a retail mark-up to travel agencies and OTAs. This strategy is only usually applied by larger properties or chains, since it requires selling a huge quantity of rooms for below market prices.
This describes the process of maximizing revenues through the proper management of inventory. At the heart of yield management is the segmentation of specific rates for specific types of customers and channels, as well as the search for maximum occupancy and the highest possible room price.