Revenue Management

Revenue Management

This particular business tool is used by many different types of business from Hotels to Airlines to Shopping Centres. By understanding what its all about you can apply some of the techniques they use to your own business to help boost the profitability of your bar, cafe or restaurant.

Revenue management is a tool to enable more control of your sales process helping to maximise your income. Airlines do it by looking at RevPSM (Revenue per seat mile), Hotels with RevPAR (Revenue per available room) and new acronyms are being created all the time - RevPASH (Revenue per available seat hour) and RevPFR (Revenue per function room) to name but two of the latest.

Essentially, instead of using the more common practice of 'Spend per Head' (SPH) to evaluate performance of your restaurant or cafe, RevPASH would look at the 50 seat business you have and calculate you maximum number of available seats for your serving period - lets say 5 hours from 6pm to 11pm. 50 x 5 would be 250 available seats per hour.

To carry on with this example we could assume that the early and late period 6-7pm and 9-11pm were generally quieter than the peak period of 7-9pm. If, for example, your peak periods were full and your off peak times had, say, 20 seats per hour you would be achieving 160 occupied seat hours out of the maximum 250.

Having this information to hand allows you to start analysing how to attract people earlier and later, thereby maximising your occupancy. Now, bearing in mind that your fixed cost should remain the same - as you would be open anyway - any additional occupied seats become pure profit less the variable costs of your food items. As you can imagine a small boost in your off peak hours - of say 5 seats per hour at £15 per head and 65% GP - would produce a significant boost to your bottom line profits. In fact, in this example it would amount to £146.25. Remember, this is adding directly to your bottom line!

If your restaurant sits on a particularly busy High Street and you can virtually be sure of filling your peak hours, consider a no-bookings policy for this period. Try to push people who wish to reserve tables to your off peak hours - 6.30 or after 9pm. Incentives are remarkably good for these periods too - a free bottle of house wine if you book a table for between 6 and 7pm - offer like this will help to drive these off peak periods and maximise your RevPASH. Combine this with techniques to increase SPH and you can have a dramatic effect on your bottom line with minimal effort and additional cost to the regular running practice of your premises.

Apply this same principal to your function rooms etc. Spending a few extra hours to analyse your key moments can pay huge dividends as your financial year progresses. It may sound like a great idea to sell you Chirstmas Eve function room space to the first enquirer in January, but these prime time spaces are always in demand nearer the time when offices, groups and indivduals find they've left their planning to the last minute. Its often at these times you can maximise your income for this day and still have secured the original booking by offering them a less prime slot at a cheaper price. Getting this January enquirer to book December 23rd at 50% discount isn't difficult and as you can virtually be sure of selling the Christmas Eve slot in November or December your in a win win situation with significantly increased profits.

Keep an eye on the Articles section of BARventure and I shall soon upload a RevPASH spread sheet for you to download. You'll be able to play around with the numbers and really see the impact of applying revenue management to your operation.

Revenue management is one of those small operational tools that can make a successful business an incredibly profitable one too and you should definately spend some time getting used to it.

David

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