February 12, 2024

3 Pillars of Revenue Management

3 Pillars of Revenue Management

In this section, we’ll review the levers that we can pull to create a more comprehensive and dynamic revenue management strategy. You can use all of these techniques concurrently to create a powerful revenue management strategy.

Rate Adjustments

Rate adjustments are price modifiers that allow you to increase or decrease your prices based on demand. This allows you to put a premium on dates that have higher demand and a discount on dates when your daycare or boarding facility is operating below capacity. This gives you the best opportunity to monetize your available inventory. A simple 1% increase in your rates can result in 5% increase in net profit. Based on the outsized swings in demand during peak times, we are seeing businesses enact 5-10% rate adjustments during peak seasons which fall directly to the bottom line for a 25-50% increase in net profit.
There are two strategies you can use to adjust your rates:

  • Proactive rate adjustments: based on when demand is historically the highest (or lowest), adjust your pricing in anticipation of those changes. These periods are usually easy to identify on a calendar and consist of Holiday weekends, school breaks or summer weekends. 
  • Reactive rate adjustments: create rules that, based on your current occupancy, increase or decrease your rates to manage your inventory. For example, you might want to increase prices by 10% when you approach 80% occupancy.

Minimum Booking Values

Most businesses have a fixed number of bookings they can accept before starting a wait list. Filling up with first come first serve bookings for periods where demand is high, will cause you to wait list customers with higher quality bookings (i.e. longer stays, more extras purchased, etc.). Minimum booking values help you protect your most valuable “real estate” during periods with the highest demand. For example, a one night booking over Thanksgiving may not be the most desirable reservation to accept because it occupies the one peak night while leaving shoulder nights on either side unoccupied. Creating a minimum booking value during that time period can deflect that type of booking altogether - leaving you open to accept a more typical (and more profitable) Wednesday through Sunday booking.

Minimum booking value rules should be set based upon historical data of what you have experienced in the past. For example, what is the average value of a booking for a reservation that touches a Saturday in the summer? That can be your baseline for a minimum booking value rule that you will want to set for next summer.

In action, a minimum booking value rule might look like the following:

  • A customer who is attempting to select a single night stay over a minimum booking value period may see no results available
  • A customer who is attempting to select a longer stay, or who has more pets during the same period will see the option to book that day (in conjunction with adjoining days).

This is an example of how you might deflect less desirable (lower profit) bookings, while keeping yourself open to collecting better bookings (higher profit) when they come along.

Blackout Dates

Blackout dates are useful for making offers available or unavailable based on market conditions. For example, if you have a base boarding package that does not include any extras or add-ons, you might make that specific offer unavailable during your busiest periods. In this way, you can strategically use blackout dates to nudge pet owners into higher grossing offers.

Now that we've covered the basic levers of revenue management, in my next post I'll walk you through some of the the ways I employ these strategies at The Kennel at Arbor Lane.

Learn more about the principles of revenue management by reading the rest of our Guide to Revenue Management.

Chris Tilson