Revenue Management is the powerful, easy-to-understand tool used by airlines, hotels and even shopping centres to increase sales and total profits. You can use the same techniques to boost profits in your restaurant, cafe, bar or function business.

Revenue management is a great tool to enable more control of the sales process, be it managing casual seating and bookings, right through to functions. Think about how airlines and large hotels do it, with their RevPAR (Revenue per available room) and RevPSM (Revenue per seat mile) calculations. Shopping centres calculate their Sales per Square Metre or Square Foot.

Using this in a restaurant, hotel or club setting

In a restaurant, hotel or club bistro, you can use a concept developed by Sheryl Kimes of Cornell University called RevPASH (Revenue per Available Seat Hour), and for functions, RevPFR (Revenue per Function Room) - maximising sales for rooms and seats that may be in short supply.

Functions

How many prime-time function spaces do you have available in December on a Friday or Saturday night? Remember there are only 6 of these days that everyone wants. If you sold some of these rooms back in May, did you have a sales minimum set for the room or did you give it away to the first person to pay a deposit?

Better to set a high minimum spend for your rooms on key dates (through package price, minimum spend or minimum numbers) and say 'we don't have rooms available' than give away a room that can hold 100 to a group 50 because it's the only room you've got. A function for 80 x $50 ph ($4000) booked in September is very different to one for 50 x $50 ph ($2500) that you grabbed in May. You're almost certain to sell a prime-time room in December, but don't give them away too quickly!

Airlines specialise in releasing unsold inventory (seats!) at cheaper prices at the last minute, holding onto them for as long as possible at close to full price. Hotels the same. But they know that it's better to get some money for it just before the flight than have the plane leaving with a seat empty - hence the day-before discounts. Airline booking systems are very complex, but you can use the same thinking to improve your sales and profits.

Restaurants & Bistros

RevPASH for restaurant seating uses the two available 'levers' to manipulate total revenue - prices charged and length of time spent in the seat. Traditionally we measure success through total sales and per-head spend for a particular period. Revenue per Available Seat Hour would analyse your 100 seat bistro, serving dinner for 4 hours, and see 400 'available seat hours' - now divide the total sales by 400 to find the RevPASH.

Work on actual examples with this online RevPASH Calculator - enter seat numbers, opening hourse and average spend, then make changes and see what yields the greatest profitability.

In the evening, 6-7pm is usually a little quieter, as is 9-10pm. If you normally have 40 seats occupied in each of these first and last hours, and are full between 7-9pm, you've achieved 280 occupied Seat Hours out of the possible 400 (40 + 100 + 100 + 40).

So what can you do to get more people in earlier and later? There are many options, from price incentives through to controlling how bookings are taken ('yes, we have a 6.30pm slot available for your large party but nothing then until 9pm').

If your customers normally spend an average $50 per head and you're confident of filling the two peak hours (with 200 Seat Hours), adding an extra 20 (on top of the normal 40) in the hours either side, even with a lower spend of $40 per head, gives a nice bonus of 40 x $40 = $1600! See the worked example below:

If you add incentives to attract or move people earlier or later, the profit potential is considerable, and especially if you can turn over peak-period seats more quickly (eg in one hour, fit 120 covers in 100 seats). Add up your total seating, multiply by the hours open and see what you can do to fill the quieter times.

Example of a RevPASH calculation - click on the link below the table to fill in your own figures:

Check your RevPASH now, and watch profits grow as you work on improvements.

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