Revenue Management

Revenue Management is a concept that originated in the airline industry and has migrated to other business arenas. Hotels, rental cars, cruise lines, theatre and television broadcasting are now applying RM to maximize their revenues. RM techniques are used to forecast customer demand and optimize price and availability of products and services. The Wall Street Journal calls it "the number one emerging business strategy – a practice poised to explode".

In England and Wales, a company called Lawson Maclaine advertises bailiff services along with Revenue Management for the Legal Profession. In Africa, RM tactics are used in the utility sector: "Throughout Africa there was a legacy of non-payment for utility and municipal services and this had led to low service levels. The only way to improve service levels was to get everyone to pay a fair price for the services that they utilized."

See process model for Revenue Management:    

So what exactly is Revenue Management and how does it apply to your business?

It's the practice of adjusting price and availability of products and services according to customer demand.  For example, the cleaning service that charges $60 on Monday through Wednesday and $70 on Thursday through Sunday is practicing revenue management.  Services offering sliding scale pricing on the basis of supply & demand are practicing RM.  And your airline, in balancing the pricing differences between first class, coach, 21-day advance and walk-up business customers (their favorite) is practicing the same concept, but with the addition of sophisticated computers and software to support the decision-making process.

How to apply Revenue Management to your business

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Copyright 1998, 1999, 2000. Laura Brown, LBPI, Inc. (DBA: System Innovations)

Last Updated: August 21, 2000