What is Revenue Management?

When you shop for an airline ticket, the prices you are quoted are carefully calculated by a computer system. The airline’s goal is to generate maximum profit by determining the highest price you’re likely to pay, considering your alternatives. If they charge too much, you may go to a competitor. Too little, and they’re leaving money on the table.

To determine the right price, the system weighs several variables, including available seats left on the plane, number of seats already sold, prices paid for seats sold, projected demand for remaining seats, alternative options available and the price for those alternatives. This approach to pricing is called Revenue Management.

Revenue Management has been used by the airline, rental car and hotel industries for decades, and was introduced into multifamily real estate in 2003. Revenue Management pricing for multifamily is based on several factors, including current and expected availability, projected demand and actual leasing velocity, recently achieved rental rates, amenities, lease term, move in date and existing market dynamics. These are the same factors that have been used traditionally for pricing apartments in multifamily, but with the support of a technology system, optimized pricing can be achieved daily, which improves the probability of capitalizing on every opportunity to generate more revenue.

In addition to delivering ideal pricing on a daily basis using the support of technology, Revenue Management provides another critical advantage for multifamily: leasing associates can personally offer new and renewing prospects a multitude of price options to meet their needs, based on lease term and move in date, all of which are equally profitable for the property. As a result of being able to deliver this flexibility to prospects in the sales process, closing ratios improve and the leasing experience in elevated to a much more professional level.

Multifamily property owners and managers that have adopted Revenue Management are experiencing a clear revenue premium over those who still rely on traditional methods. Experts agree that Revenue Management technology will soon become a necessity to remain competitive.

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Abacus: Multiple Fee Managers, One Revenue Management Solution Berkshire: A Better Way to Price Carter-Haston: Revenue Management on the Front Line

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