In today’s changing rate environment, advanced tools are important but aren’t always enough to keep up with revenue management.
“Revenue management is perhaps once of the most misunderstood areas in car rental,” said Michael Meyer, president of Rate-Highway, a revenue management software company. “It’s often even overlooked. I think that’s because of the perceived complexity.”
During the 2022 International Car Rental Show, a seminar focused on experts in revenue management sharing a broader revenue management approach – with some fundamental concepts – to help lead rental businesses to long-term success. The panel was also joined by a car rental operator to provide an insider’s perspective.
What Metrics to Measure?
What should a rental company measure to help with revenue management? There’s an overwhelming amount of data in a business. When it comes to revenue management, Meyer provided several points to keep in mind when deciding what to measure and track.
When trying to figure out if it’s a worthwhile measurement, it’s important that what you’re tracking displays a metric change, so you know if it’s a good or bad metric. Meyer gave examples of tracking the number of rental days or utilization levels as actionable metrics. On the other hand, a vanity metric like total number of customers served isn’t too useful to track. There’s not a lot of value in this metric because the number of customers served is only going to go up, according to Meyer.
Metrics should be comparable across time. Most importantly, a company should be able to see if a metric has improved by comparing month over month or year over year. For example, a rental company can compare different car types by looking at different months of the year, said Meyer.
Metrics need to be understandable and not overly complicated. People should remember them and understand what they mean.
Metrics should be relevant and align with a company or project. Lastly, metrics need to be measurable.
“These criteria can help decide what metrics are important and can make a difference to your company,” said Meyer. “Just talking about metrics and company goals with employees can be the first step.”
Types of Revenue Metrics
For Jared Kinnaird, revenue and yield manager at Tom Wood Automotive Group, profitability is only one metric that he analyzes.
“We had to look at a multitude of factors,” he said. “It wasn’t just how many rentals. It also was how many days we were working and about how profitable each rental agreement was. And our staffing was important to us as well. The effect that the pandemic was having on them is something you can’t put a value on.”
Another metric is measuring how many people are touching your vehicles. For a one-day rental, that vehicle could be touched at least four to five times by your employees, according to Kinnaird. The vehicle cleaner touches it twice to clean before and after the rental, the rental agent touches it twice because it’s being rented out again the following day, and your return agent is touching it.
“If you are going to take one-day rentals, you need to find out how much it costs for each of your employees to touch that car, the movement of the car, and the risk in potentially damaging the vehicle,” said Kinnaird. “Then decide if that one-day rental is priced enough to take that.”
Revenue Education & Organization
To start, Emmanuel Scuto emphasized the importance of education and organization to help develop strategies for revenue management.
“After educating the staff and setting the appropriate organization, work closely with sales operations and fleet to help define the best strategy and goals,” said Scuto, founder and CEO of WeYield, which helps rental car operators with yield management outsourcing and revenue piloting. “Once this is in place, a company can think about using tools in order to support it.”
Even if a company has a specific department dedicated to revenue management, involving other departments in strategy planning can be beneficial.
To help put together a company strategy, Tom Wood decided to bring its fleet team into the decision-making process.
“We found that if your fleet and your rate department aren’t together, you’re going to be fighting each other and battling against each other,” said Kinnaird.
Because the fleet team knows what vehicles are available, the company was able to base its pricing off that information as well as the fleet department’s goals.
Scuto recommended holding a weekly yield meeting with all the team members to discuss pricing.
“Anybody in the organization should have access to information and data like KPIs,” he said. “It should be spread out around the company to make sure that everyone is involved in the knowledge of price positioning on the market and how the company has been performing that week or the upcoming week.”
Creating a Revenue Management Strategy
The role of revenue manager includes scraping the data, looking at reports, and piling all the information together to create a strategy.
“For figuring out rates and comparing prices, I recommend using whatever will allow you to find your rates and implement your strategy more quickly,” said Kinnaird. “I’m a manual scraper and look at rates myself on websites like Orbitz and Priceline. But if you have less time and more responsibilities, you could use a third-party company that can pull those rates for you.”
When determining a long-term revenue management strategy, Kinnaird recommended looking at rental market research and your customers’ behaviors. After analyzing market data and its customers’ behaviors, Tom Wood decided to push off future rental bookings for more immediate bookings at higher prices.
“In order to compete and make our money in a market where the big three set the way, we had to think differently,” said Kinnaird. “If we failed at this, we would have less bookings, but we decided to try this strategy.”
With a strategy of trying to be more efficient and profitable, the company ended up making more money with a lower volume of rentals. According to Kinnaird, revenue per day was up 68% while its rental vehicle volume dropped by 35%.
“One of our key points was we weren’t afraid to fail,” he said. “We knew that failure was an option, and we could lose a whole month of revenue, but we were ready to switch up our strategy if that was the case. Luckily, it worked out in our favor.”
When the panel asked the audience if they had a dedicated person for revenue management and pricing, only about a third of attendees raised their hands.
Many times, a rental company’s revenue management duties are shared by multiple employees, said Scuto.
“With many of the clients that we are supporting, they’ve been doing revenue management the same for many years,” he said. “But the environment has changed dramatically. The brokers, the OTAs, and the pressure on the pricing have all changed. Even how corporations have managed their purchase and procurement business have changed.”
Sometimes rental companies need outside help to get a different look on the way they are collecting revenue management and pricing. That’s where Scuto’s company WeYield can come in and help with yield management outsourcing, revenue piloting, and rate shop analysis.
Car Rental Seasons
For managing revenue during low seasons, Scuto advised rental companies to use that time for analyzing and reviewing.
“The low season is a great period to step back and analyze what hasn’t been done correctly in the past, how we could have improved, and what should be changed to prepare in the future,” said Scuto.
To Scuto, the other difficult season to prepare for is considered the shoulder season, the season between low and high seasons.
“The next peak season is easier to prepare for because you know already know how to manage it,” he said. “The shoulder season is a fantastic opportunity to improve the entire revenue management performance while the low season is a good time to think and review.”