Financial Benefits
Revenue management users ascribe revenue lifts of 2-4% to their pilot tests across the board. The lift achieved may depend in some cases on the quality and consistency of pricing and management before adoption. (Please see graphics below for results reported by Rainmaker and by M|PF Yieldstar. ) The more room for improvement, the more RM may help improve performance. No one seems to have figured out how to measure the ongoing differential versus the market, but users that systemically compare their performance to market indices report that their only rent-growth peers are other users of revenue management tools.
Both Rainmaker Group and M|PF Yieldstar report that revenue-managed properties beat the performance of non-revenue-managed properties about 70% of the time. The other 30% of the time, the pricing results are the same.
Click to Enlarge Slide – LRO and Yieldstar Pilot Results
 Rainmaker LRO Pilot Test Performance |
 Yieldstar Price Optimizer Pilot Test Performance |
Initial results are typically tracked using a “test vs. control” methodology in which the revenue impact on new and renewal leases is compared at similar properties in the same market in the same owner’s portfolio. Using this method, testing companies compare the rents at “property pairs” in a portfolio. Tests are conducted for a set period of time, and the results evaluated.
The Limits of Testing
While such tests have many weaknesses from the standpoint of statistical validity, they are the only apparent, cost-effective method for analyzing a real world business improvement scenario. Some of the possible testing flaws include:
- Small sample size – there are too few transactions in a typical test to provide “statistically significant” differences in performance.
- The process of choosing property pairs may itself be subject to selection bias since the selection is subject to the opinions of the tester.
- Any new program can bring heightened awareness and participation of the leadership of the company. The Heisenberg Uncertainty Principle suggests that even the increased scrutiny of a business should affect its short-term performance.
Having said that, we suggest that the consistent positive differentials from users in pilot tests are too obvious to attribute to luck or random chance. Public companies and private have offered glowing, enthusiastic testimonials for revenue management – both from a financial perspective, and also from a management transparency perspective.
Would Users Ever Turn Revenue Management Off?
Of the approximately 50 companies that have successfully implemented revenue management, we are aware of only one instance in which a company has turned it off after achieving their initial rent growth lift. When we recently asked executives from ten companies that use Rainmaker Group’s LRO software whether their companies would ever turn off revenue management, the responses ranged from “Hell no!” to derisive laughter. To put it mildly, users seem committed to what it has done for their business.
