Faculty & Research
Accurately Estimating Time-Based Restaurant Revenues Using Revenue per Available Seat-Hour
Vol 8 No 9
By: Gary M. Thompson Ph.D. and Heeju Sohn
Executive Summary: By calculating revenue per available seat-hour, or RevPASH, restaurant managers can implement revenue management approaches to build their restaurant’s profitability. The key to making this work is the appropriate calculation of RevPASH, in a way that captures accurately the effects of revenue, time, and capacity. Most RevPASH analyses are based only on the time at which a check is opened. Since the time needed for most meals crosses analysis periods (whether those periods are an hour, a half-hour, or less), assigning the entire RevPASH to the analysis period when the check is opened can create inaccurate analyses. Instead, as demonstrated in this report, a better approach would be to calculate RevPASH according to both check open and close times. The resulting revised RevPASH calculation accounts for the demand that customers place on restaurant capacity for the entire duration of their meals (and the revenue therefrom). Using eight months of data from one restaurant’s POS, we find that the traditional approach works fine when RevPASH is calculated for the entire day part (in this case, the entire lunch period). The approach based only on check-opening times become less accurate, however, as the analysis periods are shortened. Even when the analysis periods are two hours long, the inaccuracy of the traditional approach exceeds 40 percent. Understanding the nature of this inaccuracy (and how to overcome it) is essential for managers who use RevPASH to guide their revenue enhancing decisions.
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- Accurately Estimating Time-Based Restaurant Revenues Using Revenue per Available Seat-Hour By: Gary M. Thompson Ph.D. and Heeju Sohn
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About Gary M. Thompson Ph.D.
Gary M. Thompson is a professor of operations management in the School of Hotel Administration, where he teaches graduate and undergraduate courses in operations management. Previously he spent eight years on the faculty of the David Eccles School of Business at the University of Utah. He holds a BS with first class honors from the University of New Brunswick, an MBA from the University of Western Ontario, and a PhD in operations management from The Florida State University. His current research focuses on optimizing restaurant table mixes, on optimizing conference schedules to improve attendee satisfaction, on course scheduling in post-secondary and corporate training environments, and on the effects on customer service of labor staffing and scheduling decisions. His research has appeared in the Cornell Hospitality Quarterly, Decision Sciences, the Journal of Operations Management, Management Science, Naval Research Logistics, Operations Research and other journals. He has consulted for several prominent hospitality companies and is the founder and president of Thoughtimus, Inc., a small software development firm focusing on scheduling products.
For more information visit http://www.hotelschool.cornell.edu/research/facultybios/faculty.html?id=84
