Revenue Management

Chapter 3

Tools for Analysis of Revenue Management

Management accounting and economics provide many of the tools needed to analyze revenue management proposals. In this chapter and the next, we review several of these concepts and techniques.

Contribution Margin

While the nominal goal of revenue management is to increase revenues, the real goal is to increase revenues and profits. In some cases, profits may be increased by decreasing revenues, but we save that topic for the chapter on customer assessment.

The common measure used to assess the impact on profits is the contribution margin, measured in an incremental fashion by assessing the increased revenues minus the increased costs. The standard measure of contribution margin is revenue minus ...