Revenue Management

Unless you work for a not-for-profit, your company is seeking to make money.  To make money you need to ensure that your revenue is greater than your total costs.  Pretty straightforward.  Unfortunately this then leads to the worlds of cash flow, accounts receivable, and budgeting.  Three worlds that few people enjoy living in.

The NY Times Real Estate section ran a fascinating article on how multi-family apartment community managers are using Revenue Management software products to develop pricing models that are constantly evaluating what prices should be based on the market, existing occupancy, and future rental expirations.  The gist is that it gives the managers more flexibility for shorter or longer term leases than are typically advertised and can price them at a point where it is profitable.

This concept translates nicely to the corporate real estate world because currently few occupiers of space attempt to match the cost and quality of real estate to the revenue or cost avoidance of the groups occupying it.  Many CRE departments use a charge-back model and help groups with budgeting, but that isn’t the same as aligning cost to revenue.  To create this alignment you would first have to have an internal model that develops the ideal “real estate cost” per person in a department.  This model would then allow a real estate group to apply more specific plans to each group and align the function of real estate to the operational reality of each department.

I’m not saying that HR, finance or marketing should be in low cost real estate – they are required functions that supports the entire business.  They should get credit for how they impact each of those groups.  But it does put operational teams into more targeted areas that are aligned with how they work.


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