Flying the Friendly Skies for Tips on Maximizing Parking Revenues
Remember that time you thought you got a good deal on an airline ticket, only to find out that the guy sitting next to you bought his for half the price? Maddening? Sure. Good business practice by the airlines? You bet.
Over the past 25 years, airlines have perfected the art of charging different passengers different prices for a seat on their planes. It’s a strategy called revenue management (RM), also known as yield management or price optimization. As defined by Wikipedia: “Revenue management is the process of understanding, anticipating and influencing consumer behavior in order to maximize revenue or profits from a fixed, perishable resource.”
There are three essential conditions for RM to be applicable:
1. There is a fixed amount of resources available for sale (i.e., there are only 100 seats on the plane).
2. The resources to sell are perishable (i.e., once the plane takes off, any unsold seats are lost revenue opportunities).
3. Customers are willing to pay a different price for using the same resources (i.e., the person sitting next to you on your flight paid half of what you did).
Today, businesses such as hotels, car rental agencies, restaurants and more have followed the airlines’ lead, using the RM strategy to maximize revenues. One notable industry omission – parking.
In speaking with parking operators about RM, conditions 1 and 2 make sense. However, condition 3 is where they are skeptical. In fact, a large number of parking operators fix their rates simply based on their expenses and the expected profit that they would like to generate, with no reference to the market conditions whatsoever. That is a big mistake.
Imagine for a moment that you operate a 100-space parking lot near Cowboys Stadium, home of the Dallas Cowboys, in Arlington, TX. Let’s say you charged $20 per space and sold out your lot the first game, resulting in $2,000 of revenue. Given how fast your lot sold, you wonder if there’s an opportunity to generate additional revenue the next game.
Essentially, you have three options:
1. Increase your per-space price from $20 to $30.
2. Make no change.
3. Call your loyal customers two days before the game and offer them a Reserved space for an additional $10.
So which is best? If you chose option 3, kudos!
As you may have deduced, option 1 is risky business. There is no guarantee you will be able to sell more than two-thirds of your lot at $30 a space. Anything less than that and you will be making less money than the week before. Option 2 is the status quo and does not improve your ability to generate more revenue.
Option 3 requires some legwork, but if you can convince even one of your customers to pay an additional $10 for a reserved space ahead of time, you will have increased your revenue from the week before (assuming you can still sell the remainder of your spaces on game day for $20).
Let’s say you’re able to convince 10 of your customers to reserve their parking spaces ahead of time for a premium. Ten customers paying an extra $10 generates an additional $100 or a 5% increase in your bottom-line revenue. Not bad for a few phone calls. Option 3 exemplifies a revenue management strategy that every parking company should apply.
Now, in this day and age, calling your customers by phone isn’t the most efficient or cost-effective approach, especially with the Internet at your disposal. It offers ease of use, and the ability to offer services and benefits not available through other channels, such as dynamic pricing, online reservations, cross-market promotions, rewards, and more.
Since the introduction of the World Wide Web in the 1990s, the airline industry has been at the forefront of using the Internet to conduct business with customers. From online travel agencies (e.g., Expedia.com, Orbitz.com) to the airlines themselves (e.g., AA.com, United.com), the Internet has become the main driving force for airline revenues.
The same cannot be said for the parking industry, with many operators maintaining no Internet presence whatsoever. Even those that do have an online presence primarily tailor their site only to their clients (e.g., property owners and commercial real estate managers).
While focus on the clients, along with proper facility maintenance and a smooth operation, is important, it is only part of the solution. The other part is maximizing facility revenues, day in and day out.
With the proper Internet marketing strategy combined with effective RM techniques, parking operators can increase bottom-line revenues, keeping their existing clients happy and prospective ones knocking on their door.
Revenue management is a strategy that has worked wonders for the airline industry, and it can for your parking operations too.
Aashish Dalal is CEO of ParkWhiz.com, which provides online tools to help parking operators, large and small, earn more money from their parking spaces.