Revenue Management Series Part 3: Inventory Management

Matt Lederman
March 17, 2023

This is part 3 of our 5-part Revenue Management series. Read the introduction, Part 1, Part 2, Part 4 and Part 5.

“Inventory is fundamentally evil. You kind of want to manage it like you’re in the dairy business. If it gets past its freshness date, you have a problem.” — Tim Cook, Apple

As a tour or attraction operator, depending on the scale of your operation, you may have a variety of products that you sell, and thus a variety of inventory to manage.

Let’s start with your primary product – your tickets. Whether you’re running boat or bus tours, a zoo, museum, art gallery, or theme park, you have one consistent thing on your mind– capacity management.

Or put another way, inventory management. You have a limited number of tickets you can sell for any given day or time block.

Parts 1 and 2 of the Revenue Management series discussed how to improve your profitability by adjusting prices based on demand, and managing different channels to generate demand for ticket sales.

Now we’re going to discuss how managing your inventory can have a dramatic impact on your operations.

Shared Inventory

The concept of shared inventory is something that online sellers have only started to address across all industries.

Consider yourself like a brick-and-mortar retailer who is now selling products online. Just as they only have so many products on the shelf, you only have so many tickets that can be purchased. The problem is that your online buyers and your in-store/in-person buyers are purchasing from the same inventory.

This is why an all-in-one system is critical for your inventory management. Your website needs to show that a tour is sold out when the last ticket is sold at an on-site kiosk. Your gift shop needs to put an item on hold that is purchased online, so you don’t sell it to someone on-site.

When it comes to ticketing and OTAs, the traditional way to operate is to allocate a block of tickets that only they can sell. This is detrimental when it comes to profitability.

Either they don’t sell out their block and you can never reach capacity, or you have high demand through your direct channels, but are committed to selling a chunk of your inventory through the OTA and are losing out on revenue to their high commission.

The solution to this is shared inventory, where you’re both drawing from the same bucket of tickets. This is the true power of an all-in-one ticketing and operations platform.

Beyond ticketing, you’re also dealing with other aspects of inventory management with all of your ancillary products and services.

As you grow these revenue channels it becomes more important to manage your inventory effectively.

Too little inventory leads to missed revenue opportunities and disappointed customers, too much inventory exposes you to the risk of spoilage, damage, theft and more.

Borrow from the best practices of restaurants and retail managers.

From your operations team to your item tracking and accounting, tours and attractions gain a compounding advantage in revenue by keeping inventory low and adopting a FIFO approach.

First-In, First-Out (FIFO)

FIFO is an accounting term that stands for “first-in, first out” and is an inventory costing method that has clear applications in tours and attractions.

Both your retail and food and beverage operations involve time limited resources, so it stands to reason that you will look to sell the inventory you purchased first, which will “expire” soonest, to avoid any waste in your system.

This is most obvious when it comes to food and beverage. Food spoils, so you want to make sure that you’re selling the items in your fridge that have been there the longest and are closest to their expiration date.

Also consider what’s in your gift shop. Do you have a batch of printed shirts commemorating a specific event or feature attraction that won’t be relevant next season?

This is why restaurants have lunch specials and why gift shops put their date-specific items in high-traffic spots.

The next piece to add in when managing inventory is the cost you paid for the sale.

Cost of Goods Sold (CoGS)

The closer to expiry your goods are, the less they are worth. If they spoil, they are worthless. If you’re able to run your FIFO operation effectively, you will be selling your older, lower value goods first.

This is a common method for tours and attractions to reduce their Cost of Goods Sold.

To illustrate this point, you’re likely paying a higher cost per unit for the custom batch of commemorative t-shirts, which won’t be relevant in a few weeks.

Your loss for not selling these is proportionally greater than most other items on your shelf. Tours and attractions may think of their ancillary goods as aside business.

As we begin to wrap more upselling and cross selling into our online offers, and gift shops expand beyond small on-site, low SKU stores to large eCommerce engines with established brands, significant incremental revenue will come from honing your inventory management capabilities.

Finally, keeping your inventory levels low allows you to free up working capital that would otherwise be tied up and keeps you nimble to put out new, relevant offers on a quick timeline.

This frees you from the need to discount too deeply as your products get past their prime.

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Matt Lederman
Marketing Manager