Yield Management in Hotel Industry: Key factor of Revenue Generation
June 20, 2018 Mehul Fanawala
So, let me start with a question. What do you think is the center of each hotelier’s concerns? Is it occupancy? Is it happy guests? (Well, definitely that’s a must!) Is it more bookings? Now let me tell you, that whatever answer you might have; it leads to one and only one factor, that is Maximized Revenue or Increased Yield. In other words, it all revolves around yield management. (It’s a familiar term, I know!)
Now, what exactly is Yield Management?
Yield Management can be defined as, selling a product or service to the right customer, at the right time, and at the right price. In the hotel industry, the process of determining right hotel room pricing is called “yield management strategy”. Hence, the concept of yield management can be summarized in 3 R’s. (giving the Right Rate to Right Customer at the Right Time)
Yield Management v/s Revenue Management
Now you’ll say that Yield Management looks the same as Revenue Management. But naturally, anyone would think on the same lines. Although, there’s a thin line of difference between both.
While talking about Yield Management for hotels, it only encompasses the revenue generated through the room charges or occupancy, whereas Revenue Management involves a whole lot more than just occupancy.
Hence, yield management is not the same as revenue management, but it’s a subset.
Digging a bit more into it, let’s find out how yield is calculated
The purpose of yield management in the hotel is not to simply vary the room rates or to increase the occupancy percentage. More precisely, it is to maximize the average revenue per available room, per night (what you call it as RevPAR). Before it seems all GREEK to you, here’s a basic yield management formula.
Yield % = Achieved Revenue * 100/Potential Revenue
Let’s play with numbers for more clear insight.
Suppose your property has 10 rooms, and revenue per available room is 50$, so consider these two cases:
Case 1: When all your rooms are occupied. Then your earned revenue is 500$ (Achieved revenue).
Case 2: Now, say you increase your room rate from 50$ to 100$ during high peak season and sell all the 10 rooms, then your revenue earned totals to be 1000$. (This can be your potential revenue)
Therefore yield percentage, in this case, can be calculated as
Achieved Revenue (500$) * 100/ Potential Revenue (1000$) = 50%
This is how basic yield management calculation is carried out. It is as simple as:
More occupancy = Increased Rates.
So, yield management in hotel industry which seems so small to be explained in just a formula is actually a very important and wide facet. Prudent and precise strategies to manage your yield can help your hotel climb the ladder of success easily.
Now, which different strategies you can put into practice to increase your yield?
For any hotel, it becomes very important to set the correct room rates. Unlike any other industries, hospitality industry possesses fixed resources to earn revenue from i.e the number of rooms (exclude the hotels that offer other services also). So in order to maximize the profit they earn, they have to play with rates of those fixed resources. That’s where Yield Management comes into the picture with a bang!
- Just do some research
In order to plan your dynamic strategies for higher revenue, it becomes very important to interpret the guest demands. Utmost care should be taken while increasing/decreasing room rates. If this calculation goes wrong, then tables might get turned as well, incurring you a considerable loss instead of increased revenue. So to predict the right changes in the room rate, you can use the following data.
Focus on increasing your direct bookings
Light the flame: From your hotel’s past data, you can clearly define the high or low seasons or the period where the group bookings are more and less single stays or vice versa. By analyzing such hotel data you can prepare forecast datasheet, to modify your rates.
Find the hot spots: While making the forecast datasheet, what details are to be taken for deciding the rates should be figured out. Room type, length of stay, PAX and such likes. This will help you formulate better.
Hit the hammer: Having decided the above two criteria, you need to be certain on how frequently you want to change your room rates. Whether you want to do a quarterly forecast, or monthly, or weekly basis; or for some other time range.
You as a hotel must be having lots of strategies for your online distribution. You must be connected to multiple channels to get you bookings. But bookings from OTAs come with a major disadvantage of commissions. That makes you want to shift your focus on getting commission-free direct bookings from your hotel website. So, try working on increasing your direct bookings. This way, your profit margin increases and your revenue is not spent on the commissions.
Categorize the demands
If you have predicted it, you can make out an average; how much percentage of occupancy you have every day or how much revenue you’ve earned from that.
For example, your average occupancy is 60%, that means out of 10 rooms, your 6 rooms are occupied every day leaving 4 to sell.
Now, what if, these rooms remain unoccupied incurring you a loss. In this case, you can decrease the room rate to 40$ which lure the guests to book in YOUR hotel only. Now 2 out of 4 rooms are occupied and 2 rooms are left. Observing the demand, you can sell the rest 2 at 40$ each or 70$ as well. The decision lies upon the demands.
In short, it’s better to have your rooms occupied at the right rates, rather than losing revenue on low room rates during peak season and going vacant during high peak season.
Add a cherry on the cake
These days, there is always something more than rooms in a hotel as a means of revenue generation. It can be an in-house restaurant, bar, gift shop, spa, conference center or something else. Guests from different segments are more or less likely to use these facilities. Corporate guests would prefer a hotel with an in-house restaurant, whereas travelers on a trip might not visit your hotel’s restaurant and explore the local cuisines.
So you can upsell your extra revenue-earning services and amenities to the corporate guests and even family guests, more than the travelers.
Consider the review aspect too
Guests these days are dying to check out the reviews you’ve got online. The better your reviews and ratings, the higher chances you have to get the bookings. Hence it becomes imperative to include your online hotel reputation in your day-to-day tasks to increase your yield.
How yield management can open the doors to upsurge your hotel’s revenue?
With accurate yield management strategies, along with defining your dynamic pricing, you can also get few detailed insights which can be really helpful in your hotel’s revenue generation tactics.
- Understanding guest’s preferences
To cope up with the guest’s wavering preferences, it becomes very important for a hotel to understand the guest perspective and thereby provide favorable services only. Accurate yield management helps you grasp this in a much better way and make it easy for you to satisfy your guests, thereby increasing your revenue.
- Get suitable segmentation
With yield management, you will be able to get a clear lookout of which segment of guests visit your hotel frequently and which doesn’t. Serving to which type of guests is more profitable for your hotel and which not. With this segmentation, you can further work upon the strategies to target the unfamiliar segment and thereby try to present your hotel suitable to all different types of guests.
- Economic pricing
When you apply a dynamic pricing strategy, you always want to keep a check on your competitors’ rates and analyze them to make sure you have a prototype ready for your rate prediction. Through yield management, you can get more revenue by focusing on profitable bookings, unlike those hotels who may make the mistake of emphasizing booking volume and lose potential revenue.
To cut the long story short,
Yield Management is an important facet to count on for maximized profits. For this approach to produce results, analysis of the required data and a strong tool to provide right insights is a requisite.
Therefore, an all-inclusive hotel management software that not only offers you a surplus solution but also helps you with increasing your yield can be pitch perfect to solve your problems.
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