Maximizing Hotel Revenue All Year Round With Yield Management

Yield management in hotels has been around since the eighties and has its origins in the airline industry. It involved basing airline flight pricing on predicted demand during certain time periods. For example, prices would (and still do) escalate during high demand periods.

It’s easy to see how this could benefit the hotel industry, too. Keep reading to find out more about yield management and what it can do for your accommodation offering.

What Is Yield Management?

Hotels rely on selling the same product to different customers over and over again, and yield helps you maximize the revenue from these sales according to fluctuating criteria. So, in a perfect world hotel revenue would equal total room nights multiplied by the nightly rate.

Unfortunately, that’s not how the accommodation industry works. People come and go according to the seasons, events, school and public holidays, and their budget.

That means there are times when hotels stand empty and other times when they’re packed to capacity and the reservation lines are still ringing with enquiries for more rooms.

If only there was a way to even out these fluctuations in supply and demand.

Yield Management offers you the chance to do just that by optimizing your pricing strategy to correspond with these fluctuations.

It helps you understand when to lower your rates to attract more bookings, and when to increase them due to high demand.

In short, Yield Management’s primary goal is to help you bring in maximum revenue per available room (RevPAR). To do this, you need to figure out how to sell the right customer, the most desirable room at the right time, at a price that suits both you and them.

It’s closely related to revenue management, but they’re not quite the same thing.

Yield Management vs Revenue Management

Yield management is the responsibility of the revenue manager, and both tasks focus on anticipating consumer behaviour and then optimizing the balance between availability and pricing to maximize earning.

They both use data and analytics to research and identify patterns in order to forecast demand.

The major difference between these two functions is that revenue management looks at revenue as a whole across the hotel’s facilities and amenities. At an advanced level it may include factors like costs, income and profits in its calculations.

Yield management has a much narrower focus and is solely concerned with selling rooms. Effective yield management tactics form part of successful revenue management strategy.

Increasing prices during times of high demand and decreasing them when demand is low is the core principle of yield management. To achieve this, yield managers must base their pricing on calculated blocks of time, and place restrictions on this pricing, in order to maximize revenue throughout the year.

For example, setting a minimum stay during high demand periods is an example of a restriction.

Both revenue and yield management are extraordinarily complex. There are certain times of year when demand is always high, for example during the summer holidays in seaside towns.

At other times it’s extremely difficult to predict consumer behaviour, even from year to year.

In most cases, revenue managers, or hotel managers could do with a little help tracking these ongoing fluctuations and eternal calculations.

Why Use A Yield Management System?

Fortunately, in this day and age, there’s a technological solution for almost every problem faced by hotel owners.

Yield management systems save time and reduce human error (and frustration) by automating the following aspects of this critical management process:

• Data collection
• Rate shopping
• Inventory monitoring
• Pricing
• Reporting

Using the reports generated by these systems, hotel managers can create pricing adjustments, set up relevant time blocks, and set up alerts to notify them of anomalies.

Most of the best yield management systems integrate with your hotel’s core systems and PMS and feature a dashboard that’s easy to understand and to use. From the dashboard you can check availability and booking activity at a glance.

While an experienced revenue manager develops a gut feel for market conditions and consumer behaviour over time, a yield management system helps confirm these instincts.

To do this, it’s vital to choose a yield management system that is compatible with your property management system.

­­Why Is Yield Management So Important For Hotels?

Yield management and yield management systems and yield management in general allows hotels to move away from best available rate pricing (BAR) towards a more unconstrained method. These tactics are more effective for maximizing the whims of the travel industry.

In some ways unconstrained pricing flies in the face of conventional yield management by removing the obstacles imposed by time-blocking. It’s based on flexible rates based on individual rooms, channels, and dates.

It’s an effective tactic for never turning away a customer who needs a bed in your hotel. In this way, data driven yield management systems help you, to:

1. Make Data-Based Pricing Decisions
   When setting up rates for the coming year, a YMS helps you consider the impact of your pricing based on the following:

• Historical demand
• Booking pace
• Unconstrained demand

2. Benefit from Dynamic Pricing
   A variable pricing strategy means more revenue. It involves adjusting rates according to the time of year and day of week, like old school pricing does.

Yet, variable pricing also takes conferences, events, market conditions, and changing occupancy into account.

3. Implement More Effective Stay Restrictions
   BAR pricing always involves charging more for busy nights, but that’s not always the best option. Instead of always having higher rates on busy nights, consider implementing stay restrictions such as:

• Closed to Arrival to encourage longer bookings
• Minimum Length of Stay to fill up shoulder nights

4. Keep Track of Competitor Pricing
   Modern day shoppers compare prices online, and so should you. Before you set up your pricing, look at what similar resorts in your area charge their customers.

Tracking competitor pricing helps ensure you don’t under-price your rooms, thereby undermining their value, or overprice them and drive customers away. Based on comparative pricing, you can also more easily set up discounted rates that will bring more customers your way.

A rate shopping tool and a pricing intelligence tool can help by making these complex decisions for you.

5. Embrace Flexible Pricing
   Customers are willing to pay more for rooms with extra benefits, like a sea view, so let them.

With a YMS, it’s easy to implement flexible pricing based on these extras as well as introduce more flexible, consumer-friendly rates, like:

• Non-refundable rates
• Packages
• Weekend rates
• Incentives for longer stays or direct bookings

6. Cater More Effectively to Your Marketing Mix
   All hotels cater to distinct kinds of customers like travel agents, conference convenors, event organizers, families, couples, and solo travellers.

Some of these people prefer to book early or in bulk and receive a discounted rate. Others expect to pay more for last minute bookings, and some are simply interested in the best rate at their time of booking.

By keeping track of these behaviours, you can set up rates that appeal to most of your customers, most of the time.

It’s impossible to monitor, set up, and modify all these factors without the help of software.

Advantages Of Yield Management

There’s no doubt that yield management removes many of the uncertainties involved in pricing your accommodation most effectively to increase revenue.

It helps you segment your target audience and take advantage of new profitable markets, offer competitive pricing, and increase sales volumes.

With yield management you’re bound to discover new opportunities to drive bookings and increase revenue.

Most importantly, automated yield management helps eliminate the risk of incorrect pricing, which can decimate your business either way. With data on hand, you won’t make the mistake of pricing your rooms too low during times of unexpected high demand, or over pricing them during  downturn in conventionally busy periods. In a recent example, the advent of more widespread remote working and home schooling has seen an increase in midweek bookings over weekend ones.

A Yield Management System can pick up unexpected opportunities like this and help you take advantage of them as they happen, not a year later.

Elements Of Yield Management

There are several elements inherent in yield management that can impact your pricing directly and indirectly. These are:

• Free Independent Traveller rooms
• Group bookings
• Food and beverage outlets
• Local events and activities

You can use all of these to make sure you’re getting the most value out of your room nights. For instance, group bookings can bring in a lot of extra revenue thanks to meals, event venue hire, shuttles, and onsite paid-for activities. Other groups might use your rooms only.

Consider all the variables when setting up rates for these bulk bookings customers.

Free Independent Travelers usually book close to their arrival date, warranting higher rates. Reserve some rooms for these travellers based on your YMS data.

It’s vital to stay up-to-date with local events and those nearby, some niche interests and activities can attract a lot of bookings. For instance, a national chess tournament in your town might not make the evening news, but it can draw thousands of enthusiasts from across the country.

When you’re aware of these events, you can also target your marketing efforts towards these niche travellers.

One often overlooked aspect of yield management is that it’s a fluid system that doesn’t stop once you’ve set up your rates.

Chances to increase revenue never cease. For instance, you can train your reception staff to encourage room upgrades or attractive meal packages when guests arrive.

Yield Management Calculations

When it comes to calculating yield, the higher your yield percentage, the better. You can calculate this percentage as follows (or let your YMS do it for you):

Earned Revenue/ Potential Revenue x 100

If a hotel has ten rooms selling at a maximum of N$299 each, the potential revenue is N$2999. So, when you only sell nine rooms at a discounted rate or N$199, the total revenue is N$1331 and yield is 44.5%. i.e.
1331/2999 = 4.45 x 100 = 44.5%

During peak times, if you increase your rate to N$249, you’ll earn N$1494 even if you only sell six rooms to achieve a yield of 50%.

This formula, combined with all the data mentioned above is the best way to determine the most lucrative pricing structure for your rooms based on the data you have.

Yield Management At a Glance

To sum up, yield management is based on a few key assumptions. These are:

• Hotels have a set number of rooms to sell
• You don’t get a second chance to sell a room night
• Different markets will pay different prices according to circumstances

With yield management, you can simplify forecasting, price your rooms more effectively, and maximize the sweet spot between supply and demand.

Would you like to uncover your hotel’s hidden potential for increased revenue? Our team has all the expertise and tools to help you grow your hotel business in modern times by levelling the playing field between you and your competitors.

Get in touch today and let’s get started.