Demand in the hospitality industry constantly fluctuates. So selling time-limited inventory like hotel rooms at a fixed price year-round is a common mistake that costs hotel operators thousands in lost revenue.
Enter yield management in the hotel industry - an important pricing strategy that lets you sell your rooms at the right time and for the right price.
Dynamic pricing strategies are commonly associated with big hotel chains with dedicated revenue managers. However, these days a good property management system has integrated yield management functionality that makes it easy for even 10-bedroom properties to maximize revenue earned from each room sold.
Yield management and revenue management are sometimes thought to be the same thing. Although the two concepts are equally essential to help meet your annual revenue targets, yield management techniques are far simpler and quicker to implement and adapt when needed. Let’s take a closer look below.
What is Yield Management?
Yield management is considered the most important strategy to optimize the revenue that you earn, especially when the demand is low. It allows you to focus on your occupancy levels as well as past performance data and general industry trends to adjust your rates according to demand or something we like to call room-sell probability.
It essentially maximizes the amount of money you generate from a limited amount of rooms that need to be sold by specific times. Hence, yield management proves to be the most practical way to increase your revenue.
Since costs don't fluctuate the same way as demand, RoomRaccoon’s yield management tool will enable you to set different rates for different occupancy levels. As a result, your rates will automatically update across all your channels based on the pre-defined rules.
Take look at three different types of yield management strategies below:
Example 1: Summer Holidays
Based on previous data, Hotel X is confident about selling its rooms at a higher rate during the summer holidays. So they created a smart yield rule that increases their room rates by 10% during June, July, and August if their occupancy rate reaches 80% and if there are 7 days left to sell the remaining rooms.
Good to know: Hotel X can take it a step further by analyzing its competitors’ occupancy and rates to determine if they should override the yield rule. This is called CompSet Analysis and falls within revenue management.
Example 2: Cheese Festival
Based on industry trends, Hotel Y knows that the annual cheese festival in September brings a lot of visitors to the area. So they created a smart yield rule at the beginning of the year that will increase their room rates by 20% during the week of the festival. Pre-defined yield rules based on upcoming trends allow them to generate the maximum amount of revenue from early bookers.
Example 3: Sunday Discount
Hotel Z knows that its occupancy levels drop on Sundays. This is reflected in their performance report. As a result, they created a smart yield rule that will decrease their room rates by 15% for Sundays if their occupancy rate falls below 50% and if there are only 7 days left to sell the remaining rooms. By doing so, they are still earning money from the sale instead of losing out on the whole transaction.
These are the variables to consider when you create a yield rule:
- Seasonal demand
- Trends and events
- Your occupancy rate
- Number of days left to sell your inventory
- Amount of increase or discount
Differences between Yield Management and Revenue Management
Yield management is a specific revenue management strategy that focuses on maximizing the total revenue generated based on your occupancy rates. In essence, it’s all about supply and demand.
On the other hand, revenue management in the hotel industry involves a whole lot more than just occupancy. It looks at the following factors:
- Budgeting and demand forecasting
- Competitor analysis
- Data analysis
- Distribution strategy
- Guest and rate segmentation
- Metasearch optimization
Advantages of Yield Management for Hotels
1. Increase revenue
Arguably, the main concern of property operators is revenue and finding ways to generate more of it. The advantage of yield management is that it allows hotels to increase revenue without achieving 100% occupancy. As a hotel owner and revenue manager, you can take advantage of demand forecast (high and low season), and maximize your revenue per available room (RevPAR) per night.
Essentially, it comes down to supply and demand. People are willing to spend more if the demand is high. At the same time, they’re willing to spend during the off-season for the right price. That’s when discounts and special packages come in handy.
2. Eliminate pricing errors
Hotels managers have annual revenue targets. Reaching these targets is a lot harder and sometimes impossible by relying solely on expected booking patterns. As demand forecasting becomes increasingly accurate, revenue managers and hoteliers can execute automatic pricing strategies through yield management and with a clear set of data from software integrations that choose the right room prices for a specific time period. This way, you’ll meet and exceed your revenue targets.
3. No more lost opportunities
While yield management in the hotel industry has a strong focus on supply and demand, it’s important to look at upcoming events and historical data to prepare for lucrative opportunities in advance. For example, you can already plan room prices for public holidays and events. And with hotel tools like an integrated channel manager, your yield rates will automatically adjust across all booking channels without needing to lift a finger.
The best part of yield management for hotels is that the set-up can be as elaborate or simple as you need it to be, and you’ll still yield results. This way, even small hotels can maximize revenue by utilising smart pricing strategies and demand forecasting.