Hotel yield management is a crucial aspect of the hospitality industry. It involves the process of optimizing room rates to maximize revenue and occupancy. It is a complex process that requires a comprehensive understanding of various factors that affect revenue and occupancy in a hotel. This blog will look at hotel yield management and how it can help hoteliers to increase their revenue.
Understanding yield management
Hotel rooms are perishable products by nature, as they lose value at the end of the day. Once a room goes unsold for a day, its value is lost. Here, in this context, yield management can help by enabling hotels to sell the right room at the right price to the right customer at the right time. Such solutions consider your hotel's room types, rates, demand, booking window, occupancy, historical data, etc., to determine the right price to optimize the revenue opportunity.
Yield management vs Revenue management
Yield management is a pricing strategy used to optimize revenue from a specific revenue stream, such as an inventory of hotel rooms. Revenue management, on the other hand, encompasses a broader set of strategies aimed at maximizing revenue across the entire hotel operation.
Why hotel yield management?
Yield management is crucial because it aligns guest booking behavior with room inventory. If you have many available rooms, but demand is not great, consider lowering rates or offering discounts to increase bookings. Similarly, you can increase your room rates with less availability when demand is decent. The objective of yield management is to earn more revenue for each booking. Hotel yield management is all about dynamically changing rates to sell more and earn more.
Calculating your hotel's yield
Sample this - you have 30 rooms at your hotel. Your rates are Rs 4000 per night. It indicates that with 100% occupancy, your total potential daily revenue is Rs 120,000. However, let's look at this scenario where you could sell 20 rooms on a particular day. It means that your room revenue for that day stood at Rs 60,000. Now let's look at your yield, which is 50% - revenue earned Rs 60,000 / total potential revenue Rs 120,000.
Elements of hotel yield management
Here are a few critical elements of hotel yield management. Hoteliers must keep them in mind while drawing up a yield management strategy.
Demand forecasting involves foreseeing the number of bookings for a given period based on historical data, market trends, local events, etc.
Overbooking is also a very critical element. Anticipating last-minute cancellations or no-shows, hotels may overbook to ensure full occupancy.
Online distribution management involves monitoring and optimizing sales across all online channels, including OTAs, metasearch engines, hotel websites, and travel agents.
Dynamic pricing is about changing room rates in real time in response to demand, availability, length of stay, etc.
Applying restrictions allows hotels to optimize revenue potential by implementing specific regulations like minimum room night stay requirements during peak or high demand season.
Factors affecting hotel yield management
Several factors affect yield management, and it is essential to understand them to optimize revenue and occupancy. Some of the critical factors include:
Seasonality: It is one of the most critical factors that affect yield management. The demand for hotel rooms varies based on the season. For example, hotels in beach destinations experience high demand during summer, while hotels in ski resorts experience high demand during winter.
Day of the week: The demand for hotel rooms varies based on the day of the week. Hotels in business districts experience high demand during weekdays, while hotels in leisure destinations experience high demand during weekends or long/extended holidays.
Events: Events such as conferences, sports events, and festivals can significantly impact the demand for hotel rooms. Yield managers need to track such events and adjust their prices accordingly.
Competitor pricing: Competitor pricing is an essential factor that affects yield management. Yield managers should regularly monitor their competitors' prices and adjust their prices accordingly.
Benefits of hotel yield management
Yield management offers numerous benefits to hoteliers. Some of the critical benefits include:
Increased revenue: Enables hoteliers to optimize their room rates, increasing revenue.
Higher occupancy: Helps hoteliers to sell their rooms at the right price, which can lead to higher occupancy rates.
Improved profitability: Assists hoteliers in improving their profitability by optimizing revenue and occupancy.
Competitive advantage: Provides hoteliers with a competitive advantage by enabling them to attract more guests.