The importance of yield management in the hotel industry
The concept of yield management may seem complex but you must understand it if you work in the hotel industry. By definition, yield management, also known as revenue management, is a pricing strategy that consists of using variables to optimize a hotel’s occupancy rate, revenue and margins. Thus, by playing with various combinations of price and occupancy variables using a differentiated and dynamic pricing policy, you also increase your REVPAR (revenue per available room). Yield management is based on a simple principle: maximize the occupancy of your establishment by striking the right balance between revenue and profitability, based on the observation that an unsold room today is a lost room.
Your main priority is to maximize your profitability
To do this, you can use yield management by analyzing your data (occupancy rates, sales, types of clientele) from the current year and the previous year and adjusting your rates. This analysis can be performed by specialized software that can also facilitate decision making or speed up the decision. Yield management is primarily based on supply and demand forecasts. When demand is higher than supply, it is appropriate to offer higher prices in order to maximize your profitability. On the other hand, when demand is too low, it is advisable to lower your prices to avoid low occupancy. You must also take into account several factors such as seasonality, weather, holidays, events, length of stay, packages and services, and offers available at your competitors.
With these forecasts, you will be able to adjust your prices at the right time, better manage your room inventory while determining your booking limit and define pricing strategies and promotional offers relevant to your clientele. In addition, yield management systems are connected to your Property Management Cloud and distribution channels so that your hotel’s availability and inventory are updated in real time.
It is also important to know these performance indicators when using yield management software:
– The occupancy rate
– ADR (Average Daily Rate)
– REVPAR (Revenue Per Available Room)
– NREVPAR (Net Rooms Revenue Per Available Room) – GOPPAR (Gross Operating Profit Per Available Room)
Using yield management techniques could be very beneficial for your hotel as it would help you to increase your revenue and margins by selling the right product or service, to the right customer, at the right time.
The way in which yield management stimulates demand is mainly based on predictions and on the flexibility of rates (including the variation of prices). It is a particularly relevant strategy if your hotel has several distribution channels and if you wish to improve the segmentation of your clientele.