A Guide to Yield Management in the Hospitality Industry

Pricing is an important part of staying competitive and improving your bottom line, both in the hospitality industry and other industries. One key aspect of pricing is yield management.

Yield management helps hoteliers analyze, understand, and predict a hotel’s maximum revenue potential through customer behaviors and other essential metrics. This enables hoteliers to create a pricing strategy for hotels to generate the best price for their rooms to attract returning and new customers.

This guide dives deeper into the basics of yield management in the hospitality industry, its benefits, and valuable tips to help you get started.

What Is Yield Management?

a dynamic pricing strategy in the hospitality industry, yield management aims to produce the maximum “yield” or potential revenue from your available rooms. Generally, it involves analyzing and understanding your customers’ booking behaviors to find the right balance between your room rate and occupancy rate.

In layman’s terms, you can describe yield management as “selling the best room to the most suitable customer for the right price at the right time.”

As a hotelier, you need to rely on the following critical assumptions for utilizing yield management:

1. Your hotel has a fixed number of available rooms for sale.
2. You have a time-limited and perishable inventory. This means your room offers are not available forever.
3. Depending on several conditions, you can sell your room at different prices to different people.

Yield management helps you maximize profit and revenue earned, which is the ultimate goal of most hoteliers. It’s how they can be better than competitors without stealing their strategies.

Another thing to know about yield management is that it’s quite similar to revenue management. But you must understand that it has a more narrowed focus because it’s mainly concerned with two things:

• Your room’s sales volume
• Selling price

These two critical factors can help you achieve the best revenue yield when utilized right.

The Origin of Yield Management

Before yield management made its way to the hospitality industry, it was first introduced to the U.S. airline industry. The airlines gained more control over technology and airfares for their inventory management and pricing strategies for improved revenue after the 1970s deregulation. This deregulation was a response to price hikes in the oil industry and was designed to help control rising prices and reduce issues such as monopolies and child labor.

Robert Crandall is the relevant face behind yield management, a former American Airlines CEO and chairman. According to him, yield management is the most critical technical development in airline management after the deregulation.

Some of the tactics the airlines employed that were part of their yield management strategies include:

• Creating discounted airfares for off-season flights
• Maximizing fares during peak seasons
• Implementation of length-of-stay requirements and purchase restrictions
• Required fees for canceling and changing flights
• Imposing higher rates for premium seats

Why Is Yield Management Software Important for Hotels?

Hoteliers can rely on yield management software to utilize maximum operations and ensure peak efficiency for their hotels. This hospitality technology can help you make better and quicker pricing decisions to increase your overall revenue.

More importantly, because it’s software, you can expect more efficient functionalities and helpful tools that reduce manual tasks and eliminate human error. It’s a win-win situation: Your hotel becomes more efficient, and customers can expect better pricing solutions to benefit their wallets.

Additionally, successful yield management software can help you better understand the following:

• Booking patterns
• Customer segmentation
• The impact of price changes
• Using the suitable distribution channel management method

Plus, automation help significantly reduce the time you need to spend gathering and reviewing relevant metrics and creating a more effective pricing strategy. Typically, metrics are aggregated and presented on a dashboard. Because the software handles gathering and displaying metrics, it gives you more time to focus on other valuable administrative tasks affecting your hotel’s overall efficiency.

Benefits of Hotel Yield Management Software

Yield management is an essential pricing strategy in the hotel industry because you gain complete strategic control of your inventory. Moreover, you can expect optimized room rates to match your customers' needs because of dynamic prices.

From increasing your hotel’s revenue to better understanding your customers’ booking patterns, yield management offers a wide range of benefits to match your business goals. Let’s discuss these benefits and how they can help your business.

Increase Revenue

Advanced analytics and machine learning paved the way for the evolution of yield management over the years. This pricing strategy helped people change how they think about the hospitality industry.

The main advantage of yield management is maximizing a hotel’s revenue. Even when your property is not at 100% occupancy, yield management guarantees better money-flowing capabilities.

Yield management also helps your team leverage demand forecast and maximize your current RevPAR. It allows you to increase your room rates during the peak season to sell them to the right customers, increasing your profitability per room.

Understand Booking Patterns

As a hotelier, remember that your customers are different. They look at your hotel differently, and you’ll encounter visitors with various demands and needs. Moreover, you’ll also observe customers booking in advance and others booking on short notice.

Understanding that customers have various booking patterns can help you adapt your prices better. For instance, why not set higher costs for customers who book last minute and give more affordable rates to visitors who book months in advance? At the same time, don’t forget to include fixed costs.

Fixed costs include costs that aren’t typically affected by occupancy or sales volume. This could include salaries, mortgages, or taxes. However, hoteliers can also introduce fixed costs in order to better budget for variables.

Leveraging this advantage can help you adjust prices accordingly, depending on the time and preferences of how your customers book your rooms.

Increase Value Perception

Value perception refers to how valuable a certain product is according to your customers. This perception of value significantly affects the amount customers are willing to pay for scarce goods.

Customers will likely agree to pay more expensive room rates during the peak season because of increased perceived value during this period. Moreover, introducing variability in your pricing schemes can build your hotel’s perceived value in your customers’ minds. This incentivizes them to book months in advance.

You can also utilize other marketing strategies to boost your perceived value, including:

• Establishing a better online presence through digital marketing
• Increasing organic traffic through content-generated marketing
• Connecting with your audiences by growing your social media channels

Eliminate Pricing Errors

The last thing you want is pricing errors that can affect your hotel’s overall performance and revenue. With the increasing competition, careless human mistakes can set your hotel back.

Together with an effective hotel revenue management system, yield management allows hoteliers to work with hotel revenue managers and establish prices based on customer booking beha

Yield management also utilizes automation to gain more precise data sets to establish the best room rates depending on variable periods. For instance, HouseCount RMS combines automation, modern feedback control, and AI to provide robust pricing recommendations for casino-hotel properties, without the need to babysit the software.

Effectively Segment Customers

Market segmentation is also critical in the hospitality industry, especially in hotels. It promotes effective forecasting to capture subtleties and discover your guests’ booking preferences. Plus, as a hotel, you can expect different types of guests: solo travelers, corporate guests, family groups, and more.

Yield management allows you to segment these customers better to ensure that your marketing strategies are catered to everyone. It also allows you to better understand the different requirements of different guest types.

This pricing strategy can help you set variable price rates according to customer segments and other factors.

Why not lower your room rates for families traveling in groups, especially when they book in advance? You can also create price packages combining your hotel’s available services and amenities with your room rates.

At the same time, take advantage of busy business people who don’t have time to compare hotel prices and offer them more expensive rates.

In any case, HouseCount RMS is an effective way to manage room rates for your hotel. When a guest arrives at the hotel or books a room in advance, the software is able to dynamically present the right offer at the right price.

Yield Management Strategies Hotels Should Consider

Yield management involves several techniques you must employ for its success. There’s no universal strategy that fits every hotel’s business goals. But if you’re knowledgeable about the methods that work, you’re off to the right path.

Be Data-Driven

You need to rely on trusted data to make pricing decisions if you want to maximize your revenue. One way to achieve this is by setting rates for the following year. Take advantage of the following analytics:

1. Historical demand
2. Market conditions
3. Unconstrained demands
4. Booking price
5. How many rooms you can sell with an unlimited inventory

Make data-driven decisions by monitoring your current pricing strategies and how they can affect your customers and overall revenue. Moreover, use your current strategy to improve or guide you in choosing the best method that will work better.

Always Practice Dynamic Pricing

Static pricing will get you nowhere. The only way to capture more revenue is to practice a dynamic pricing strategy. You need to work your way to increase and decrease your room rates depending on customer demands.

Dynamic pricing also includes adjusting room prices based on the current season or day of the week. You may also consider events, holidays, or conferences depending on current market conditions and guest segmentation.

Establish Stay Restrictions

There’s nothing wrong with being a little stricter with your stay restrictions. It’s how you can be more variable in your pricing strategies and potentially increase revenue. Aside from implementing more expensive rates on busier nights, stay restrictions involve:

• Closed-to-arrival (CTA)
• Imposing a minimum number of nights

These methods can help boost your occupancy, especially with off-season bookings.

Make Your Prices Variable

Your in-demand rooms deserve higher rates, especially when they offer nicer views, extra space, a more sophisticated bed configuration, and other extra features such as a balcony. You can also offer variable rate plans to appeal to travelers with various budgets. This can include packages, non-refundable rates, direct booking incentives, longer stays, and weekend rates.

Analyze Your Market Mix

Understanding your customer segments matter. You must identify those willing to pay higher rates, especially during the peak season. Some wholesalers prefer booking in advance for discounted rates.

Analyzing your market mix also involves OTA promotions because most guests rely on these channels for last-minute bookings. Adjust rates depending on your market segments, especially when it comes to knowing the room types they prefer and when they are more likely to book.

Maximize Your Occupancy

Maximizing occupancy is always essential, especially in more expensive hotel rooms. You can provide unique opportunities for guests to upgrade their rooms pre-arrival by giving them irresistible offers and packages.

The Difference Between Revenue Management and Yield Management in Hotels

Both revenue management and yield management are efficient pricing strategies to help you achieve maximum revenue for your property. However, they are different. You must know each strategy’s purpose and features to be more aware of how to utilize them.

Yield management involves a narrower focus, zooming in on maximizing your hotel’s revenue through inventory and pricing controls. On the other hand, revenue management is broader because it considers the fo

1. Market segmentation
2. In-depth data analysis
3. Demand forecasting
4. Total costs and profits
5. Total revenue

If you’re an operator with limited time or are new to hotel revenue management, yield management is a strategy you must focus on. This is a basic skill you need to focus on before expanding your skillset.

Another way to differentiate the two approaches is the metrics they focus on:

• Yield management leverages sales volume and room prices.
• Revenue management focuses on yielding more revenue from occupancy.

How to Make Hotel Yield Management Strategies

A solid yield management strategy can work its magic in optimizing your room rates. But to achieve the best results, you must know how to leverage this pricing strategy properly.

A result-driven yield management method depends on these four main steps:

1. Deciding on the occupancy slabs
2. Establishing room rates based on the occupancy slabs
3. Applying the right yield management strategy
4. Constantly monitoring for improvement

Deciding on Occupancy Slabs

Occupancy slabs depend on three main factors: seasons, location, and past occupancy.

Establishing Room Rates Based on Occupancy Slabs

After having a rough draft of your occupancy slabs, you can start establishing your room rates based on guest types and past RevPAR and ADR. Guest types include backpackers, corporate guests, family groups, solo travelers, and more.

This is why segmentation is essential. It helps you determine what your guests want and how long they will likely stay in your hotel.

RevPAR and ADR are critical parameters that can make or break your hotel’s revenue. Studying past data about these performance indicators lets you determine the best room rates you can leverage for maximum revenue.

Applying the Right Yield Management Strategy

After determining essential aspects to determine occupancy slabs and establish room rates, you can apply your chosen yield management strategy! An efficient and automated yield management system can accomplish these tasks effortlessly.

A yield management system can configure occupancy slabs quickly in a booking engine and a channel manager. It also automatically adjusts your rates depending on the configured occupancy slabs.

Pulling data about your availability and room rates when utilizing a property management system is also possible. Use a single spreadsheet to combine all data sets. And you can also calculate key ratios by setting up custom formulas.

For a quicker turnover of data, condition your formatting and highlight the hotel’s high and low trends.

Constantly Monitoring for Improvement

Even with the best strategy at hand, it can spiral down when you don’t constantly monitor trends and overall performance. You must track market trends and not just stick to your current occupancy slabs.

Track and monitor competitor rates, the latest industry trends, and other indicators of dynamic pricing. Analyzing your competition also makes establishing prototypes for your future room rates easier.

How to Make Hotel Yield Management Strategies

One of the most critical data to consider when choosing a hotel yield management strategy is categorizing high and low seasons. Your room rates must differ during peak and off-season because you will cater to different people.

Creating a yield management strategy must also involve four main elements:

• Group bookings
• Local events and activities
• Transient or FIT rooms
• Food and beverage packages

These elements can significantly increase your overall revenue. Considering them when choosing a yield management strategy that works is essential.

Additionally, you must also consider your ultimate goals when establishing a strategy that works. Remember that the primary goal is to maximize each room’s revenue. That means considering data-driven decisions in forecasting demand and supply for price and occupancy optimization.

Yielding Management Formula: How to Calculate Yield at Your Hotel

Calculating your hotel’s yield is simple. All you need to do is divide the hotel’s earned revenue by your potential revenue. Then multiply the result by 100.

For instance, let’s say your hotel has 15 available rooms with a maximum rate of $400. This makes the potential revenue $6000. When you’re able to sell 10 rooms at $150 each, this makes your total revenue $1500. And your yield percentage is at 25%

For higher demands, an effective strategy is to increase your room rate to $400. When you’re able to sell six rooms, your total revenue is $2400 with a 40% yield.

It’s also important to remember the following factors that can affect your yield management:

• Booking windows
• Market-level dynamics
• Complete positioning and perceived value
• Historical performance
• Customer segments
• Time of the year

How to Apply Yield Hotel Management at Your Hotel

The first step to applying yield management strategy to your hotel is creating a calendar based on demands during the past low and high seasons and upcoming events. These can be trade shows, holidays, or festivals.

After creating the calendar, you can start determining how much you’ll charge during various periods. Remember to consider the on-the-books business, competitor rates, and demand shifts. This is also the time when you can discover trends to check whether you’re ahead or behind your competitors.

Because everything is a step-by-step process, accomplishing these manually can waste a lot of time and is more likely to cause human errors. This might be the best time to rely on trusted hotel revenue management software.

The Use of Hotel Revenue Management Software

A hotel management software for revenue is a business intelligence tool that automates all essential tasks to significantly save time.It utilizes all data sets in a few simple clicks. The RMS can also automatically update and adjust rates depending on room demands.

The main advantage of an RMS is real-time monitoring of current market trends. It enables you to make real-time changes and adapt to current customer demands.It automates data analytics to help your hotel maximize profitability and revenue.

Moreover, hotel revenue management software combines demand indicators, historical data, and market trends to predict customer booking patterns and generate the best price for your rooms.

One great revenue management software to check out is HouseCount RMS. This software offers dynamic, real-time pricing suggestions to help you accurately price your hotel’s rooms and other rates.

Hotel Yield Management Tools to Consider

If you’ve been in the hospitality industry for a long time, you should understand the importance of technology in the overall management of hotels. It’s a critical element of hotel structures you must take advantage of to increase revenue, market share, and productivity.Here are essential hotel tools to consider when maximizing your yield management:

How to Execute Hotel Overbooking Yield Management

The hotel overbooking strategy is a unique technique for maximizing revenue and occupancy. As a hotelier, it’s natural to expect customers to cancel their reservations last minute. Through this strategy, there’s a guarantee that the next guest can stay after the previous customer cancels.

Hotel overbooking yield management has the following benefits:

1. Guarantees full occupancy
2. Reduces the risk of no-shows and cancellations
3. Prevents losing revenue

You cannot suffer from the negative impacts of cancellations. This means you must establish and execute an effective overbooking strategy combined with efficient yield management. The following are the steps to leverage a proper overbooking strategy to your advantage:

Use Data to Forecast Potential Cancellations and No-shows

Data regarding your guest behaviors and reservations will be valuable for the strategy. Monitoring this information will help determine the number of rooms you can leverage for the overbooking strategy.

Moreover, determining the available rooms allows you to predict how many cancellations and no-shows you should expect. It’s also a way to calculate the compensation you must provide your guests so that they remain satisfied, preventing significant financial losses.

Use Automation to Collect Data

Automation involves a booking engine, analytical tools, and a hotel channel manager. These tools can make your lives easier by providing the data you need in the fastest way possible.

Additionally, automation tools can help forecast cancellations, track past data, and identify past and current guest booking patterns. You can also consider external factors, including the following:

• Flight cancellations
• Weather changes
• Destination popularity

Introduce Pre-arrival Upselling

Overbooking strategies can significantly improve through pre-arrival upselling methods. This step allows customers to create more personalized demands to enhance their satisfaction. Moreover, the pre-arrival stage lets you offer room upgrades at discounted rates.

One tool to help you make upsells is LuxSell URS. This software helps you make the right offer to guests at a price that’s attractive to them. It also uses micro-experimentation to continually improve processes and the technology itself.

Place a Cap on Overbookings

Limiting your overbookings across your distribution channels is essential. You can accomplish this through third-party providers to prevent mishaps and miscommunication among your guests. Moreover, this prevents several guests from arriving at your hotel without rooms.

Collaborate with Local Hotels on Overbookings

Collaborating with your competitors is one of the best ways to implement an effective overbooking strategy. This should be part of your hotel’s backup plan. Handle overbookings with nearby hotels and set up collaborations.

The local hotels you choose must have similar quality and value to your property. In this way, you can offer them to your guests as alternative accommodations.

Why You Need Hotel Revenue Management Software for Yield Management

Like any hotel pricing strategy, yield management also needs efficient hotel revenue management software. This tech solution is critical in determining the best room rates you can offer to your guests.

It’s also thanks to the power of automation. The revenue management software quickly forecasts and dynamically adjusts room rates, depending on historical data and market demand.

Why You Need LuxSell URS

LuxSell URS is a unique upselling software solution that helps you generate the best price ranges for every guest. It has the following features:

1. 24/7 optimization and management of upselling pricing across all customer touchpoints
2. Real-time monitoring of channel performance and agent
3. Easy integration with your other tech tools
4. User-friendly that does not require a steep learning curve

LuxSell URS also utilizes micro-experimentation. This unique learning framework optimizes price recommendations, providing data-driven decisions and smarter offers every time an upsell is sold.

FAQ

What is sustainable yield management?

Sustainable yield management refers to a pricing strategy your hotel utilizes for the most extended time. Your chosen method follows the SMART description: specific, measurable, achievable, relevant, and time-bound.

What is sustained yield management?

Sustained yield management is your hotel’s chosen pricing strategy that gives you maximum benefits for your overall profitability, revenue, and performance. This pricing method helps you achieve business goals for your hotel’s success.

Conclusion

Yield management can be the best pricing solution to generate the best room rates for your guests. Combining this with your other tech stacks allows you to maximize its benefits to achieve revenue at its full potential.

Understanding how yield management works will help you determine the best strategy that will be effective for your property. This includes considering your guest types, seasons, and constant monitoring of current market trends for improvements.

Using efficient hotel management and upselling software, like the solutions offered through Luxe Pricing, is the best way to leverage a yield management strategy. This all-in-one pricing solution features real-time updates to automatically adjust pricing and make it dynamic for your various guests. Get in touch with us to book a demo and learn more about how our software can help increase your property’s bottom line.