What is Yield Management and How to Improve it

Despite your best efforts, it’s always possible that hotel revenue may stagnate. Especially during the COVID era, managing businesses in the travel industry can be quite difficult, but correct yield management is always necessary for your hotel to thrive. 

Generally speaking, yield management equals profit. It is merely the way to “sell the right product to the right customer at the right time and price” (as said by Robert Cross in “Revenue Management: Hard-core Tactics for Market Domination”), so an improvement in this area would result in a great rise in your revenue and potential growth of your customer base. 

But’s let’s look into the details. 

What exactly is yield management?

When we talk about yield management, we’re talking about a variable pricing strategy to maximize revenue from a perishable and fixed inventory.

As far as the hospitality industry is concerned, improving yield management would mean strategically setting rates to optimize occupancy (bookings volume) and room revenue (pricing). Essentially, what you want as a professional in the hotel business is to leverage a pricing strategy depending upon the number of your rooms to deliver different prices according to customers, ultimately maximizing revenue (yield). 

In any business, when you set too high a rate, the demand drops. On the other hand, when rates are set too low, revenue is sacrificed for the sake of volume, and you may even generate higher demand than you may be able to supply! This could exhaust your resources and staff and eventually push the demand over to your competitors.

Ultimately, yield management focuses exclusively on finding the optimal balance between price and quantity, based on supply and demand: locating the exact point where your prices meet the demands of potential customers. That is when your “yield” will be the highest when you have the largest number of bookings at the highest possible price! 

Where does the term originate from?

The term “yield management” originated in the airline industry in the early 1980s. American Airlines is credited with pioneering the concept, which was initially called “revenue management.” The idea was to maximize the revenue generated from a limited number of perishable resources (in this case, airline seats) by using data and analytics to optimize pricing and availability. It was developed in response to deregulation in the U.S. airline industry, which led to increased competition and the need for more sophisticated pricing strategies.

Robert Crandall, the CEO of American Airlines at the time, and Bill Brunger, an American Airlines executive, were instrumental in the development and implementation of yield management practices. The term “yield management” eventually became more widely used across various industries, including hotels, car rentals, and entertainment venues.

Yield Management vs Revenue Management

Yield management and revenue management are often used interchangeably, but they have subtle differences.

Yield Management

Yield management focuses on maximizing the revenue generated per available unit, such as hotel rooms or airplane seats, over a specific period of time. It takes into account factors such as demand, pricing, and inventory allocation. The main goal of yield management is to sell the right product to the right customer at the right time for the right price.

Revenue Management

Revenue management is a broader concept that encompasses yield management. It involves a strategic approach to pricing, inventory control, and marketing to optimize revenue and profitability across an entire business. Revenue management considers multiple revenue streams, channels, and customer segments. It also incorporates ancillary revenues, such as fees for additional services or products.

In summary, yield management is a component of revenue management, focusing specifically on optimizing revenue for perishable resources, while revenue management takes a more comprehensive approach to maximizing overall business revenue.

How does Yield Management work?

When building the revenue management strategy for your hospitality business, it’s important to keep a goal in mind: to enhance profitability by selling the right room to the right customer at the right time. 

Different customers can actually pay a different price for the same product in the hospitality industry, depending on several variables, such as the time of year and the general demand level. So, basically, improving your yield management is about your capability to find the optimal equilibrium (the balancing point) where you can maximize your efficiency and revenue.

Of course, the equilibrium will eventually change; the demand and supply curves are always impacted by various variables: seasonality and weather conditions, holidays, competition, economic climate, etc. To find the best price range for your hotel, you must always keep track of all the parameters mentioned above.

Why Is Yield Management Important

Yield management is critical to profitability; it ensures that hoteliers make the most out of their assets, yielding the best revenue possible with the existing demand.

In the hospitality industry, sudden drops in demand can quickly put smaller businesses into crisis. Yield management essentially prevents that from happening by managing existing demand in the best possible way.

Implementing yield management can lead to several benefits:

  1. Maximizing revenue: Yield management helps businesses optimize the pricing and availability of their limited resources, ensuring that they generate the highest possible revenue from each unit (e.g., hotel room, airplane seat, or event ticket). This is achieved by adjusting prices and allocation based on supply and demand, as well as customer segmentation.
  2. Improved forecasting: By analyzing historical data and market trends, yield management enables businesses to better predict demand patterns and make more informed decisions about pricing, inventory, and marketing strategies.
  3. Enhanced customer segmentation: Yield management allows businesses to identify different customer segments and their respective price sensitivities. This enables companies to offer targeted promotions, discounts, or value-added services to different customer groups, ultimately driving higher revenue and customer satisfaction.
  4. Increased competitiveness: Implementing yield management practices can help businesses stay competitive in the market by enabling them to respond quickly to changing market conditions and customer preferences. This is particularly important in industries with significant competition and fluctuating demand, such as airlines and hotels.
  5. Optimal resource utilization: Yield management ensures that perishable resources are utilized to their maximum potential, minimizing waste and inefficiency. This is particularly relevant for businesses with high fixed costs and limited inventory, such as airlines, hotels, and entertainment venues.

Yield Management Strategies For Hotels And Rental Properties

There are two ways to do yield management: manually or with an automated system. Using the latter, after a while, the whole process will almost solely operate on autopilot, but if you want to do it manually, there are some basic steps: 

  1. Pull availability data and rates from your PMS and competitor data from individual OTA channels (or use rate intelligence tools).
  2. Combine the data sets into a single spreadsheet; align the dates, and set up custom formulas so that you can calculate key ratios. Make sure to enable conditional formatting to highlight trends and see which areas need attention.
  3. Adjust the rates in the spreadsheet before uploading them to PMS/OTA for distribution.

Here are some actionable yield management strategies you can employ to unlock your full revenue potential.

Understand Your Market and Customer Segments

The first step in implementing a successful yield management strategy is to gain a thorough understanding of your target market and the different customer segments it comprises. Analyze historical data, booking patterns, and customer preferences to identify key segments and their respective price sensitivities. This information will enable you to develop tailored promotions, discounts, and value-added services that cater to each segment, ultimately driving higher revenue and customer satisfaction.

There are several useful online tools and software solutions that can help hotels analyze customer segments, understand their preferences, and tailor marketing strategies accordingly. Here’s a list of some popular options:

  1. Google Analytics: This powerful web analytics tool allows hotels to track and analyze visitor behavior on their websites. By understanding the demographics, interests, and geographic location of your website visitors, you can gain valuable insights into your customer segments and optimize your marketing efforts.
  2. Revinate: Revinate is a customer relationship management (CRM) and guest data platform specifically designed for the hospitality industry. It helps hotels collect, analyze, and act on guest data to create personalized experiences and targeted marketing campaigns.
  3. Cendyn: Cendyn’s CRM Suite is designed for hotels to manage guest profiles, segment customers, and deliver personalized communication and offers. The platform also provides advanced analytics and reporting to help hotels measure the effectiveness of their marketing efforts.
  4. Mews: Mews is a property management system (PMS) that also offers customer segmentation and profiling features. By integrating guest data from various sources, such as booking channels and on-property interactions, Mews helps hotels gain a holistic understanding of their customer segments and design personalized experiences.
  5. Duetto: Duetto is a revenue management platform that incorporates customer segmentation and personalization features. It enables hotels to analyze guest data, such as booking history and preferences, to create targeted pricing and promotional strategies.
  6. Hotelchamp: Hotelchamp is a marketing platform that helps hotels analyze website visitor data and segment customers based on their behavior and preferences. The platform offers various tools to create personalized website experiences and targeted marketing campaigns.

Utilize Dynamic Pricing

Dynamic pricing is a core component of yield management. It involves adjusting room rates based on real-time demand, seasonality, and other market factors. By implementing dynamic pricing, hotels can charge the optimal price for each room at any given time, maximizing revenue per available room (RevPAR).

To implement dynamic pricing effectively, consider using revenue management software that analyzes market data, monitors competitor pricing, and recommends optimal price points based on your hotel’s unique demand patterns and customer segments.

Optimize Distribution Channels

Managing your hotel’s presence across multiple distribution channels is essential for maximizing revenue. Online travel agencies (OTAs), direct bookings through your hotel’s website, and traditional travel agents all play a role in driving bookings. Analyze the performance of each channel and identify areas for improvement or expansion.

Consider investing in a channel management solution that allows you to manage rates, availability, and inventory across all channels from a centralized platform, ensuring consistency and minimizing the risk of overbooking.

Implement Length of Stay (LOS) Restrictions and Pricing

Length of stay restrictions and pricing can help hotels drive higher revenue during periods of high demand. By requiring a minimum or maximum LOS for certain bookings, you can optimize room occupancy and ensure that high-demand periods are maximized.

For instance, during a popular event or peak season, you can impose a minimum LOS requirement, ensuring that rooms are not left vacant for short periods. Conversely, during periods of low demand, offering discounted rates for longer stays can help fill rooms that would otherwise remain unoccupied.

Focus on Ancillary Revenue Opportunities

Yield management is not limited to room pricing; it also encompasses ancillary revenue opportunities. By offering additional services and amenities, such as spa treatments, dining options, or event space rentals, hotels can generate additional revenue streams and enhance the overall guest experience.

Analyze your current ancillary offerings and identify areas for expansion or improvement. Ensure that these additional services are effectively marketed and promoted to your target customer segments.

Stasher Can Help You

As we mentioned above, using 100% of your premises would be ideal for improving your yield management ―and offering luggage storage to non-guests is an important step.

Becoming a Stasher host is a great way to boost your business by expanding your base to a younger clientele who may usually go for a more modern option than the “traditional” hotels. In a recent survey, 67% of Stasher users who are Airbnb customers said that after storing their luggage at a hotel, they are more likely to book hotel accommodation in the future.

Stasher currently operates worldwide, so you can become a host anywhere! Take a look at some of our major luggage storage hubs below: