What is Yield Management and How to Improve it

What is Yield Management and How to Improve it

by George Mouratidis

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! 

How does it 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.

The Importance of Yield Management

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.

Additionally, yield management is a targeted task; it all comes down to data analysis.

How to Do It

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.

Furthermore, you can take measures by working with your business partners to reduce expenses, pay extra attention to your marketing, etc. For example, you can:

  1. Consider the option of loyalty programs to gain loyal customers; invest in building long-term relationships instead of short-term “sign-up discounts,” especially for those who travel for business.
  2. Tailor your offers to guest preferences. Emphasize your recurring guests’ preferences and design personalized packages.
  3. Use your premises for events, like shows, book signings, and presentations, ―and offer discount bookings along with the tickets.
  4. Think outside the box: a hotel is not just a hotel. Emphasize what else you can offer. Food and drinks? Luggage storage? Parking space? Put your premises to good use, even if the demand for rooms is low.
  5. Take the current conditions into account; for example, during the COVID era, you could offer to rent rooms during business hours for the locals who work remotely but don’t want to spend any more time at home. Turning rooms that would otherwise be empty into an office alternative could be an interesting way of generating some extra profit.

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. Stasher, the world’s first online luggage storage platform, connects travelers with hotels and shops in major urban areas worldwide, where they can store their bags while on business meetings or exploring in-between flights.

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:

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