Yield management is a key component of any hospitality business looking to capitalize on the limited booking opportunities available to them. Today, we will take a closer look at what yield management is and why it’s important, how to calculate yield management, and how web data analytics can help optimize the entire process for your business. Let’s jump into it.
What is yield management?
Yield management is a variable pricing strategy which uses an understanding of customer behavior to capitalize on fluctuating demand, allowing you to generate the maximum possible revenue from a finite supply of available offers. It is all about servicing the right customer, at the right time, and at the right price.
For those in the hotel industry, this limited supply is simply the total number of rooms you have available for booking. For airlines, this is the number of seats you have on each flight. Regardless of the specific hospitality sector, yield management is used to make the most of these limited spots, allowing you to generate maximum revenue through fluid pricing that takes a variety of factors into account.
What factors determine changes in price?
The most common factors of price changes in a yield management system are a) differences in product and b) seasonal rates.
Differences in product
Most industries implement some form of yield management when making comparisons between different product features. For example, a phone that has internet access, stays powered all day, and takes stunning photos can command a higher price than the flip phone your grandmother has on her nightstand. In terms of the hospitality industry, some features that often lead to pricing variance include:
- Room Type (suite vs standard, ocean vs alley view, king bed vs queen bed)
- Booking Specifics (number of guests per room, how early they book)
- Packages (discounts for booking numerous rooms at once, etc.)
Another common method for raising and lowering prices is through seasonal demand. By using a seasonal methodology, your prices are adjusted according to how popular your bookings are during a certain period of time. It is easier to charge greater rates during high seasons, while low season periods generally cause drops in price to account for the lack of demand.
Some factors that can affect seasonal rates include:
- Day of the week
- Extended weekends
- School holidays
- Annual holidays (Christmas, New Years, etc.)
- Major events (conventions, concerts, festivals, sporting events, etc.)
- Past occupancy (e.g. if only 75% of your rooms were full during last year’s peak times, this should be taken into account)
Why is yield management important?
By implementing yield management into your hospitality business, you can ensure that rooms are generating the most revenue possible. Without it, you may be losing out on crucial bookings or undercharging for rooms that are in high demand. Anticipating this demand and responding accordingly will allow you to capitalize on your “inventory” and make the most of what you have available.
How do you calculate yield?
Implementation of a yield management strategy requires you to first calculate the yield itself. Several formulas can be used, each catering to a specific yield management practice. However, we are only focusing on the basic yield management formula for simplicity’s sake. Identifying achieved yield can be calculated by comparing the actual revenue received with the maximum potential revenue of the same day.
Yield Management % =# of rooms sold X avg rate paid per room# of total rooms X potential rate per room
For example, let’s say your hotel has 150 total rooms with a potential rate per room of $160. If you only fill 100 of these rooms on a given night, with an average rate paid per room of $110, then the equation would look like this:
100 x $130150 x $160= $13,000$24,000= 54.17%
On this specific night, your hotel only made 54.17% of their potential revenue. Yield management revolves around continually optimizing your prices to get this number as close to 100% as possible.
How to Leverage Web Data for Yield Management
Import.io understands that implementing a yield management strategy comes with its own set of challenges. Luckily, we created Web Data Integration to help you seamlessly implement a yield management process into your business. Along with its notable reliability, WDI extracts data faster, more consistently, and with greater accuracy than traditional web scrapers, giving you confidence that your yield management strategy will be meticulously executed every single time.
To learn more about how Import.io can help your hospitality business implement a yield management pricing system, contact one of our data experts today.