How to use yield rates to maximise your hotel’s revenue growth – part 1 of 2

  Posted in Revenue Management

By David Chestler, EVP, Global Enterprise Sales & Business Development, SiteMinder

Yield management is fast becoming a pivotal pricing strategy for today’s hotelier. The concept is based on understanding, anticipating and influencing your guests’ behaviour in order to maximise revenue or profits for your hotel. Think of it as the art behind the science of room supply and demand.

In simple terms, yield management is how you make more money from your existing inventory, and revenue managers and general managers of small hotel properties are today looking beyond ADR (Average Daily Rate) and RevPAR (Revenue Per Available Room) to other measures such as GOPPAR (Gross Operating Profit Per Available Room). It’s no longer just about room sales but about packages, amenities and services including upgrades, dining and food & beverage as well as entertainment spend per guest.

In part 1 of this blog, we will explore the goals of effective yield management, how it’s enabling small hotel properties to compete, and how a better understanding of your guest customers can ultimately help to manage your inventory.

Take control of your inventory

The ability to better yield your rooms and rates using technology and science, along with true revenue management strategies and merchandising skill, is enabling the smallest of hotel operators to compete with brand and chain hotels. In fact, there is a growing demand for hotels to yield rates as an essential part of an effective revenue management strategy. The goal of yield management is not merely to increase room rates or occupancy; rather, it’s to maximise your hotel’s average nightly room revenue by forecasting your room supply and demand across a variety of key factors.

When considering that every hotel has a fixed number of rooms (i.e. their inventory) and different customer segments – such as leisure and business travellers, who are willing to pay different prices – hoteliers need to focus on the strategic control of their inventory in order to sell their rooms to the right customer, at the right time and at the right price. The use of yield management should factor in the costs of channels – from GDSs, OTAs, wholesalers, meta search sites and property websites to direct calls – and therefore how to better yield your inventory by channel, customer and more.

For years, airlines have been using yield management strategies to significantly increase their profits and the practice is now extending to the hospitality industry. Craig Eister explains that at IHG, revenue management “is becoming more integrated in the heart of our strategic decision-making. The key insights generated from our state-of-the-art forecasting and pricing technologies are being used to drive decisions such as where to invest marketing dollars, how to position our sales accounts, and how to optimize distribution”.

Use comprehensive reporting and analytics to identify trends

All yield management strategies are based, primarily, on forecasts of supply and demand. Through the use of a revenue management system or revenue management disciplines, combined with best-of-breed (real-time) distribution technology, revenue managers can today build reasonably accurate forecasting models for room demand as well as implement these controls in the booking process – many times, at a granular level and by channel.

Depending on how detailed you wish your reports to be, you can break down your analysis by traveller segment, channel, room type, booking behaviour, average length of stay, the willingness to book in advance and the total revenue generated by customer type to name a few options.  There are many system providers and consultants capable of developing custom reports to better target and analyse data, but it’s on each hotelier to determine where best to invest their time and money.

Armed with the above data, you can create weekly, monthly and yearly forecasts, which allow you to manage your inventory, forecast demand, set booking limits and room protection levels, and create appropriate pricing and promotional strategies aimed at your different customer segments. This is where thresholding becomes a critical component of your distribution strategy and conversion profitability. Thresholding or basic inventory controls such as Closed to Arrival (CTA), Closed to Departure (CTD), Stop Sell and other simple controls make yielding much simpler than using manual human intervention and enacting changes after the fact, which can cost you both penalties and guest customers.

In the final part of this blog, we will explore how to further maximise your revenue growth by forecasting demand by customer segment and increasing your revenue based on demand.

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