Yield Management for independent properties

There are a lot of factors that go into your rates but when was the last time that you actually looked at your historical data to make sure your rates are priced for the right guest at the right time? That's the foundation of yield management and it's proving to be a great pricing strategy for smaller, independent properties.

What is yield management?

Yield management, or revenue management, is the practice of understanding your supply and demand over time to optimize your rates for the right circumstances. You need to forecast your upcoming season or year, book enough guests to cover operational costs, and then maximize your rates or promotions to get the payoff with your increase in revenue.

To put in a mathematical context, we can look at:

RevPAR = average room rate x occupancy rate

Some of the common terms associated with yield management include:

  • BAR: Best Available Rate, expressed in dollars
  • ADR: Average Daily Rate, expressed in dollars
  • REV: Revenue, expressed in dollars
  • OCC: Occupancy, expressed in percentages
  • RevPAR: Revenue Per Available Room, expressed in dollars

You want to find the balance between increasing occupancy and ADR.

The major components of yield management include: Seasons, time, capacity, rate, and your customers.

Seasons: We’ll take a good guess that you operate on seasonal rates and have a very good idea of when the majority of your guests are flocking to your location. Other factors that can manipulate your season’s performance include external factors like weather, gas prices, holidays, and so on.

Time: Basic supply and demand tells us that you can increase pricing when it’s a busier season or lodging is in high demand but when it’s your low season you’ll either need to lower rates or create packages to add value for your guests to get them to book.

Capacity: How many rooms you have to book and your ideal RevPAR.

Rate: Pricing out your BAR to match supply and demand and share the value of your price. What amenities or services are included in that rate.

Customers: Perhaps one of the most important components as without customers you wouldn’t be worrying about yield management in the first place! Your customers are savvy and have probably done their research in your area so they know what your competition is charging. Every guest wants a fair price for the room and services they get but we also know that guests are willing to pay more when the amenities are spectacular and the staff is attentive and friendly. On the other hand, guests that like to plan ahead expect a lower price for being on top of things where a spontaneous traveler is probably expecting a higher price for a last-minute reservation.

What’s next?

Now that you know when to expect a larger percentage of your guests and when you might be playing cards at the front desk, it’s time to roll out some smaller actionable items.

When demand is high:

  • Increase rates or don’t show low rate categories or packages
  • Require a minimum night stay

When demand is low:

  • Make special rates or packages available
  • Offer promotions for groups

Common mistakes in revenue management include

  • Using multi-night minimums. Yes, we included this as a factor when demand is high but it’s based on circumstances. If there’s a one-night event in your area and guests are looking for a one-night stay but have to stay two nights with you, they may book with a competitor who doesn’t have minimums in place but has a higher rate. It can be beneficial for you to raise your rate and remove restrictions to book more rooms.
  • Pricing like your competitors. We’ve talked with clients that check their competitor rates daily and aim to be $10 less. We understand why that can seem like a good idea but you have no idea what goes into their pricing and could be selling yourself short just to appear to have a better rate.
  • Not listing on OTAs.  The OTAs aren’t out to get you and can help you pick up midweek bookings or fill in need periods. OTAs won’t destroy your revenue management strategy and it’s always worth a phone call to negotiate your commission rate if it is cutting into your revenue too much.
  • Not selling value. It’s important to keep in mind that price isn’t the only factor that guests look at when finding an inn. Yes, price will play a role but guests look for value and will pay more for better service and better amenities. When you have the right price for the value, excellent reviews, good website photography and content, it makes it much easier for the guest to convert.
  • Underpricing your property. Guests want decent rates but if your property is coming in $100 or more less than your competition, guests will be suspicious of your property and what experience could be waiting for them at such a low price. 

Published: June 2, 2016