Yield Management in the Hotel: Optimizing the Occupancy Rate
The tourism industry is one of the largest industries in the world. The hotel industry plays a particularly important role in this. However, especially in regions that attract travelers seasonally, it can happen that many hotel rooms remain empty at the end of the season. But that doesn't have to be the case: with yield management in hotels, you have the opportunity to maximize your profits in the long term.
In this article, we will therefore discuss the basics of yield management in the hotel industry and how you can optimize your room occupancy by using dynamic pricing.
Definition: What is Yield Management?
Yield management describes an economically oriented strategy in which companies dynamically adjust their prices.
This method is typically used by companies with limited supply and in industries where demand for products or services can fluctuate. In the hotel industry, the yield management strategy is therefore also used to dynamically optimize room rates. This ultimately allows the hotel to sell as many rooms as possible at the best possible prices.
Factors such as supply and demand, guest preferences, resource availability and pricing are all taken into account to maximize the hotel's annual profit.
The maxim applies: sell the right room to the right guest at the right price and at the right time.
This sentence reveals, among other things, the importance of two important factors to consider when calculating and setting prices. Firstly, the fluctuations in supply and demand in the high and low seasons. Secondly, what type of guests or target group should be addressed.
Yield management in hotels is intended to provide appropriate support in the hospitality industry through dynamic price adjustments. The aim is to understand demand and ideally to anticipate it in order to gain an advantage in pricing due to the different willingness of guests to pay.
The basics of yield management in the hotel
Yield management in the hotel industry is based on a simple idea: hotel room prices should not be static, but should adapt dynamically to guest demand. If demand is high, room prices should rise. If demand is low, room prices should fall to avoid vacancies. The goal of yield management is therefore to develop an optimal pricing strategy to maximize the supply of hotel rooms and increase hotel occupancy.
Influences on yield management
This strategy requires consideration of the internal and external factors that are decisive for correct pricing. To determine the best price for a specific date, you should therefore take the following factors into account:
- Costs (including employee salaries/personnel costs)
- Booking situation and strength of demand
- Time span until arrival
- Competitor prices
- Experience
- Vacations and vacations
- Events as well as trade fairs
The prices should not be below the calculated lower price limit and at the same time not exceed the upper price limit, as otherwise the guests' willingness to book may be lost. Parallel to this, you should also consider that the image of the hotel is also determined and influenced by the pricing. So whether the house is classified as a low-priced or high-priced hotel, again affects the desired target group.
Yield Management and Revenue Management
Yield management is often confused with revenue management, as both are used by hotels for similar purposes—namely, to maximize profits from room sales. However, there are some key differences between the two concepts. Revenue management focuses on optimizing total revenue over a longer period of time (e.g., a year).
Yield management, on the other hand, takes a short-term approach —usually just for one day—to adjust prices to current market conditions and customer preferences, making it a helpful tool for achieving revenue management goals.
Why is yield management so essential in hotels?
Yield management is a promising option when it comes to optimizing occupancy rates. By adjusting prices to changing demand patterns (e.g., increasing prices when demand is high) or offering discounts to certain types of guests (e.g., business travelers or families), hotels can ensure that they always have guests in their property and earn more money with each booking.
The advantages of yield management
The use of yield management software or outsourcing to experts brings a number of advantages, including:
Increase profitability and sales
Yield management in the hotel ensures that the maximum yield is generated from the available rooms. This is particularly important in view of the often high fixed costs that arise even when a hotel is vacant.
Improved profitability through increased capacity utilization
Yield management allows hotels to charge higher rates for popular time periods while lowering their rates during periods of low demand to still generate bookings.
Better plannability
By forecasting future booking patterns, hotels can better plan their resources and thus increase the efficiency of their operations.
Full flexibility and increased competitiveness
The ability to dynamically change prices and availability allows hotels to respond to unforeseen events such as conferences, trade shows or weather conditions.
Software, formulas and methods for increasing sales
There are various methods for implementing yield management in hotels. One option is to use software that adjusts hotel prices in real time to match demand.
These yield management software packages use algorithms and statistical models to analyze demand and determine the best price for each room. It's no wonder that they are already being used by many large hotel chains and independent hotels that want to optimize their prices.
Common software solutions often make use of information such as:
- Competitor prices
- basic pricing formulas
- Previous discounts and packages
- the collected and analyzed behavioral patterns of the guests
Calculate the Best Available Rate yourself using a formula?
Another widely used method is to use formulas to calculate the room price. Here, the price is often calculated based on:
- market conditions
- Competition
- Demand
In this regard, manual evaluation is often used more by smaller hotels and independent operations that may not have the resources to implement complex yield management software.
The TourSol recommendation:
Regardless of the method chosen, it is important that hotels develop an appropriate pricing strategy. After all, this is the only way to prevent regular vacancies and remain competitive. And this is where Yield Management in the hotel comes into play. Thanks to this useful strategy and with the help of the right software solution, you can thus optimize your hotel's occupancy and sustainably increase sales.
By using algorithms and statistical models, the demand can be precisely analyzed at any time and the best price for each room can be determined. It is important, especially with the manual calculation, that the room price should not be set too high, as otherwise demand will fall. This, in turn, would encourage vacancies. If, on the other hand, your hotel offers the room at too low a price, you may be missing out on potential revenue. The secret to success therefore ultimately lies in making the right price adjustments at the ideal time.
Finally, no subsequent turnover is possible for vacant rooms.
In other words, if a hotel room has not been booked for one night and therefore remains empty, it cannot be sold twice for the following night.
The consequence is that the lost revenue is permanently lost and cannot be recovered retrospectively.
Yield management is therefore responsible for controlling prices in such a differentiated manner that maximum revenue, but also maximum occupancy, can be targeted and achieved.
For yield management, outsourcing options can also be used here to have the occupancy rate and its price calculation professionally optimized. Smaller hotels and independent businesses can also benefit from this effective method.
As experts in hotel revenue and yield management, we are happy to provide you with proactive advice and support in this complex process.
