Revenue Management vs. Yield Management

In practical terms, Revenue Management guides and adjusts your distribution and pricing tactics to sell your perishable assets to the right customers at the right time. The objective of this practice? To sell the right room, to the right customer, at the right time, at the right price, through the right distribution channel, with the best quality/price ratio.

This strategy relies heavily on the collection of data and the use of analytical tools that allow you to identify patterns and forecast demand as accurately as possible. Past data, existing bookings, public holidays, school holidays, seasonality and weather forecasts can all be used to optimise your revenue management strategy.

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What is Yield Management?

Yield management is a strategy that is also based on forecasting and anticipating customer behaviour. However, it focuses solely on the sale of fixed, time-limited stocks.

This business practice consists of varying prices according to the demand behaviour of customers. The objective of this pricing strategy is to generate maximum revenue from a perishable commodity: hotel rooms. Numbers are used here to ensure that the right room is sold to the right customer at the right time at the best possible price.

With this practice, the product sold must be available only for a limited period of time, its quantity must be limited and customers must be willing to pay different prices in order to obtain it.

Indeed, yield management is based on price discrimination to improve the results of the establishment. In the hotel world, customers are conditioned to pay different prices for the same product, depending on :

• The time of year they stay in the hotel;
• The proximity of the date of registration of their reservation to their stay;
• The level of demand for rooms ;

Different factors can also affect prices, such as a nearby event. This means raising prices during periods of high demand and lowering them when demand is low.

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Notable differences between Yield Management and Revenue Management

Revenue management takes into account price differentiation to maximise revenue from hotel rooms, but also takes into account revenue from other hotel services, such as sales from the restaurant, bar, spa, in-house activities and room service. In addition, the revenue management strategy also takes into account other factors, such as the costs associated with certain distribution channels.

In addition, Yield Management needs to take a more strategic approach to pricing. In some situations, you may need to apply a strict limit to the length of a guest's stay, particularly in periods of high demand. In periods of low demand, however, you may need to be more flexible to encourage longer stays to maximise revenue.

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Key performance indicators that help you in your revenue management

To implement a revenue strategy for your hotel, you need to consider different elements of your business. In order to understand what brings you revenue, and to what extent, you need to use key performance indicators. Here are the ones that you must know.

RevPAR (revenue per available room) 

This is one of the most important measures for your establishment. It shows the link between the average spend per customer (Average Price) and the level of demand (Occupancy Rate). It allows you to easily see the revenue that is being generated by specific market segments in your establishment. When your RevPAR increases, it means that your average room rate or occupancy is increasing. For your financial health, it's ideal!

To calculate this, multiply your average daily rate (or ADR) by your occupancy rate. For example, if your ADR is €100 and 70% of your rooms are occupied, your RevPAR is €70. To calculate your ADR, divide the revenue generated by your rooms by the number of rooms sold.

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GOPPAR (gross operating profit per available room)

This is the abbreviation for Gross Operating Profit Per Available Room: it tells you the gross operating profit per available room. This key indicator in the hotel industry helps you to better understand the real performance of your hotel. Unlike RevPAR and TrevPAR, it does not only take sales into consideration. It takes into account the revenue generated by the rooms, the hotel's additional income, and the operating expenses.

To calculate it: GOPPAR (€) = GOP (Gross Operating Profit) / number of available rooms

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Ready to implement a Revenue Management and Yield Management strategy in your establishment?