In my previous article, I have explained Revenue Management in details. While both Revenue and Yield Management concepts are similar and allowing hotels to maximise the amount of money they make from guests. Also, there are differentiations too. I will explain the differences and compare the two strategies together.
Yield Management is an inventory focused branch of Revenue Management
Yield management is a variable pricing strategy, based on understanding, anticipating and influencing consumer behaviour in order to maximize revenue or profits from a fixed, time-limited resource. Hotels use this system to calculate the rates, rooms and restrictions on sales in order to best maximize their return. These systems measure constrained and unconstrained demand along with pace to gauge which restrictions to implement, e.g. length of stay, non-refundable rate, or close to arrival. Yield Management basically targeting the right distribution channels, controlling costs, and having the right market mix plays an important role and selling rooms and services at the right price, at the right time, to the right people.
There are 3 essential conditions for Yield Management to be applicable:
That, there is a fixed amount of resources available for sale
That the resources sold are perishable (there is a time limit to selling the resources, after which they cease to be of value)
That different customers are willing to pay a different price for using the same amount of resources.
Revenue Management is a commercial management technique that helps us to sell the right product at the right moment at the right price to the right client
By contrast, Revenue Management considers the bigger picture more and may involve things like forecasting and in-depth analytics. Revenue management has a wider focus, while aim to maximising revenue from hotel rooms in much the same way but also deals with the cost of selling and money made from other aspects, like food and laundry services. It can, therefore, be described as the big picture.
In summary, Yield Management is more of a tactical approach and focusing on maximising revenue from hotel rooms which is the core of our business. Revenue Management compliments yield management providing a strategic approach with a wider focus and allows maximising overall revenue generated by the hotel.
How to Measure Success?
For the success of our business, we should have controls in place to be able to measure and improve the results of our actions.
Yield Management is mainly focused and apply to rooms revenue optimization, with RevPAR (Revenue per Available Room) being the principal benchmark for the measure of success. Over the past decade, the industry has seen a proliferation in channels to a market dominated by online travel agents with huge customer databases, sophisticated consumer marketing techniques and changing trends in customer booking behaviour is widening the gap between revenues and profit due to rising operating costs. Therefore, using RevPAR as the only benchmark provides an incomplete picture of a hotel's operation since it is unable to expose underlying trends in costs that significantly influence profitability. It is also more necessary than ever to understand the underlying relationship between revenue and cost, and ultimately how those revenues flow through down to profit line.
RevPAR as a benchmark focuses on top line revenue generation and using this benchmark in isolation will favour pricing strategies that drive room revenues over profitability. TRevPAR (Total Revenue per Available Room) and GOPPAR (Gross Operating Profit per Available Room) are two benchmarks used to monitor performance beyond RevPAR, giving a complete picture of the success of an operation and its overall profitability.
While RevPAR focusing on Room revenues, TRevPAR includes all other sources of income including F&B outlets, Conference space, health club and any other revenue stream hotel might have. More than the room revenues, it allows us to optimize these other sources of revenue.
As in any business strategy, there are several KPI’s (Key Performance Indicators) to measure and identify areas of success and failure in our approach to Revenue Management. This will give hoteliers an even greater insight into the actual performance of their hotel. Please follow www.hospitalitycode.com for my articles on Revenue Management KPI’s, it’s calculation and interpretation methods.