Revenue, distribution, and yield management are an ongoing battle for most property owners and managers. There are countless different strategies and tactics you can create to distribute your inventory to the best places at an ideal price.
Yield management strategies are a combination of distribution and revenue tactics. Yield management is the practice of selling the right rooms or beds to the right individuals at the right times. Here we’ll walk through the basics of yield management and explore how technology like shared inventory can positively influence your property’s approach.
The official definition of yield management is “the process of making frequent adjustments in the price of a product in response to certain market factors, such as demand or competition.” In other words, it’s providing the right product to the right person at the right time.
In today’s marketplace, it’s not enough to just supply your inventory to any given distribution channel. In almost all cases, properties will adjust their rates based on season, availability, and special events. There are countless factors that influence pricing decisions whether it be availability, competitors’ prices, or market conditions.
The point of yield management is to increase revenue, but it is not as simple as raising your room rates. Simple economics will tell you that consumers will only pay a certain amount of money for a product or service. While it’d be great to increase prices and for consumers just to pay it, that’s usually not how things work out. So, using your market know-how and a little bit of experimentation will help you optimize your prices and your offers to drive revenue.
In order to make better decisions, it’s important to calculate certain key performance indicators to benchmark your efforts. The industry standard metric to gauge your property’s performance is revenue per available room or RevPar. You calculate RevPar by multiplying your average room rate (ADR) by your occupancy rate (occupied rooms/total rooms). This metric allows you to see how much revenue you made per the available rooms during any given time period.
Another widely used metric is average daily rate or ADR. ADR is calculated by dividing your total room revenue by total sold rooms (Total revenue / sold rooms). ADR is a helpful metric because it allows you to compare sold room rates, but it doesn’t give you a clear picture of your property’s performance as a whole.
For example, let’s say that today you sell one of your six rooms for $400/night and tomorrow you sell 5 rooms for $100/night. You calculate your ADR and for the first day, ADR equals $400. For the second day ADR equals $100. This metric is misleading in that it appears your first day was better. While the first day had a much better room rate per sold rooms, it didn’t generate as much revenue as the second day.
RevPar takes into consideration all your rooms rather than just those sold. The first day your RevPar is $66.67 and the second day it’s $83.33. Therefore, it’s more obvious your second day was better for you property considering all else is constant (i.e. staffing, damages, etc.).
An effective yield management strategy will help you sell rooms that will drive the most revenue based on available inventory and influence RevPar. Using the example above, during your high season, your property might be able to sell rooms at $400/night. But, during the low season, there may be a dramatic drop in demand, so choosing to sell at $100/night will help you drive more bookings. It’s all dependent on your current market conditions.
This is an extremely simplistic example, but it describes the basics of how yield management works. You want to do what’s best to obtain the most revenue, whichever combination of inventory that includes.
An incredibly useful and important tool called shared inventory can help properties of all types fuel their yield management strategy and increase revenue. Shared inventory involves selling the same room under multiple different room types. So while your property has a finite amount of rooms, shared inventory allows you to distribute more inventory to attract more guests. To learn more, you can read our post about hotel distribution strategy.
Many guests shop around looking for specific types of rooms, and many of your rooms can be described different ways. Shared inventory allows your property to showcase all the different options your property can offer. Whether you change room configurations by season or if you have the ability to make quick changes overnight, shared inventory helps distribute what your customers are more likely to buy.
Different property types will inevitably use shared inventory differently. We’ll walk through a few different examples of how a property could hypothetically use this functionality.
Hostels have the ability to distribute their inventory several different ways. Shared dorms can easily be sold as private rooms or vice versa. Or, coed and all-girl dorms can easily be transformed to meet given demand.
During different seasons, it might be advantageous for hostels to change their room types based on consumer purchase behavior or seasonal changes.
For example, during a hostel’s busy season, their single coed dorm beds may sell out almost every weekend. Therefore, it makes sense for them to sell the beds individually for a price that generates the most revenue. During slow season, private rooms may be your biggest revenue driver, so it’s in their best interest to distribute more inventory.
Hotels, bed & breakfasts, inns and other accommodations have many options when it comes to using shared inventory. Many properties have the ability to sell their rooms different ways, and shared inventory allows them to do that.
For example, a hotel room with two queen beds can also qualify as a king room with small adjustments. If a guest is specifically looking for a king bed and they only see two queens available, they may take their business elsewhere.
Many properties have the ability to add beds or remove beds within different room types. Whether it be roll-aways or fully removable beds, some properties have the flexibility to change their rooms based on current bookings.
The purpose of selling one room under two different categorizations is because many travelers are looking for a specific type of room to book. If your property’s inventory is flexible enough to accommodate different layouts, you will maximize your revenue possibilities.
Shared inventory allows vacation rentals to sell their entire properties or individual rooms within it. During different seasons, you may be able to make more revenue through different selling configurations.
For example, in the high summer season, your destination may attract families looking to rent out entire houses for a week. But, in the non-summer months, your destination is more popular for short-term rentals for a one or two people rather than ten.
Shared inventory allows vacation rental owners create different accommodation types for the same property. It also allows property owners to experiment with different configurations to find what will drive the most revenue throughout the year.
There are hundreds of different yield management strategies and shared inventory allows you to take a more dynamic approach. Shared inventory gives property owners the ability to maximize their existing inventory and find more opportunities to approach different travelers. Simply, it allows property owners of all types to provide the right inventory to the right people at the right time. Yield management is a complicated endeavor but shared inventory gives properties the ability to make the most of their current resources.
Cloudbeds now supports shared inventory within myfrontdesk, our cloud-based property management system. Myfrontdesk works well for all types of property, and now with shared inventory, our clients can maximize the way they approach their yield and distribution management strategies.
If you’re an existing Cloudbeds customer, contact your account representative to learn more about this new feature.
If you’re interested in learning more about myfrontdesk and how it can work for your property, simply request a demo here.