Revenue Management

YIELD MANAGEMENT

ANAND BANDA
 OBJECTIVES

 Review occupancy percentage and its

effectiveness
 Review average daily rate and its effectiveness
 Review RevPAR and its effectiveness
 Discuss history of revenue management
 Discuss use of revenue management
 Outline components of revenue management

YIELD MANAGEMENT
ANAND BANDA
 History of Yield Management
 Airline industry’s use of yield Management

Deregulation of airlines in late 1970s “Take It or
Leave It”
 Certain periods, certain seats, certain flights…

 similarities of the airline industry and hotel

industry
• Volatile product
• Demand periods which places the producers in a
favorable position
 Indicate differences of the airline industry and
hotel industry in using yield management
• Hotel groups can spend large amounts of money
on-site for food and beverage
 Yield management: Yield management is
a process to achieve maximum room rates
and most profitable guest (profit from
guest spending on hotels food & beverage
outlets, health club, gift shop etc). It is a
part of successful administration of
reservations system, which helps
managers to produce a favorable income
statement.
 Use of Yield Management
 Goals of yield management
 Maximize profit for guest room sales
 Maximize profit for hotel services
(food, beverage, and convention services)

 maxim Revenue Management Solutions (MaximRMS)

Definition of Occupancy Percentage
 Occupancy Percentage - reveals the success of a hotel’s
staff in attracting guests to a particular property
__Number of Rooms Sold x 100
Number of rooms available

 Double Occupancy Percentage – measure of a hotel staff’s

ability to attract more than one guest to a room; thus a higher
room rate and additional income
Number of Guests – Number of Rooms Sold x 100
Number of Rooms Sold
YIELD MANAGEMENT ANAND BANDA
 Definition of Average Daily Rate
ADR
 Average Daily Rate (ADR) - A measure of
the hotel’s staff efforts in selling available room rates

Total Room Sales

Number of Rooms Sold

YIELD MANAGEMENT ANAND BANDA

 Definition of RevPAR
 RevPAR – ability of a hotel to produce income and how many
dollars each room is producing.

Room Revenue
Number of Available Rooms
or
Hotel occupancy % x ADR

YIELD MANAGEMENT ANAND BANDA

 Discussion Question
Utility of Occupancy percentage, ADR, and RevPAR?
• Used to project room revenues
• Demonstrate how room revenue is calculated
• Leads into Revenue Management
Components of Revenue Management
 Yield – the percentage of income that could be secured if 100% of
available rooms are sold at their full rack rate (highest room rate posted for
a room in a hotel)
 Revenue Realized
Number of Rooms Sold x Actual Rate
 Revenue Potential
Number of Rooms Available for Sale x Rack Rate
 Yield = Revenue Realized (# Rooms Sold x ADR)
Revenue Potential (# Rooms Available x Rack Rate)
 Components of Revenue Management (cont’d.)

Yield = Revenue Realized (# Rooms Sold x ADR)

Revenue Potential (# Rooms Available x Rack Rate)

 Compare and contrast the concepts of yield

and occupancy percentage
 Optimal Occupancy and
Optimal Rate
 Optimal occupancy- Achieving 100%
occupancy with room sales which will yield
the highest room rate.
 Optimal Rate - A room rate which
approaches the rack rate.
 Strategies
components and strategies to employ when using
yield Management
 High demand for rooms = Maximize room
rates
 Low demand for rooms = Maximize room sales
 establish target numbers sales, manipulation of rates in
the electronic distribution channels as well as revenue
drivers within the organization (central reservations,
property-level reservations, and sales department, and
web site)
 Forecasting
 Importance of daily accuracy in forecasting.
 Room availability forecast formulae:
 Once the relevant occupancy statistics have been
gathered the number of rooms available for sale on any
given date can be determined by the following formulae
 Total no of rooms
 - no of ooo rooms
 - no of stay overs
 - no of reservations
 - no of reservations x % of no show
 + no of under stays
 - no of over stays
 = ROOMS AVAILABLE FOR SALE
 Block-Out Periods
 Block-out periods - Tagging certain dates
in a time period when rooms have to be
sold at a certain rate and/or certain
number of minimum room rental nights.
 It is also called as Blanket reservation
 Management Challenges In Using
Revenue Management
 Alienation of Customers
 Minimum stay requirements
 Price gouge
 THANK YOU