Hospitality Yield Management: A Formula for Success

Hospitality yield management: among a hotel property manager’s many and varied tasks, this one ranks near the top both in importance and in hair-pulling aggravation. Every business manager wants to maximize profit, and cutting expenses only goes so far. Offering your rooms to the right customer at the right price will take you the rest of the way.

As the economy slowly recovers from the most recent recession, hospitality yield management is more important than ever. However, simply monitoring all the data that goes into adjusting room prices can be a full-time job, and few hotels have the resources to devote one, full-time person to this task. However, there is a simple and flexible formula you can use to maximize yield on each and every room class for your target customers.

Understand the Past

All experienced hoteliers know that historical data is the benchmark for forecasting future room demand. With enough data to back you up, you have a fairly clear understanding what combination of price point, features, and amenities attracts your target customer. That’s your starting point.

From there, you can build your pricing structure to fit your hotel’s current and future customer base. This can be customized with more or fewer price levels, but a basic pricing structure might look like this:

  1. Base rate (or rack rate)
  2. Walk-in corporate discount
  3. Military and/or government discount
  4. Promotional rate

Note that a senior citizen discount is not part of this list. That’s because that rate is always offered no matter what.

Let’s say your hotel has 100 rooms. After about half the rooms are sold (no matter which rate level that they’re sold), stop offering level 4. When the next 25 rooms sell, lop off level 3, and leave the remaining 25 rooms to be sold at the corporate and rack rates.

Incorporate Current and Future Events

When establishing your rate structure for the next quarter, don’t forget to keep an ear to the ground for unexpected events that might unexpectedly spur demand in a typically low season. For example, a popular Broadway road show or rock band comes to town. Your competition runs a flash sale. A storm on the coast sends vacationers scurrying inland for temporary shelter.

Go ahead and plan for the future, but remember that circumstances are fluid, and you should be poised to take advantage of changing market conditions that impact even the best of hospitality yield management plans. For further assistance, contact