What is the difference between revenue management and yield management?

The terms?revenue management?and?yield management?are often used interchangeably, yet the concepts behind them differ upon closer examination.?

Revenue management is to be understood more broadly and refers to the?overall strategy?for optimising revenue. Basis on data analysis of the above-mentioned key figures, among other things, the booking behaviour of guests is modelled, and future forecasts are derived from this. Based on this, a long-term pricing strategy can then be developed that takes market dynamics into account.?

Yield management, in turn, is a sub-area of revenue management and relates to the?operational implementation?of the defined pricing strategy. Here, too, the goal is of course to maximise (rooms) revenue. The focus here is on price differentiation. Yield managers make particular use of guests’?different willingness to pay, which means that different prices can be achieved for the same product.?

What are the most important revenue management key figures??

To optimise your hotel’s revenue, you should monitor a number of KPIs (Key?Performance?Indicators). In addition to the above-mentioned factors influencing?your revenue development, the following KPIs play a significant role in revenue management:?

RevPAR

RevPAR (Revenue?Per?Available?Room) provides information on revenue per available room. It is calculated either from your average daily rate (ADR) multiplied by the occupancy rate (OCC) or from the rooms revenue of one night divided by the total number of rooms. In revenue management, this metric can be used to consider how to increase revenue from individual rooms. An increase in RevPAR is achieved by increasing the average room rate and / or occupancy.?

RevPAR = ADR * (OCC in %)

RevPAR = rooms revenue / total number of available rooms

GOPPAR

Gross?Operating?Profit?Per?Available?Room, abbreviated to GOPPAR, refers to the gross operating profit per available room and, unlike RevPAR, also takes into account the costs of the logistics area. Thus, it shows another dimension for revenue managers, the adjustment of costs. This ratio is calculated by dividing the gross operating profit by the total number of available rooms. For gross operating profit (GOP), the hotel’s total expenses are subtracted from total revenues.?

GOPPAR = GOP /?total number of available rooms

ADR (Average daily rate)

The ADR (Average?Daily?Rate) indicator shows what your average room rate is per room sold and therefore indicates the average daily rate or average rate. It is calculated by dividing the total lodging revenue by the number of rooms sold. The ADR can be adjusted, in particular due to events in the area of your hotel, holidays, or package prices and discounts.?

ADR =?rooms revenue / number of rooms?sold

OCC (Occupancy rate)

The hotel occupancy rate (OCC) provides information about the occupancy of the hotel at a certain point in time. It is calculated by dividing the number of rooms sold by the total number of available rooms and is an important?indicator for optimization approaches by revenue management. The more guests you have, the more revenue you can generate in the F&B or spa area.

OCC = number of rooms sold /?number of available rooms?* 100

Pick-up (Booking trend)

The pick-up rate captures the daily booking development of the hotel. So every incoming reservation or cancellation changes the booking status for a certain period in the future. Retrospectively, conclusions can be drawn from the pick-up as to the lead time of bookings for certain conferences, holidays, or other events. This information is elementary for dynamic pricing strategies.?

ALOS (Average Length of Stay)

The?Average?Length?of?Stay (ALOS) indicates how long a guest occupies a room on average. Many hotels already specify a minimum or maximum length of stay to provide better planning certainty. Each night sold by a stayover guest cannot be repriced in terms of revenue management. ALOS is calculated by dividing the total number of rooms sold in a period by the number of bookings.?

ALOS = number of rooms sold in a period / number of bookings in the same period

Revenue management at a glance

Revenue management uses the?differentiation of prices?to maximise profits. It is important to include as many factors as possible that influence demand and to base forecasts not only on past data. Adjust your room rates dynamically based on how your metrics are performing.?

If you want to be well-positioned, revenue management can be extensive and it’s easy to lose sight of the big picture. With the combination of state-of-the-art technology and expert know-how, we are happy to help you find the best price for your rooms per distribution channel and guest segment at any time.?Simply contact us for a free consultation.

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