What is yield management? Definition, strategies and examples

Nothing is more frustrating than seeing your hotel revenue stagnate despite your continued effort to fill your rooms.

I know this because I’ve been there many times at my hotel. If that sounds familiar too, then you’re in the right place to learn more about yield management.

In this article, I’ll run through the definition of yield management and explain how it can help your business maximize its revenue streams and financial bottom lines.

Here’s the basic definition of “what is yield management":

“Yield management is selling “the right product to the right customer at the right time to the right price (Robert Cross, 1997)”

Let’s dive straight in.

A photo of sheets showing the revenue numbers and a cup of coffee

What is yield management - a definition

Yield management is a variable pricing strategy, commonly used in the air travel and hospitality industry to maximise revenue from a perishable and fixed inventory (e.g. hotel rooms, airline seats, etc).

Generally speaking, engaging into a yield management strategy implies offering different prices to different clients for the same product (at different times).

That’s because different customers are normally willing to pay a different price for the same product in these specific industries based on multiple criteria, such as time of year, level of demand, weather conditions, etc.

As you build your own hotel revenue management strategy, it’s important to think about selling the right room to the right client at the best moment in time and for the highest price possible so as to enhance your hotel’s revenue and profitability.

On a basic level, being a good revenue manager is about your capability to find an optimal price zone called equilibrium where you can maximize your revenue.

So, a surefire way to develop your yield management skills is to work on finding the highest price you can sell your rooms for while keeping a high number of clients booked at your hotel. Once you find this optimal price zone, you are already working at maximum efficiency.

If you want to learn more about yield management, we strongly recommend you match the following video from ResNexus:

Have a look at the supply and demand curve below. What does it tell you about how to run a hotel successfully?

Small chart depicting the equilibrium point between supply and demand

As explained in the video, yield management is strongly correlated to the demand and supply curves: the higher your prices are, the less likely potential customers will be buying from you:

A chart plotting the room price vs customers willing to pay

Of course when prices go up, sellers increase their supply so as to maximize revenue. The point where the supply and the demand curves meet is called the equilibrium.

That point gets reached when you trade at maximum profitability.

Even with a stable price or quantity being offered, your equilibrium point will eventually move to another level after some time.

That’s because the demand and supply curves are constantly impacted by a plethora of parameters such as current weather conditions, competition, seasonality, economic context etc.

If you are looking for the optimal price zone for your hotel, simply keep track of parameters such as the weather forecast, coming up bank holidays, competition prices, to pull up a list of relevant factors that will have an impact on it.

If you can’t track those parameters manually, use cloud software solutions such as Hotel Price Reporter or Bedvine instead.

These cloud platforms let you centrally monitor all of your hotel’s relevant market conditions at any time.

With the Hotel Price Reporter solution for instance, you can keep track of a wide range of parameters, such as your competitive set prices, the weather forecast, coming up bank holidays as well as the local demand forecast for your city:

If you want to learn more how to build a yield management strategy that works, we recommend you read our previous post about revenue management. That will give you lots of tips on the topic.