Yield Management in Hotels

Yield Management in Hotels : Meaning, Difference, Benefits and Formula

Yield Management in Hotels – If you are running a hotel business and looking for management services, we are sure you must have come across the term “yield management in hotels quite a few times.

If you are familiar with the word, well and good! If not, Incode Business Services is here to explain to you the core of this management service. 

Here, we will start with the meaning, then get into the difference (between revenue and Yield management), walk through the formulas, and finally talk about the benefits of yield management in hotels.

Let’s dive into the basics… 

What is yield management?

Yield management is a pricing strategy used to generate maximum revenue from perishable inventory. Yield management is utilized by the hospitality and tourism industry.

Yield management in hotelsis all about selling to the right customer, at the right time, for the right price. 

Yield management vs revenue management – What’s the difference?

There is a very thin line of difference between yield management in hotels and revenue management.

Yield management in hotels refers to the revenue generated through the room charges and occupancy, whereas revenue management refers to the whole revenue generated by the hotel business.

Yield management formula – How is it calculated?

The mathematics of calculating yield management in hotels is relatively simple. There there are several formulas involved in the calculation of yield management in hotels.

  • Formula 1: Potential Average Single Rate 

Single Room Revenues at Rack RateNumber of Rooms Sold as Single

  • Formula 2: Potential Average Double Rate

Double Room Revenue at Rack RateNumber of Rooms Sold as Double              

  • Formula 3: Multiple Occupancy Percentage

Number of Rooms Occupied by more than 1 Person Total Number of Rooms Sold

  • Formula 4: Rate Spread

(Potential Average Double Rate) – (Potential Average Single Rate)

  • Formula 5: Potential Average Rate

  (Occupancy Percentage * Rate Spread) + (Potential Average Single Rate)

  • Formula 6: Room Rate Achievement Factor

   Actual Average RatePotential Average Rate

  • Formula 7: Yield Statistic

There are three formulas for calculating yield statistics

  1. Actual Rooms RevenuePotential Rooms Revenue
  2. Rooms Nights SoldRooms Nights Available  Actual Average Room RatePotential Average Rate
  • Occupancy Percentage Achievement Factor
  • Formula 8: Identical Yields Occupancy

        Current Occupancy Percentage × Current RateProposed Rate

  • Formula 9: Equivalent Occupancy

 There are two formulas for calculating equivalent occupancy:

  • Current Occupancy Percentage × (Rack Rate – Marginal Cost)Rack Rate × 1 – Discount Percentage-Marginal Cost
  • Current Occupancy Percentage × Contribution MarginNew Contribution Margin

Yield Management in Hotels – what are the benefits?

Incorporatingyield management in hotels brings in two major (and most important) benefits for your hotel

  • Increased Revenue
  • Decreased Errors

Book Yield Management services for your hotel today!

After reading through this write-up by Incode Business Services, we are hoping that your doubts about yield management in hotels have been resolved. 

But you will only get the results from it when you actually incorporate this management service in your hotel business – and who better than Incode Business Services for imparting reliable yield management service for your hotel.

Read this article also to get more information about – Do you need the services of hotel management companies in India?

Get in touch with our expert yield management team and get invaluable insights and knowledge of the industry. 

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