What is Yield Management?
Yield management is the process of making frequent adjustments in the price of a product in response to specific market factors, such as demand or competition.
Businesses use yield management in the travel industry as a pricing strategy. Its goal is to receive the maximum revenue from hotel rooms, rental homes, or airline seats. Yield management involves closing a booking on your vacation rental home at the right time to the honorable guest for the highest amount. Revenue is then maximized.
Yield management involves selling time-limited resources, such as specific nights of your vacation rental home, for different prices. Prices fluctuate based on the time of year, the level of demand, and the number of rental homes available on the given date.
What Are Yield Management Systems?
Yield management systems leverage selling nights booked at your vacation rental to maximize your profit. It attempts to book stays at the highest price possible. Discounts are then applied to entice people to book your vacation home.
Yield management pricing systems use past data and unique algorithms to determine the best price. Prices change as demands fluctuate.
Why is Yield Management Important for Vacation Rentals?
Yield management is vital to boosting the revenue of your vacation rental home. When your property is in high demand, it ensures that you will get the most money per night. People are willing to pay more when a service or product is not readily available. For example, if your vacation rental is the only home available during the peak season, guests will be willing to spend a lot more.
On the other hand, the demand for vacation rentals might be very low in the off-seasons. If a guest has many options to choose from, they will most likely rent the more affordable home. Lowering your prices during these months will ensure that you have consistent income even during the slower months.
Key Elements of Yield Management
Yield management combines the elements of marketing, operations, and financial management into a single revenue-boosting strategy. Each aspect of your vacation rental home business must work together to design and implement yield management strategies. Merging these key elements of yield management will better ensure your success using the data you collect from your research.
How to Calculate Yield Management?
The easiest way to calculate yield management is to use the formula revenue achieved/maximum potential revenue.
For example, if your vacation rental home is available every night for a 30 day month, and the top rate you charge is $500 per night, your potential income is $15,000. But for this particular month, you only have 20 nights booked, and because it’s the shoulder season, you charged your lowest rate of $350 per night, making your achieved revenue $7,000. Your yield is 7000/15,000 = 46.6%.
Comparing your yield to the bigger picture helps you adjust rates accordingly. As you better understand the demand for your property and the factors that affect it, you will be able to adjust your rates and boost your overall annual revenue.
Examples of factors that may cause you to adjust your rates include:
- Local events that draw in more tourists
- The number of other rental properties in the area
- How potential guests perceive your property
- Changes in the local economy
- Historical insights into future forecasts
- Peak seasons versus shoulder seasons