subject: Start A Hotel Business - Setting Prices [print this page] If you have visited a certain hotel repeatedly, you'd probably noticed that, like airlines, hotels generally change their prices with the season, the month, and even the day of the week. Pricing also changes the closer you are to a given date. Pricing changes such as these are part of yield management, and yield management software is a valuable investment for a new hotel that wants to make sure they are pricing competitively and maximizing their revenue.
What is Yield Management?
Yield management "is the process of understanding, anticipating and influencing consumer behavior in order to maximize revenue or profits from a fixed, perishable resource." Unlike nonperishable items, like clothing and TVs, the value of a night in a hotel drops to zero when that date passes. Furthermore, the cost to the hotel of booking that room is very small compared to the overall fixed cost of keeping the hotel open day after day. This means that the hotel entrepreneur must consider when it is reasonable to lower prices as a date approaches in the attempt to fill rooms. However, rates cannot be dropped so far and so dramatically that customers learn they will always get an amazing deal at your hotel by waiting until the last minute to book. Hotel entrepreneurs must carefully balance these needs and yield management software can take the guesswork out of this.
Peak Pricing
Beyond the consideration of when to drop prices as a rental date approaches and by how much, hotel volume is subject to seasonal changes and even weekly volume changes (if your hotel focuses on business travel, weekdays may be peak and if it focuses on leisure travel, weekends may be peak). Hotels will generally have higher rates in the peak season times for travel to the region and the lowest rates in the most off-peak season. Hotel owners may also restrict these general season prices around holidays or events in the area when there are spikes or drops in travel.
Software Options
Software for yield management is available either as installed software or as software-as-a-service (SaaS) available for a monthly subscription fee or commission fee based on revenue. Some yield management software is part of larger enterprise solutions for hotels which can include human resources management, bookkeeping, property management, central reservations, customer relations management, and marketing. Think carefully about how an enterprise software solution might work for your business, especially if you will have only a few locations. Purchasing or subscribing to software can ensure that you don't have to design your own software systems from scratch, and take on all of the risks associated with new software along with the risk of operating your hotel business.
by: Eric Powers
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