The Secret of Yield Management

If you have been in the vacation rental industry for any length of time, you’ve likely heard the term “yield management”. But what is it? Discounting? Offering a deal for a last minute booking? While it includes those topics, saying that yield management is just discounting is like saying a computer is just for sending e-mail. It’s a much more powerful tool than that.

What is Yield Management?

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Here’s a secret that not many rental companies or owners realize. If you charge more in your busy season than you do in your slow season, you are doing yield management. Yield management is simply taking advantage of supply and demand to produce more revenue.

To put a finer point on it, yield management is presenting the right service to the right customer for the right price at the right time. (Thank you Glenn Withiam of Cornell University’s Hotel School for that definition.)

The elements that will help you achieve that result are timing (both calendar and arrival period), customer type, occupancy, minimum night stay, and of course, price.

Know Your Guests and What They Want

We’ve covered the elements of yield management, now let’s look at a few ways that this can play out.

There are guests that plan their family vacation several months out and are looking for the perfect accommodation. They may be on a budget or they may be willing to pay a premium to get exactly what they are looking for. They’ll book early and stay for at least a week.

Then there are guests that have decided to get away at the last minute. They understand their options are limited but they will pay more than the going rate to get that house on the beach for a long relaxing weekend. (I’ve been one of these plenty of times!)

There are also the guests that just shop around for the best deal they can find. They will book a hotel as their fall back option and then hunt around for last minute deals that will save them some money. (I know a number of folks who do this.) They aren’t as focused on finding the right place as they are the right price.

If you want to maximize the revenue coming into your business you’ll have offerings for each of these types of guests. The worst thing that can happen is for you to be 100% booked too soon. Why? Because you won’t have any inventory for the folks that book closer to arrival who are willing to pay you a premium for your inventory.

The Bottom Line

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You can bring in more money by leveraging the different elements of yield management (time, price, min night stay, occupancy, etc.) than if you stick to a standard pricing policy of $X a night for a minimum of Y nights. If you charge someone $100 a night, but they would have paid you $140, then you lost $40.

Many software packages and distribution websites are starting to offer tools that allow you to take advantage of yield management and drive more revenue. Some are more sophisticated or user friendly than others, but many in our industry are starting to see that yield management is necessary for vacation rentals to thrive in the current online marketplace.

First Things First: Preparing for Success

Before you start putting together offerings to capture these different guest scenarios, you’ll want to take a look at a few things to determine what is right for your individual business. There really isn’t a one size fits all strategy with yield management, with the exception that the higher your occupancy is, the higher your rates can be. Supply and demand, remember?

You will want to look at the booking habits of your guests, the specifics of your seasonality, special events in your area, and how that all comes together.

Next time we’ll look at things in detail and discuss your prime booking window (also called the “booking curve”) and ways to leverage it, when and when not to offer a deal and how to make sure that your costs are covered, and when you should charge the most.

Helpful Owner Resources:

How to Build A Profitable Vacation Rental Business

Planning For Vacation Rental Success