Revenue management and yield management, the formulas and differences
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Written on 19-08-2011 by elisabeth
Revenue management revolves around maximising revenue, through optimising product availablity and average price. Yield management and revenue management are closely related. Yield is synonymous with 'harvest' or 'income'. This article will describe and explain the different definitions for revenue management that are being used in the hotel industry.
The differences between Revenue management (RM) and Yield management (YM)
Revenue management is sometimes called yield management. However, there are some differences between revenue and yield management.
These differences are reflected in the chart below.
|Broad field||Narrow field|
|Takes costs into account||Understanding consumer behaviour|
|Yield, break-even point|
|Optimising Gross Operation Profit (GOP)||Optimising yield|
Gross operation profit (GOP)
GOP consists of various costs:
- Fixed costs, such as rent
- Semi-fixed costs, such as staff, gas, water, electricity
- Variable costs, such as purchase of food or seasonal staff
Features of typical Yield products
- There is a fixed amount available
- Demand from separated market segments
- The resources sold are perishable
- Presale is possible
- There are great fluctuations in demand
Formulas of Revenue Management
Turnover: The number of units sold x average price
Average room rate: The total turnover / number of units sold
Occupancy: Number of occupied rooms / total number of available units
Revenue per available room: Total turnover / number of available units
Formulas of Yield Management
Yield formula: Sales of the number of units sold compared to the maximum possible revenue (published rate)
Max. number of rooms sold or revenues per period own hotel divided by
Max. number of rooms sold or revenues per period market x 100%
Actual number of rooms sold or revenue per period own hotel divided by
Actual number of rooms sold or revenue per period market x 100%
Fairshare is the fair market share, actual share is the actual realised market share.