triangle sign with the word yield spelt out reflecting the need to understand the difference between yield management and revenue management

In today’s hyper-competitive business environment, tapping into the power of data-driven decision-making is more crucial than ever.

NB: This is an article from Book4Time

For industries with fixed capacities, such as hotels, airlines, and spas, mastering the art of yield management can spell the difference between mediocre returns and roaring success. Book4Time has seen revenues by customers that use our yield functionality increase by more than 35% in the first six months of using the feature.

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Yield management, at its core, is about leveraging data to optimize pricing and capacity utilization based on fluctuating demand and availability. By understanding and capitalizing on these patterns, businesses can boost their revenue potential, approach maximum capacity utilization, and enhance the overall customer experience at your spa and for your hotel or resort’s other ancillary revenue streams.

The Basics

In its most basic form, yield management can lead to increased profitability by filling slots that would otherwise remain empty and charging a premium during high-demand times. During peak times or days when appointments are in high demand, prices can be increased. Conversely, during slow periods, offering discounts can help fill slots that would otherwise remain empty. Yield is calculated by determining how much of your revenue potential you realized.

Yield = (Actual Revenue/Potential Revenue) × 100

Actual Revenue is the revenue you earn from the services and treatments you sell. Potential Revenue is the revenue you would earn if you sold all possible treatments and services. 

Example of yield 

Let’s look at the yield of a spa with 150 available appointments a day with a revenue potential of $200 per appointment that fills 120 appointments at $175 in a day.

If all 150 available appointments were filled at the full potential of $200 each, then the Potential Revenue would be:

Potential Revenue = number of available appointments × revenue potential per appointment

150 x $200 = $30,000

Actual Revenue = number of filled appointments × revenue per filled appointment

120 x $175 = $21,000

Yield = Actual Revenue/ Potential Revenue x 100

21,000/30,000 = 0.7 

0.7 x 100 = 70%

So, the yield of the spa for that day is 70%.

The idea is to fill out as much of that missing 30% as possible.

How businesses manage their yield

One of the most common ways businesses manage yield is with dynamic pricing that changes with the time of day and year. Saturday afternoons are usually more likely to be busy in a spa or at a hotel poolside than Monday mornings and people travel and visit spas more often during holiday seasons. Local, national, or international market events such as festivals, conventions, or sports events will also influence demand and decisions.

There are also several other methods and factors that should be considered for yield management strategies. Here are some more granular examples of ways in which companies can manage their yield:

Segmented pricing: Different customer segments can be willing to pay different prices. For instance, business travelers vs leisure travelers vs local guests, or younger guests vs older guests. Your software’s reporting dashboard can help you determine who is who.

Last-minute deals: Offer discounts for unsold capacity as the service date or time approaches to stimulate demand.

Early-bird discounts: Encourage customers to book early by offering lower prices.

Variable capacity: Adjust the available capacity based on demand forecasts, such as having flexible staffing levels.

Categorizing inventory/capacity: For example, airlines divide their seats into various fare classes, releasing them for booking at different times and prices. Similarly, this could work for treatment rooms, service stations, and cabanas.

Blocking inventory: Holding back some capacity to be released closer to the service date, especially when higher prices are anticipated.

Blackout dates: Restricting or not allowing discounts or special offers during peak demand periods.

Package deals: Bundle products or services together at a discounted price, often leading to increased overall sales. 

More Benefits of Yield Management

While yield management increases revenue, it has more benefits that can improve operations and help businesses run more smoothly. For example:

Improved capacity utilization: With a clear understanding of demand patterns, spas and hotels can schedule staff more efficiently, ensuring that resources are not wasted during slow periods and that there’s enough capacity during peak times. 

Better planning and forecasting: Offering special rates to those who book well in advance can encourage earlier bookings, creating a predictable flow of customers and allowing for better planning.

Targeted promotions: With a better understanding of demand, spas and hotels can target promotions or special offers to specific customer segments or during specific times, ensuring that promotions are more effective. 

Better decision making: Yield management is data-driven. With the right tools, spas can analyze customer behavior, preferences, and booking patterns. This allows for more informed decisions about pricing, services offered, and promotional strategies.

Enhanced customer experience: By effectively managing demand and capacity, customers are less likely to face overbookings or long wait times, enhancing the overall customer experience.

Suzanne Holbrooke, Marriott’s Senior Corporate Director of Spa Operations, said in an interview with Spa Executive, “There are many facets to yield management. I launched a company-wide program about 11 years ago called Spa Plus, where the front desk or therapist would be financially incentivized for offering an upgrade within treatment time, like stones, face masks, CBD, scalp treatments etc, for an additional cost. We developed a comprehensive training platform including manuals and videos to ensure the teams were fully educated and prepared. This increased revenue by $8 million in 2019 with an 80% profit.” You can get creative.

How to Use Technology to Manage Yield 

Book4Time spa and ancillary revenue software helps you collect and analyze the data you need to make informed decisions about managing your yield. 

The reporting dashboards and CRM help you understand your capacity and demand, and get to know your customers. Forecasting tools predict future demand using historical data, trends, and other influencing factors, while real-time data analysis allows you to manage prices and promotions based on real-time demand and sales data. Also key is keeping an eye on competitor prices and promotions to remain competitive.

It’s worth noting that, while yield management can be an effective way to increase profitability and improve operations, it needs to be approached with care. Misjudging customer demand or being too aggressive with price fluctuations can lead to customer dissatisfaction or lost business. Yield management strategies need to be tailored to the specific industry and business model. It’s crucial to be customer-centric and ensure that strategies do not negatively impact customer satisfaction or brand perception.

Read more articles from Book4Time