Do You Know the Difference between Revenue and Yield?
As a new hotel manager, you will probably be familiar with revenue (everyone is after it!).
However, you may not know what yield is.
It is important to understand the concept of yield.
Let us begin with revenue.
Revenue is simply the dollar value of what a hotel earns.
Yield on the other hand is related but different.
Yield makes a comparison with a unique factor of revenue.
It brings in potential or capacity.
In other words, the formula is:
Formula
Yield = Revenue Earned / Potential Revenue
Yield thus compares
- what is earned with
- what could have been earned.
Yield Management Concept
Why Yield?
Why is Yield important?
Businesses do not want to just measure what they earned.
They need to benchmark themselves with the potential.
As in, what they could have earned.
Yield does that job.
Potential is the highest possible revenue that can be earned with current resources.
For example:
One of the most important hotel KPIs is RevPAR or Revenue Per Available Room
Watch this short video (< 1 minute) for an overview;
REVPAR measures:
- how much of revenue is earned
- for every hotel room that is
- available to sell
- not rooms actually sold which is what ADR or Average Daily Rate calculates.
So, you could say:
- ADR is a revenue measure while
- REVPAR is a yield measure.
It is more important to measure yield than revenue.
Why, you ask?
Because then you see how much more revenue you could generate.
It will indicate if you are utilizing your resources to the full.
This is one of the key secrets to achieving highest hotel revenue and profit.
It is a secret mostly ignored by new hotel managers.
Yield is also related to profitability.
However, in this beginner tip, we are keeping the yield concept related to just revenue.
The Full Monty
Want to read the full post on yield?
Click for full post on Yield management - Balancing Revenue, Potential, Capacity.
Tip Trailers - Learn Quickly!
Tip Trailers - Learn Quickly! on Yield
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