Sales and Yield / Revenue Management in Hospitality

Yield Management is the art of selling or more importantly yielding a fixed amount of product(s) to ensure a full complement of sales.

In most cases, these refer to a fixed resource.

In theory, seats in a restaurant or a bar are not termed as a pure fixed resource, for the simple fact that while we prefer to have a full venue, they will not perish as a revenue source if not filled.

Controls are implemented around this.  If one is expecting a quiet night, then staffing and goods will be adjusted accordingly as to not lose money, yet if a busy service is likely, then manpower and stock will be carried to allow for the increased business flow.

In a perfect business world or with an efficient operating model, then strong revenue management will enable a restaurant, café or bar to be full at all times – effectively meaning that maximum profitability is yielded constantly.

This however is the exception rather than the norm.

So in this, non fixed or perishable resources are related to logistics and planning.

The best example of a fixed resource is a hotel room or an airline seat.

A night in a hotel where occupancy is not full or to budget, is an example of inefficient yielding, for if 100 rooms in a 200 room hotel are not sold on that date, they then perish as a revenue source.

This also applies to an airline.

The flight needs to take off as per a carrier’s schedule, and because capacity is fixed, unsold/empty seats do not generate any revenue, and hence have corroded in their ability to earn revenue.

To then build on this, businesses then need to attempt to understand and ultimately manipulate customer behaviour in order to maximise (yield) revenue.

In this, often businesses will try to sell their resources for different prices at different times, again to yield their sellable items in order to prevent any perishable revenue sources.

Generally, there are three conditions for revenue management to be applied:

1.     There are a fixed amount of resources or goods for sale

2.     Those resources are perishable or have a time limit after which they cease to of value and are essentially wasted.

3.     Different customers are willing to pay a different price for using the same resources, pending on the time they purchase.

Without veering towards economic theory, revenue management, especially in regards to airlines, are a direct result of Deregulation.

Deregulation is in essence part of capitalism and a free market, meaning that government controls and rules are simplified (or removed altogether) encouraging more players and competition.

But I digress!

Yielding in restaurants, cafes and bar is a lot harder than in hotels and airlines, due to the fact that most of those larger businesses and industries now rely on Global Distribution Systems (or Computer Reservation Systems -CRS).

To yield effectively is not only to ensure that all resources are sold, but that you understand the customers, the current nature of the market, and what a customer may or may not be willing to pay.

A CRS can only be matched by the most state of the art restaurant reservations systems (or a very sharp manager or specialised reservations co-ordinator), meaning that one must always be aware of forecasts or previous trends for any given shift.

This in essence, is where discounting and specials apply in the airline and hotel industry.

These are not so easy to apply in a restaurant.  An airline may sell seats at $500 a pop initially, but customers are none the wiser if last minute bookings sell for half of that.  This is a careful art designed to fill a plane.

You cannot have a menu at normal price, and suddenly offer free desserts to casual diners trying to fill the place.

However you could have an early bird session discount, or a late evening supper special, to fill the seats of your venue outside peak dining times.

Your goal in a restaurant must be to fill the venue, and in advanced cases turn over for two to three settings.

Steps to complete this are not difficult, but must be focused on at all times.

Specific criteria and conditions must be planned, to ensure that your business can operate to maximum efficiency.  Make sure that staff understand these, and that they are communicated to customers.

Points to remember are:

1.     Be wary of large groups.  A booking of 20 is fantastic, but not if only five people turn up, and worse still, those five people ask for the 15 remaining seats to be held “we think more people are coming….”  Those empty seats are lost revenue, so make sure you control these aspects.

2.     Always do a table plan before service, transferring key facts from your reservations diary/system.

3.     Run your service to a sequence, meaning that within 60-90 minutes, a customer has had the first stage (sitting down and receiving the menu) through to the last stage (coffee, desserts and bill presentation).  Again processes can compliment this.  If customers want to hang around, suggest a coffee or post dinner drink in the bar.

4.     Always keep the kitchen informed.  It will all turn to custard if meals cannot come out fast enough.  Part of any reservations system is never stacking bookings in one time period.

Revenue management is a professional art and one that is unfortunately neglected in modern hospitality.

Be aware of how this can impact on your business, and your bottom line will grow accordingly.