FRONT OFFICE OPERATIONS

UNIT 3
Managing Guest
Information, Guest
Services and Ensures
Guest Satisfaction

YIELD MANAGEMENT
In this module you will learn the technique used to increase the room revenue used
in hotel operation also called revenue management.

Learning Objectives:
At the end of the module the learner are expected to:
1. Know the concept and importance of yield management.
2. Understand what yield management is.
3. Identify the revenue.
4. Practice how to calculate rack rate revenue.

URS-IM-AA-CI-0005 Rev 00 Effective Date: August 24, 2020

Concept of Yield Management
Yield management speaks of fundamental
concept for profitable hotel management
and today it is still remains to perform in
how revenue management does the role in
the industry.
Usually in hotel operation and industry when
talking the revenue management the
Managers itself describes this as “selling the
right room, to the right client, at the right
moment, for the right price, through the right
distribution channel with the best cost efficiency”. It contains the use of performance
data and analytics and this serve to help hotel owners to be more accurate in predicting
the demand and consumer behavior which makes more realistic in making decision in
pricing and distribution and maximize revenue.
It all started by the airline industry in the year 1980s before being brought into hotel
industry in pricing room in view of the fact that it is constantly a problem to fix and made
a popular in hotels, restaurants, even car rentals, bus rental, cruise industry and even
railways. This theory based on the law of supply and demand formula that at higher
prices, buyers will demand less when at higher prices sellers will supply more, and this
law interact market value that affect the shape of market supply demand influencing
both prices and quantities in the market place.

What is Yield Management?

In hotels, it is referring to strategically
setting rates to optimize room revenues
(pricing) and occupancy (booking
volume). In hospitality industry they want
to leverage yield management system
and variable pricing strategy to deliver
prices to different customers as it
maximizing to revenues it depends on
the number of room.
According to Livio Moretti, Distribution Strategy “Whereas revenue management
involves predicting consumer behavior by segmenting markets, forecasting demand,
and optimizing prices for several different types of products, yield management refers
specifically to maximizing revenue through inventory control.”

URS-IM-AA-CI-0005 Rev 00 Effective Date: August 24, 2020

For the Front Office Manager view whether the price is low or increase, reservation of
guest should be accepted or decline as to maximize the revenue. The problem here is
non-controlling neither to increase the supply of rooms or store and sell it the next day.

Three ways to maximize revenue:

1. Capacity Management – is an over booking when there are limited space for rooms
available. Typically, hotel experience hotel cancellation, no-shows or booked out
(referred to other hotels or properties) are common that never be inevitable. It
determine also how many walk-ins are accepted on the day of arrival based on
expected cancellations. No-shows, late arrival and early morning departure.

2. Discount Allocation – selling rooms at a price lower than rack rates and given to
advance payment are enjoyed by corporate accounts, volume account as they
practice advance purchasing.

3. Duration Control – a situation as occurs with a limited rooms available during the
day however the following day rooms are available but the management refuse a
booking request, because of other reservation made. This scenario is choice for
a manager to help in optimizing room revenue must be applied.

Measuring Yield
Yield Calculation
FORMULA 1:
Potential Average Single Rate (PASR)
One of the main computation involved in the front office or revenue management is to
calculate the hotel's yield statistics. Potential Average Rate provides the amount of
revenue that would have been generated if all the rooms were sold at their published
or rack rate.

For hotels where their single rate and double rate for all room types are same then the
PAR for Single & Double will be same as their Rack rate. But in most of the hotels the
single rate changes as per room category or type. In such cases an average single rack
rate to be calculated.

URS-IM-AA-CI-0005 Rev 00 Effective Date: August 24, 2020

 PASR = Single Room Revenue x Published Tariff or Rack Rate
Number of Rooms sold as single

Example 1 - Potential Average Single Rate (Where the single rate is same for all
room types):

Total Number of Rooms sold in Single = 30

Rack Rate / Published Tariff for Single = 175.00

Single Room Revenue at Published Tariff = 30 *

175.00 = 5250.00

Potential Average Single Rate for 01st Jan 2020 = 5250 / 25

= 210.00

FORMULA 2

Potential Average Double Rate

Potential Average Double Rate = Double Room Revenue x Published Tariff or Rack
Rate Number of Rooms sold as Double

Example 1 - Potential Avg. Double Rate (Where the Double rate is same for all
room types):

Total Number of Rooms sold in Double = 60

Rack Rate / Published Tariff for Double = 185.00

Double Room Revenue at Published Tariff = 60 * 185.00

URS-IM-AA-CI-0005 Rev 00 Effective Date: August 24, 2020

 = 11100.00

Potential Avg. Double Rate for 01st Jan 2020 = 11100.00 / 60

= 185.00

FORMULA 3
Double Occupancy Percentage/Multiple occupancy Percentage
used to determining the double occupancy ratio of the hotel
forecast food and beverage revenue
Identify clean linen requirement and analyze average daily room rates.

Note: It is important to know that multiple occupancy percentages can be calculated in

different ways.

Multiple Occupancy Percentage =

(Number of Rooms Occupied by more than one pax) / (Total Number of Rooms
Occupied) * 100

Single Occupancy % (Occupied Rooms) = (Number of Single Rooms Occupied) /

(Total Number of Rooms Occupied) * 100

Double Occupancy % (Occupied Rooms) = (Number of double Rooms Occupied) /

(Total Number of Rooms Occupied) * 100

FORMULA 4
Calculating the Room Rate Spread
Rate Spread is another important solution used either large or small hotel operations.

The value for rate spread is derived from various room types in the hotel in order to
make essential yield decisions by the hotel management. Rate Spread is calculated by
taking the difference between Potential Average Double Rate and Potential Average
Single Rate.

URS-IM-AA-CI-0005 Rev 00 Effective Date: August 24, 2020

 Rate = Potential Average Double Rate – Potential Average Single Rate

FORMULA 5
Potential Average Rate (PAR)
The Potential Avg. Rate (PAR) is a collective statistics that combines the
potential average rate, multiple occupancy percentages and the rate spread.

To calculate the potential average rate:

1. Multiply the Rate Spread by the hotel's Multiple Occupancy Percentage.

2. Add the result from Step 1 to hotel's Average Single Rate which will then give
the 'Potential Average Rate (PAR)'

Potential Average Single Rate =

Potential Average Single Rate =

(Multiple Occupancy Percentage x Rate Spread) + Potential Average Single Rate

FORMULA 6
Room Achievement Factor (AF) (Rate Potential Percentage)
The percentage of the Rack Rate that the hotel actually receives by selling their rooms.
Room Achievement factor is calculated by dividing the Actual Average Rate (ARR or
ADR) by the Potential Average Room Rate.

Additionally, depending upon the hotel's management policy the Actual Average Rate is
either divided by the total Rooms Sold or Occupied Rooms. Room Sold = (Occupied
Rooms - Complimentary and House use)

Room Achievement Factor = Actual Average Rate / Potential Average

Rate FORMULA 7
Yield = occupancy percentage x achievement factor

Yield = Room Night Sold Actual Average Room Rate

Room Night Available Potential Average Rate

URS-IM-AA-CI-0005 Rev 00 Effective Date: August 24, 2020

SELF-ASSESSMENT QUESTION
Activity 1
Direction: Answer the given below using the formulas acquired to get the yield.

Deluxe Room - Rack Rate / Published Tariff for Single = 150.00

Deluxe Room Number of Rooms Available in the hotel = 125
Suite Room - Rack Rate / Published Tariff for Single = 178.00
Suite Room Number of Rooms Available in the hotel = 35

Total Number of Rooms sold in Single = 30

Rack Rate / Published Tariff for Single = 175.00

URS-IM-AA-CI-0005 Rev 00 Effective Date: August 24, 2020

RUBRIC
Adoption: https://commons.wvc.edu/rdawes/G101OCL/CourseInfo/calcgraphrub.html

Calculation Rubric
Exemplary Adequate Developing Underdeveloped
Calculation Calculation Calculation Calculation
written out written out not not written
completely completely, completely out, or only
units but one or written out, numbers
included at two of or starts were
all steps these with but written and
answer occurred: then drops the units
easy to units not the units, were not
find included at and some included in
answer all steps of these the
shown with answer not occurred: analysis.
units easy to answer not
correct find easy for
answer answer not reader to
answer shown with find
has correct units answer not
number of incorrect shown with
significant answer units
digits answer incorrect
has answer
incorrect answer
number of has
significant incorrect
digits number of
significant
digits

URS-IM-AA-CI-0005 Rev 00 Effective Date: August 24, 2020

References:

https://hoteltechreport.com/news/yield-management
https://www.revfine.com/what-is-revenue-management/
https://www.slideshare.net/mohitkhatri27/yield-42027211?
next_slideshow=2 https://www.investopedia.com/terms/l/law-of-supply-
demand.asp https://www.bngkolkata.com/hotel-yield-management/
academy.hotellinkage.com
senseware Infomedia Blog: OHRM-Online Hotel Revenue..blogspot.com

https://www.slideserve.com/valentino-dawson/yield-management
https://setupmyhotel.com/train-my-hotel-staff/front-office-training/538-potential-average-
rate.html
https://setupmyhotel.com/train-my-hotel-staff/front-office-training/543-multiple-
occupancy-percentage.html
https://setupmyhotel.com/train-my-hotel-staff/front-office-training/539-par-rate.html
https://setupmyhotel.com/train-my-hotel-staff/front-office-training/541-room-
achievement-factor.html

URS-IM-AA-CI-0005 Rev 00 Effective Date: August 24, 2020