Yield Management -2

Yield Measurement

 Revenue Management is designed to measure revenue achievement

The Ratio of Actual Room Revenue to Potential Room Revenue (or the PotentialAverage
Rate) is known as Yield Statistic.
ARR is to PAR (Potential Average Rate)
Actual Room Revenue is the revenue generated by the number of rooms sold. Potential Room
Revenue is the amount of money that would be received if all therooms were sold at their
rack rates.

Potential Revenue

-is the possible maximum revenue which could be generated from sale of the rooms.

2 Methods to calculate potential revenue-

First Method-All Rooms sold at Double Occupancy Rate e.g. in resorts Second
Method-The Percentage mix of rooms sold at both single and doubleoccupancy e.g. in
commercial hotels

Yield Statistic will VARY with method it uses. For the hotels using first method formula
1,3,4,and 5 are not applicable, for such hotels the potential average double rate (formula 2)
will be the same as the potential average rate (formula 5).

Formula 1: Potential Average Single Rate (PASR)

 If Single Rates are NOT varied by Room Type (All Singles have Same Rate) -the
PASR would be equal to its Rack Rate
 If it differs by Room Type - the PASR is computed as a Weighted Average
 Applicable to Only Second Method.

Formula 2: Potential Average Double Rate (PADR)

 If Double Rates are NOT varied by Room Type (All Doubles have Same Rate)
- the PADR would be equal to its Rack Rate
 If it differs by Room Type - the PADR is computed as a Weighted Average
 Applicable to Both the Methods.
Formula 3: Multiple Occupancy Percentage

The Proportion of the hotel’s rooms occupied by more than one person is known as multiple
occupancy percentage. It is an Intermediate Computation for yield calculation.

Formula 4: Rate Spread

The Mathematical difference between Formula 1 and Formula 2 calculated above is known as
rate spread. It is an Intermediate Computation for yield calculation.

Formula 5: Potential Average Rate

A collective statistic that combines the Potential Average Single rate, multiple Occupancy
percentage, and rate spread.

Formula 6: Room Rate Achievement Factor (AF)

The percentage of the rack rate that the hotel actually receives is expressed by the hotel’s
Achievement Factor (AF). It is also called The Rate Potential Percentage.
Formula 7: Yield Statistic

Calculation incorporates several of the previous formulae into a critical index.There

are various ways to express and calculate yield given below.

Used for the hotel that offers all its rooms at a single rack rate, regardless of
occupancy.

When a hotel uses more than one rack rate for different room/ occupancies, potential rooms
revenue equals total room nights available times the potential average rate.

Formula 8: RevPAR

Revenue Per Available Room- an alternate statistic to computing yield as apercentage.

Formula 9: Identical Yields

Calculations of different combinations of occupancy and actual room rate may result in
identical room revenue and yield statistics. What occupancy % must it achieve to match the
yield it currently achieves?
.

Formula 10: Equivalent Occupancy

Management can use the Equivalent Occupancy formula when it wants to know what other
combinations of room rate and occupancy % provide equivalent NET revenue
Marginal Cost or The Cost Per Occupied Room of providing a room is the cost the hotel
incurs by selling that room (e.g. Supplies etc.), this would not be incurred if the room were
not sold.

Fixed Costs – incurred whether the room is sold or not.

Contribution Margin – is that portion of the room rate that is left over after the
marginal cost of providing the room has been subtracted out.
.

Discounted Grid- A discount grid lists the occupancy percentages necessary to achieve
equivalent net revenue, given different room rate discount levels. It can help management to
evaluate room rate discounting strategies.
Formula 11: Required Non-room Revenue per Guest

Break Even Analysis

The breakeven calculation is based on the weighted average Contribution MarginRatio
(CMRw)

RevPAG

Revenue Per Available Guest.

GOPPAR

Is a more sophisticated measurement than RevPAG (revenue per available guest),since it

deals with Gross Operating Profit.