Your calendar is almost full, but when you check your income, you realise the month has performed below expectations:
- You have accepted several short stays
- You have increased the number of cleans
- And you have sold some weekends at the same price as Tuesdays…
So what has happened?
You have prioritised occupancy, but there are other factors, such as price, booking length and costs, that you also need to consider to improve your property’s actual profitability.
And to do that, yield management is an excellent approach, as it can help you connect those decisions and manage the nights your property has available more effectively.
That is why we have put together a straightforward guide to:
- Explain what yield management involves for holiday rentals
- Give you a practical example with figures
- And offer a method you can apply to your own situation
Let’s start with the definition…
What is yield management?
Yield management involves managing a property’s price, capacity and availability in response to changes in demand.
And what is the aim?
To improve the return on your available nights by considering how much you earn and the costs each booking generates.
If that still sounds confusing, don’t worry: we will break it down step by step.
From hotel yield management to your property
Hotel yield management applies to both rooms and nights of accommodation.
So, to adapt it to an apartment, all you change is the scale: you manage one or more properties, with their own dates of use, expenses and specific demand.
It is both an art and a science, because you have to balance availability and prices to make your property or properties more profitable.
Example 1: if a 2-night booking takes up part of a period that usually sells as a whole, it may prevent a longer stay and cost you money.
Example 2: if you set a minimum stay of 7 nights when demand is very low, you may be left with empty dates.
That is why applying this approach to your holiday rental means reviewing which bookings your prices, restrictions and calendar make possible, and which they rule out.
Yield, revenue management and dynamic pricing
The terms yield management and revenue management share a common history, and many professionals use them interchangeably.
Dynamic pricing, meanwhile, allows you to change your rates according to demand.
And, as we said earlier, managing the whole picture also means deciding the length of stays you accept, which dates you leave open and which costs you take on.
Which figures should you check before changing a rate?
The most common metrics are:
- Occupancy: booked nights / nights available for sale × 100.
- Average daily rate (ADR): accommodation revenue / booked nights.
- Revenue per available night: accommodation revenue / nights available for sale. Result after costs: the amount left after deducting the items included in your analysis.
The key is to use the same criteria consistently for cleaning, discounts, commissions and taxes. For example, some providers include cleaning in their ADR, while others work solely with accommodation revenue. It depends to some extent on how you choose to calculate it, but what matters is that you always use the same criteria.
Rather than go into too much detail here, you can read more about holiday rental metrics in this article we published recently.
How to calculate the yield percentage
To calculate the yield percentage, divide the revenue earned by the reference revenue and multiply by 100.
Reference revenue is calculated by multiplying the available nights by the nightly price you have chosen as a benchmark:
Yield = revenue earned / (available nights × reference price) × 100.
An example of yield management in holiday rentals
To make it easier to understand, imagine a property with 30 bookable nights in a month.
In the first scenario, you book 21 nights at an average rate of €120, giving you these results:
- Accommodation revenue: 21 × €120 = €2,520.
- Occupancy: 21 / 30 × 100 = 70%.
- Revenue per available night: €2,520 / 30 = €84.
In the second scenario, you lower the average rate to €100 and manage to book 24 nights:
- Accommodation revenue: 24 × €100 = €2,400.
- Occupancy: 24 / 30 × 100 = 80%.
- Revenue per available night: €2,400 / 30 = €80.
You have sold three more nights, but earned €120 less. If those bookings also involve more cleans or trips to the property, the result may fall further. You would need to check the costs and the number of stays to calculate it.
In any case, the useful comparison looks at both situations as a whole.
An occupancy rate of 80% may be suitable for another property or another period, but this example shows that filling more dates does not guarantee more revenue.
How to apply yield management to your calendar
The best starting point is a structured review, rather than changing every rate at once. You need to understand what has already happened and watch how bookings come in for future dates.
1. Define your costs and the nights you can sell
Record the expenses associated with each stay, such as cleaning, laundry and commissions, and separate them from the regular costs of maintaining the property. A short stay may produce a different result from a week-long booking, even if its nightly rate is higher.
Also decide which days you want to keep for personal use. Those dates form part of your planning and should be excluded from the nights available for sale when comparing occupancy.
2. Monitor demand in your area and for your property
Compare properties with similar locations, capacity, facilities and booking conditions. The price of an apartment with a terrace and parking may be of limited use as a benchmark for one without those features.
Also review seasons, weekends and specific events, but check how they translate into bookings. A nearby event may increase interest without every property seeing the same demand, but at least you will be alert to an opportunity to raise prices.
3. Check how far in advance bookings come in
Having half the month booked six months ahead and having it booked three days ahead are completely different situations, and not every owner is comfortable with that uncertainty.
So compare the current booking pace with similar periods and with your guests’ usual lead times to see whether this is a normal pattern or whether something unexpected has happened.
If a date is selling faster than expected, review the price of the remaining nights. If it is selling more slowly, also check the listing, conditions and availability before automatically reducing the rate.
4. Adjust the minimum stay and price together
A longer minimum stay can help during periods of high demand, although it may also prevent you from selling two free nights between bookings. Assess each case according to the booking lead time, the costs of preparing the property and the realistic prospect of securing a longer stay.
Cancellation policies and discounts also affect the result, so review which conditions apply to each booking and how discounts interact with automated rates, to avoid the final price drifting away from what you had planned.
5. Check the result and keep a record
Record what you changed, when you changed it and what happened afterwards.
If you change the price, minimum stay and discounts at the same time, it will be harder to understand which decision influenced new bookings.
Useful tools and mistakes to avoid
A holiday rental software package can make it easier to monitor bookings, your calendar and results. If you list on several platforms, we also strongly recommend using a channel manager to coordinate availability and rates across channels.
And if you want everything synchronised and automated, you need to set rules that suit your property.
As we have already covered this subject in another article, we recommend reading the guides to optimising holiday rental revenue and increasing occupancy on Airbnb. Use them alongside your own data and you will start to see better results.
A strategy you can maintain
At this point, you need to consider two options:
Option 1:
If you want to manage the property yourself, start by analysing how much you earn from the available nights, which bookings generate that revenue and how much it costs to look after them. From there, you can decide which rates and conditions to review without making a full calendar your only goal.
Bear in mind that developing and implementing the whole strategy takes time. Which raises the question: weren’t you looking for passive income?
Option 2:
If you would rather rely on professional management and put these headaches behind you, contact Home2Book to optimise revenue with experts and discuss management tailored to your property.
We would be delighted to help!
We currently carry out yield management for more than 700 properties.
