What is Yield Management? Why Is It Important?

Yield management, or yield optimization, is a type of revenue management that aims to maximize the expected profit from the inventory available for sale. Yield management uses classical and statistical methods to forecast demand and optimize unit prices for different classes of customers.

Yield management is a key component of revenue management, which itself also includes the analysis and control of other aspects such as pricing and revenue recognition. 

For both airlines and hotels, yield management is the primary method by which they sell their available inventory of seats or rooms. Although most hotel rooms remain empty, during periods such as holidays and conventions, yield management enables hotel managers to offer special rates that can fill up otherwise empty rooms. Similar techniques may be used in other industries where supply and demand fluctuate throughout the year. 

It is used by many companies outside of the travel industry. The practice has spread beyond its origins in the airline and hotel industries to almost any business where revenue can be increased through proper pricing based on demand.

Why Yield Management Is Important

A yield management system calculates how much inventory should be sold at which price, resulting in the highest total revenue. Inventory can be expressed in different ways: for example, a company has a certain amount of its product available to sell and the number of units sold affects its profit. 

With a demand prediction algorithm, a yield management system computes which price should be set for each unit so that the expected revenue from all sales is maximized. The system also calculates the number of units for which to set the price and how much inventory should be held in reserve at each price level. 

Have something to say about Yield Management? Feel free to share your thoughts with us via email.