A quick guide to revenue management in hostels
We have just recently taken on two youth hostels in Paris and are working on developing revenue management strategies for them.
Similar to hotels, yield management techniques can be implemented in youth hostels to maximize revenue and profit.
Here are some pointers as to how hostels can begin to think about better revenue management…
1. Customer segmentation
As a first step we will have to work on segmentation. It will of course be traditional hotel style segmentation, but there are definitely behavioral patterns by which we can group the clients.
We will be looking at price elasticity (willingness to pay), booking lead time (how far ahead do people book).
2. Product segmentation
Besides consumer segmentation we will need to look at the physical product attributes to effectively differentiate the accommodation offer.
Each category will carry different price structures:
- Mixed dorms
- Male only dorms
- Female only dorms
- Private single or double room with en suite shower + WC
Product price increments will be demand driven. People will be willing to pay more for popular preferences. Clearly a private room with ensuite bathroom will justify a premium over a mixed dorm room.
3. Dynamic pricing
Going beyond the basics we will introduce dynamic pricing on the hostel rate structure. We will create different levels of prices for each product matching various demand levels.
The price matrix will consider day of week patterns and differentiate pricing for weekend, weekday, events, holidays, etc.
An extensive demand calendar will be created identifying yield opportunities throughout the year allowing us to fluctuate prices according to the booking pace and forecast.
To be able to evaluate results we are implementing some youth hostel specific KPI. These Key Performance Indicators will allow us to measure the success of our yield strategies;
- Overnights: number people that stayed the night.
- Bednights: number of beds used during the night.
- (Bed) Occupancy: beds used as a percentage of available bednights
- ABP – Average Bed Price: Average price paid per bed for a specific period
- REVPAB – Revenue per Available Bed : Bed revenue as a ratio of available bednights
- TREVPAB – Total Revenue per Available Bed : Total guest spend per overnight as a ratio of available bednights.
5. Selling bottom up
Doing some research in this market we have gathered that hostels tend to sell from the bottom up. Meaning that the cheapest (large mixed) dorm rooms sell first, and private rooms are the last to sell or go unsold during lower demand days.
This is something that can easily be leveraged into profit maximization and yield economical bedding during high demand times. It is purely a matter of find the balance between supply and demand.
Expanding the online reach of youth hostels is also fundamental to any revenue management strategy. Increasing distribution partnerships will lead to a growing demand, allowing for better yield opportunities.
NB: More from Xotels.
NB2: Bunk bed image via Shutterstock.
Patrick Landman is a contributing Node to Tnooz and founder and CEO of Xotels. This hotel management group assists independent hotels with revenue management, online marketing and internet distribution strategies.
They offer outsourcing services, coaching, consulting and training. In his blog, Patrick challenges hoteliers to think out of the box and not to accept the established order.
Through a passionate drive for growth and improvement he brings creative tips, ideas and best practices to the table that can help hotels drive up their bottom line.
In previous roles he has helped to develop businesses like RateTiger and Hotels.com into industry leaders.