Are You ABR or Occupancy Driven?
There are typically two schools of thought in your yield management strategy, where hoteliers either focus on driving up the average daily rate (ADR - average bed rate for hostels) or occupancy as the basis of their varied prices. With ADR, your main focus is on driving up the price per bed. You allocate more beds to channels that are willing to pay more and really focus on where those high-paying guests are coming from. In the shoulder season, you focus on groups rather than individuals, and in the peak season, you block off beds (do not allocate anywhere) for the busiest times and slowly release them as the booking window approaches. This way, your competitors are booked up at lower prices, allowing you to sell at higher prices. However, if you wait too long, there might not be last-minute demand, especially if the compression is caused by events such as festivals and conferences.
Most owners or revenue managers lean more to one side or the other, but execute strategies of both.
Focusing on ADR can also be seen as market skimming, concentrating only on those guests who are willing to pay above a certain price threshold. These guests aren't so price-sensitive and often have no problem spending more on food and beverage, travel sales, and other ancillary items, thus increasing your overall revenue even if some beds remain empty. The ADR focus can bring in more money, especially over a short period. It also incurs more costs. Higher rates can lead to shorter stays, thus creating more turnover costs. If your prices get too high, you might see an impact on your reviews as well.
The ultimate goal of occupancy-driven pricing is to keep the hostel as full as possible. Higher occupancy doesn't necessarily lead to higher ancillary revenue, as the deals can attract some frugal guests; however, it does have its long-term advantages. When the hostel is full, you increase the probability of guests mingling with one another, enhancing your overall reputation as a fun place to stay. You boost your word-of-mouth value this way, which can really help during the shoulder season.
Focusing on occupancy offers more flexibility and creativity when it comes to prices. Here, you can offer special discounts and rates to those willing to book longer stays, thereby increasing your length of stay and making your costs per guest cheaper. You can also provide the best deals to those who make their bookings in advance, creating a good base of reservations far ahead of times when your occupancy could be questionable.
The focus isn't so binary either. Most owners or revenue managers lean more to one side or the other, but execute strategies of both. For instance, it might be a good idea to focus on occupancy in the shoulder season, building up demand for when peak season starts so you can begin yielding a higher ADR earlier in the year. Another hybrid strategy is to be occupancy-driven up to a certain threshold, say 75% (which should vary depending on the season), then switch the focus to drive up the ADR. This approach is the most complex but offers the highest rewards if executed correctly, enabling you to generate the highest revenue per average bed (RevPAB). This strategy really takes some optimization to pull off correctly. You must constantly pay attention to your pacing, which is almost impossible to do manually.
With the right tools, such as revenue management software like HostelBench, you can really make more money from the same beds you've been selling all along. So if anyone asks whether you are ADR or occupancy-driven, you might have a preference, but most times, the best answer is both.