Occupancy – A Yield Management Metric

Occupancy is a fairly straightforward metric that all professional pet care facilities should track.  It is the number of rooms booked divided by the number of total available rooms.  While the calculation is simple, the quotient may not be as straightforward as it seems.  Certainly, higher occupancy most likely means a healthier business.  However, occupancy does not tell the whole story and should not be the lone metric of focus when managing a pet boarding facility.

Having an alarmingly high occupancy rate and a lengthy wait list much of the time can actually be misleading.  Most might think their business is as good as it gets when they are at 100% occupancy.  Another might look at this same scenario and point out the hidden message of rate inefficiency.  When demand far outnumbers supply, there is most likely a rate imbalance and an adjustment should be made.

“Occupancy tells a story,

but not the whole story.”

 

Let’s look at a simple example: Kennel A has 10 rooms available for $25/night.  Demand for these 10 rooms is very high.  In fact, 20 very good clients all want to book these rooms.  Obviously, only 10 will get in and 10 will be turned away.  Nonetheless, Kennel A will have 100% occupancy with $250 in revenue – they can’t do any better than that, right?  However, Kennel A decides to reassess their situation and they realize demand is 200% compared to their actual availability.  Based on their supply and demand calculations, they decide to increase prices by $10/night.  At $35/night, they now only need to reach 70% occupancy to match their current revenue and anything above that would result in an increase in revenue.  They roll out their new rates and, as expected, demand did decrease.  Interestingly, they still filled every room for 100% occupancy, but this time they only had 3 clients on their waiting list, lowering demand to 130%.  They were still able to maximize their occupancy and optimize revenue to $350 – a 40% increase!

Occupancy can also play a key role in how rooms are filled.  The type of reservations matters.  One dog vs a 3 dog reservation can make a significant difference in revenue performance.  Each can occupy the same room, but the 3 dog reservation will result in much higher revenue.

Let’s look at another scenario.  Kennel A and B both have 10 rooms available and can each hold up to 3 dogs in each room.  They both charge the same rates per room: $20 per room for 1 dog, $35 per room for 2 dogs and $50 per room for 3 dogs.  Kennel A books all 10 of their rooms to the first 10 customers that come knocking – it just so happens that all 10 are single dog families, so that equates to $200 in revenue.  Kennel B is a bit more selective.  They have forecasted their expected Yield based on historical data and know they can expect 50% of their bookings to be multi-occupancy clients.  They systematically accept bookings based on this data and end up filling 8 of their rooms.  However, 1 room has 2 dogs and 3 rooms have 3 dogs.  So, let’s look at the numbers:

Kennel A Kennel B
Rooms 10 10
Rooms Filled 10 8
Occupancy 100% 80%
# of total dogs 10 15
Revenue $200 $265
RevPAR (revenue per available room) $20 $26.5
ADR (average daily rate) $20 $33.13

 

Kennel A              $200 revenue (10 x $20 = $200)

Kennel B              $265 in revenue (4 rooms x $20 = $80, 1 room x $35 = $35, 3 rooms x $50 = $150)

As you can see, occupancy tells a story, but not the whole story.  Looking at occupancy alone, Kennel A is the winner.  But the end goal is not about occupancy.  It’s about converting occupancy into revenue.  Kennel B significantly outperforms Kennel A in revenue and still has 2 rooms in reserve for a last minute bookings.

The above scenarios are two simplified examples, but they convey a lesson that is very real.  Hopefully, these examples can help you to start evaluating your business from different angles.  Two other metrics that are important for your business are RevPAR and ADR – we will cover each of these in more detail.

Augment Your Software With Powerful Tools

So, you just upgraded to the latest and greatest Kennel Management Software OR you are hanging onto there your tried and true Kennel Management Software that’s been around for 20+ years.  New and fancy vs. old and reliable – either way, they do everything you need them to do, right?  Well, not so fast.  Kennel Management Software is most certainly a necessity if you are running a pet boarding facility of any size.  They book reservations, store pet information, facilitate check in/outs, create invoices and in general make life easier.

But, like any resource management software, they are required to perform a very wide spectrum of tasks for you to successfully run your operation.  However, as each task becomes more specialized, it’s best to temper your expectations regarding the depth of capability.  Let’s take financials, for example.  Your Kennel Management Software most likely produces some level of financial reporting, but to expect it to produce the same level of financial capability you would experience from QuickBooks is probably unrealistic.  So, what do you do?  You augment your Kennel Management Software with a subscription of QuickBooks or outsource to an accountant.

The same goes with Customer Communication Management – your Kennel Management Software probably performs basic automated correspondence with clients.  For some, that’s enough and all you need.  For others, who like to build engaging campaigns and leverage the power of staying in front of clients, they probably seek out more sophisticated options such as MailChimp or ExactTarget.

The reasons for augmenting your current Kennel Management Software with other software platforms vary widely.  QuickBooks serves as a huge time saver.  Email marketing software, on the other hand, can be used as a revenue generator.  Tableau provides business intelligence and analytics.

“Reservations are the lifeblood of your operation.”

This leads me to one of the most important aspects of your business…Reservations.  Reservations are the lifeblood of your operation.  You book them all day every day and without them, well, you’d be out of business.  You sell reservations and deliver a quality service, but how much effort and planning do you put into the former?

Many view reservations as data entry and recording.  Requests come in and staff records the data into your Kennel Management Software – while along the way they make the attempt to up-sell the customer at the time of booking.  Though reservations seem cut and dry – dates, customer, pets, services – they are far from ordinary.  In fact, no two reservations are the same – every single reservation is totally unique and there are hundreds of unique variables that make up a single reservation!

“Every single reservation is totally unique and there are hundreds of unique variables that make up a single reservation!”

Reservation quality most definitely affects revenue of a business.  Most pet boarding facilities book reservations based on one single qualifier or variable – which is typically VACANCY.  But remember, there are HUNDREDS of variables that make up a reservation – if only one vacancy variable is being considered, are the best reservations really being booked?  The answer is probably No.  When reservations are booked in the order in which they are requested based on one single qualifying variable, businesses are re-actively managing reservations and simply recording data.

For example, if a rash of 2-night reservations come in three months in advance for 4th of July weekend and a business does not have the discipline to turn away this business, they will most likely end up turning away week-long reservations leading up to the busy holiday.

Perhaps, a better alternative would be to turn away the 2-night reservations (even though the vacancy variable says to take them), so they have the capacity to fulfill the higher quality reservations when they come.  This type of proactive approach takes planning, forecasting and a solid Yield Management strategy.

Next up…What is a quality reservation??

Yield Management Requires Planning

Sometimes we get stuck in a rut of doing what we’ve always done, well, because that’s just the way we’ve always done it!  Reservation requests come in over the phone and online – and we plug them into our system as fast as we can until occupancy levels say – STOP!  And if you use reaching maximum occupancy capacity as your gauge for success, then you also feel like you are running your business at optimum levels.  It also gives you a sense of security if you completely fill your calendar 3 months in advance of a major holiday.

What if I were to tell you this is actually not a good thing?  As you already know, there is huge demand in those 3 months leading up to the precious holiday.  Unfortunately, you’re not only turning away a lot of business, but you’re shorting your business, your employees and yourself.  Fortunately, there is a better approach – a better way to manage your yield.

To achieve better results, you first must admit that it is possible to achieve better results.  Some businesses believe they have peaked or have already reached maximum revenue potential short of physically adding more inventory.   If you are not yet implementing sophisticated yield management strategies, you undoubtedly have room to grow revenue within the confines of your current operation.

Revenue Management is not just a business strategy, but it is also a culture and philosophy.  It will also challenge your current perspective on running your business and might even bring you outside of your ‘comfort zone’.  Three pillars of a successful Revenue Management game plan include:

1.) The ability to say No to business.

2.) Agreement between management and employees.

3.) Knowledge-based decision making, not feelings-based.

Knowledge involving Clients, Events, History and Competition are vital.

 

https://en.wikipedia.org/wiki/Yield_management#Pet_Boarding

What is Yield Management – And How Does It Apply to the Pet Industry??

In a nutshell, yield management can be defined as selling a product or service to the right customer, at the right time, and at the right price.  Yield management strategies can be applied to virtually any type of business that:

  • Has a fixed number of products to sell.  Examples include hotels, car and train companies, theatres and cinema, restaurants and even IKEA offers lower prices at times of the week when demand is lower.
  • The product’s value is time-constrained or perishable, meaning that after a certain date or amount of time, the product loses value.
  • Different customers are willing to pay different prices for the same product or number of products.

So, how does this apply to the Pet Boarding Industry?

  • A boarding facility has a fixed number of inventory – in which case we would call them rooms, suites, dens, kennels or you get the point…
  • Yesterday’s unsold inventory is worthless – you cannot book last year’s unsold rooms.  You can only sell present-time and future inventory.
  • None of your customers are exactly the same – they all value your service differently.  You place a price on your service, but in actuality, a price range exists of what customers are willing to pay and still be completely satisfied.

Yield management helps predict consumer demand to optimize inventory and price to maximize revenue growth. Yield Management utilizes predictive analysis and market conditions to proactively forecast future demand, so you can effectively set rates, options, availability and requirements that maximize efficiency and revenue.

Almost every industry would benefit in some way from the implementation of Revenue Management techniques.  So, let’s break down how yield management applies to your pet care business (and it does apply, whether your business has ten rooms or three hundred).

The starting point is to forecast demand for your limited commodity. While there is no better predictor that yourself when it comes to forecasting demand, you should backup your assumptions with historical data.

If you’ve been in business for any length of time, you’ve already noticed there’s a pattern as to when demand for rooms blows hot and cold.

You already know that booking too many one-night stays on a popular night like a Saturday means you’re forced to turn away more customers who want to book multiple night stays that include that hot Saturday and a less-popular “shoulder” night (a night adjacent to a traditionally popular night). The trick is to estimate in advance how many rooms you want to hold back for those more-profitable, multi-night customers.

While you can make some reasonable assumptions based on day of the week, time of year, even current economic conditions, you can never be 100% certain that there will be demand for X number of rooms on this or that specific date.

But with the right data and systems in place, you can get reasonably close.

References: https://www.xotels.com/en/revenue-management/revenue-management-book/revenue-management-definition,

PetBookings NEW Revenue/Yield Management Platform

Yield management has become part of mainstream business theory and practice over the last fifteen to twenty years. Whether an emerging discipline or a new management science (it has been called both), yield management is a set of yield maximization strategies and tactics to improve the profitability of certain businesses. It is complex because it involves several aspects of management control, including rate management, revenue streams management, and distribution channel management. Yield management is multidisciplinary because it blends elements of marketing, operations, and financial management into a highly successful new approach.  https://en.wikipedia.org/wiki/Yield_management

A common interchangeable term for Yield Management is Revenue Management.  While similar, it varies from it’s predecessor slightly.  Revenue management is the application of disciplined analytics that predict consumer behavior at the micro-market level and optimize product availability and price to maximize revenue growth. The primary aim of revenue management is selling the right product to the right customer at the right time for the right price and with the right pack. The essence of this discipline is in understanding customers’ perception of product value and accurately aligning product prices, placement and availability with each customer segment.  https://en.wikipedia.org/wiki/Revenue_management

The Pet Boarding Industry is a perfect fit to utilize and benefit from the science and practice of Revenue and Yield Management.  There are a few essential qualities for a business to qualify:

  • Fixed amount of resources available for sale. (Runs, Suites, Condos, Rooms…whatever you call your inventory)
  • Inventory is perishable. (meaning, there is an expiration date to the value of your inventory – you can’t sell yesterday’s unoccupied room)
  • Different customers are willing to pay a different price for using the same amount of resources. (All customers are unique and they all place a different value of what they are willing to pay for the same service)

There are many ways Revenue and Yield Management can be effectively deployed in the Professional Pet Care Industry to benefit both the business and consumer.  We are going to start digging into the various ways you can start implementing them today to  improve efficiency and increase revenue by as much as 40%.

Whether you are just starting out with your Kennel / Pet Boarding Facility or have been running the business for years, you will find that Revenue Management and Yield Management are two of the most useful tools available to managers of pet boarding reservations!