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Are You ABR or Occupancy Driven?

Dennis Pitcock
Written by Dennis Pitcock

yieldThere are typically two schools of thought in your yield management strategy, where hotelier 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 ABR, your main focus is driving up the price per bed. You allocate more beds to channels who are willing to pay more and really focus on where those high payers 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 of time, and slowly release them with the booking window approaches. This way your competitors are booked up at lower prices, so you can sell at higher prices. However, if you wait to long, there might not be the 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 ABR can also be seen as market skimming, only focusing 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 revenue overall, even if some beds are left empty. The ABR focus can bring in more money, especially over a short time period. It also brings in more costs. Higher rates can lead to shorter stays, thus crating more turnover costs. If your prices get too high, you might see it affect 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, and an overall reputation of being a fun place to stay. You actually boost your word of mouth value this way, which can really help in the shoulder season.

Focusing on occupancy offers more flexibility and creativity when it comes to prices. Here you offer special discounts and prices to those who are willing to book the longest of stays. Thus you are increasing your length of stay, and making your costs per guest cheaper. You can also offer the best deals to those who make their bookings in advance, creating a good base of reservations far ahead of times where 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, build a good demand for when peaks season starts, so you can start yielding a higher ABR earlier in the ear. Another hybrid strategy is to be occupancy driven up to a certain threshold, say 75% (should vary depending on season), then switch the focus to drive up the ABR. This is the most complex, but has its highest of rewards if executed correctly, where you could generate the highest revenue per average bed (RevPAB). This way really takes some optimization to pull of right. You have to constantly pay attention to your pacing, which is almost impossible to do so 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 if you are ABR or occupancy driven, you could have a preference, but most times, the best answer is both.

About the author

Dennis Pitcock

Dennis Pitcock

Dennis jumped into the hostel industry after a summer backpacking Europe in 2008. He went from being a guest to a manager within weeks, and currently does consulting for large and small hostels alike in 3 continents. Prior, he worked in eCommerce, so he has passion for the tech side of the industry and is now deeply entrenched in the hostel and activities industry.

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