How are you setting your rates? Are you sure you’ve priced your inventory to sell to the right customer at the right time for the highest price possible?
Yield management is a variable pricing strategy that helps you gain the most revenue from every driver who parks at your facility.
Not sure? We’ll walk you through it.
Fixed Rates versus Dynamic Rates – Which Makes More Money?
Two ways for approaching yield management are setting either fixed rates or dynamic rates. Understanding the differences between these two pricing strategies is the first step in setting optimal rates for your facility.
Relying on fixed rates means selling inventory for the same price for recurring situations.
Take a look at movie theaters for a great example of fixed rate yield management. Theaters set baseline prices for seeing a movie, but offer matinee prices at a lower cost to make up for slower hours in the middle of the day. These lower prices attract more movie-goers and lead to higher overall revenue for the theater.
Parking operators have also mastered a fixed rate approach to yield management in a few situations, like early bird specials and event rates. You have likely been able to generate more revenue by offering specific rates during these times.
What makes dynamic rates different from fixed rates? Using dynamic rates means adjusting prices based on real-time supply and demand.
You’ve seen times of day or week when your facility is packed and others when it’s near empty. How do you attract more parkers to your facility when there’s low demand and your rates aren’t dynamic? And how do you make the most money when demand is high?
If you use fixed rates and charge the same price for any three hours of parking, for example, you are likely missing out on two huge opportunities:
- Charging more when your facility is almost full.
- Persuading people to drive and park rather than use public transit or a ride-sharing service during low-demand times.
How Lower Rates Drove More Overall Revenue For Uber
Uber is taking over the world. There’s no arguing its’ growth in the transportation space. In the second quarter of 2015, Uber’s fares made up 41% of ground transportation receipts for business travelers, overtaking traditional taxi fares for the first time ever.
We usually look at them as a threat to parking. But here is something you can actually learn from them and has been key to their success – dynamic pricing structure.
Uber uses surge pricing when there is high demand for a ride to increase revenue. They are essentially pushing the limit of how much they charge to see how much revenue they can bring in from each customer. Holidays like New Year’s Eve or days with bad weather are famous for surge pricing.
But Uber isn’t watching the weather. They simply see how many people are opening their app to track demand. They use a dynamic pricing strategy to decide how much to charge. More people checking the app equals higher prices.
With this pricing strategy, they are able to charge customers the right place at exactly the right time.
On the other hand, Uber lowered its prices in more than 100 U.S. and Canadian cities to balance the decrease of demand in January. This is the third consecutive January the company adjusted its prices, claiming “the increased demand will offset the lower prices and that drivers will make more money.”
By lowering prices, Uber experiences an increase in revenue in major markets like Boston, D.C., and Los Angeles. If they don’t see an increase in revenue, they raise their prices again. The flexibility of their digital platform makes it easy for them to change rates whenever they see potential for more revenue.
Fixed rates in the parking industry don’t achieve what dynamic rates easily do for the ride-sharing industry.
How Can You Leverage Yield Management Using Dynamic Rates?
Applying yield management with dynamic rates highlights weekly and monthly occupancy patterns at your facility. Wouldn’t it be great to know how and when to sell to your customers with confidence?
4 Tips for Making the Most Revenue Using Dynamic Rates
1. Determine Your Facility’s Ideal Occupancy
When is your facility at capacity? When does it have the lowest occupancy? Ask yourself these questions to decide when you should adjust rates.
2. Use Special Rates to Drive Demand during Slow Hours
Lowering your prices when you have excess inventory motivates drivers to park at your facility rather than use other transportation options, like ride-sharing.
You’ll make more top line revenue by attracting parkers with lower rates, even if you make less per customer.
3. Increase Rates When Demand Is High to Boost Revenue
If you aren’t raising prices when your facility is most often full, you’re missing out on an opportunity to make more money. Try pushing the limit slowly to see how much people are willing to pay during peak hours.
4. Try Small Increases/Decreases in Pricing
If adjusting rates makes you nervous, start small with $2 or $3 increases and decreases at each rate type. As you learn, you can adjust rates from a more knowledgeable standpoint.
Start Leveraging Yield Management Now with an Online Parking Platform
We know it can seem overwhelming to think about changing up the rate structure you’ve had in place for a while. Would you have to change your posted rates and reprogram your equipment?
Here’s a solution to avoid the hassle.
Online reservation platforms are the perfect tool to start experimenting with yield management for a few reasons.
To start, most platforms are flexible. Switch your rates as often as you’d like. You’re not tied to posted rates, and rate changes can be effective instantly.
Get creative. Set different rates for different times of the day and week. Play around with time intervals. Then measure revenue changes to see what wins. Online reservation platforms will usually track this for you, too.
If this still seems like a lot of work, know that most online reservation platforms have a team of data scientists and analysts to help you sell the most parking possible. They’re there to give you rate recommendations informed by online demand and competition. They also measure the success of any rate changes.
Take Control of Your Online Inventory Today
You may list only 10-15% of your inventory online. But you actually have more control selling online inventory than the 85-90% of inventory you sell to drive-up customers.
There is only so much you can do to attract more drive-up business. You can add more visible signage to change rates based on demand. But how will you know exactly when demand changes?
Instead, test dynamic rates online before expanding to your drive-up inventory. Get aggressive. You probably only list a small amount of inventory online, so make the most of it.
How do you get started? Reach out to your online reservation partner today and they’ll be happy to help.