Smart hotel revenue management requires updating your hotel room rates on a regular basis. Pay attention to market demand, seasonality, and historical data which impact your hotel reservations daily.
Imagine two properties. At one, the manager updates hotel rates every day, taking into account market demand, seasonality and historical data. What is the competition doing? How many potential guests are searching for a place to stay in that area? What hotel activity happened around the same time last year?
At the other property, hotel prices always stay the same, because that’s what the manager has always done. It always seemed to work for this property … until now. Which of these situations applies to you?
When it comes to your property, you’re the expert. However, if the second scenario sounds more familiar, we’d like to challenge this revenue management habit.
Pay attention to your market
It can be easy to develop your own habits when it comes to your hotel rates. But if you don’t question your decision-making process when it comes to your hotel reservations, you might be letting easy revenue pass by.
Why? Because at any point, you could be undercharging for a hotel room that guests would pay much more for elsewhere with your competition – and therefore losing out on profit. On the other hand, your hotel prices might be higher than they should be, and customers look toward your competition for better hotel room rates – meaning you miss out on business and damage your occupancy rates.
A dynamic pricing strategy based on your local market can raise your property’s revenue.
It’s the idea that small changes over an extended period of time create the greatest long-term payoffs to your hotel reservations. Think about it in terms of a diet. Small, healthy changes to one’s eating habits are ultimately more effective than drastic diets. In the same way, regular tweaking of your hotel rates can bring significant profits over the course of a year with new hotel reservations.
The best way to do this is with a hotel revenue management system such as RateIntelligence, which gives you all sorts of relevant market data in one place – saving you time and boosting your profits.
Small rate changes, big results
From this example, you will learn how small, but regular, adjustments to hotel prices can increase a property’s occupancy and hotel revenue per available room:
A twenty-room independent hotel has two room types, Queen and King, for which it charges €80 and €100 a night respectively. The hotel has never adjusted these hotel room rates since opening for business five years ago. Last year, the hotel had a 70% average occupancy rate.
This year, with the help of a hotel revenue management system, the hotel has adjusted rates every day on its two room types. The hotel room rates changed throughout the year, sometimes dropping slightly below €80/€100, at other times rising just above these benchmarks.
After a year of dynamic pricing, the average daily rate (ADR) of the two room types has risen to €81 and €102 respectively. Previously, the hotel had an overall ADR of €90 across its two room types. This year, the ADR has increased to €91.50. And because the hotel room rates have been more competitive within the local market – thanks to the hotel revenue management system – it’s been able to sell more hotel rooms, and its average occupancy rate has increased from 70% to 75%.
These smart revenue management adjustments might not seem like much, but let’s consider the impact these changes can have for hotel reservations over the course of an entire year. Both ADR and average occupancy rates contribute to a property’s revenue per available room, which is a key measure of business performance. In order to calculate revenue per available room, you multiply the average occupancy rate by the average daily rate for a given period.
In the case of this imaginary hotel, after using a dynamic pricing strategy, revenue per available room increased from €63 to €68.63. That’s an extra €5.63 on every available room. Multiplied across all hotel rooms for an entire year, this incremental increase makes an impact of thousands of euros on the bottom line.
Take action – update your rates
Using BookingSuite RateIntelligence, you can update and manage your hotel prices with confidence. With a clear pricing overview of your competitive set and a forecast of your local market demand, setting your hotel rates is easy and efficient. Learn more about BookingSuite revenue management tools or use the button below to update your hotel room rates today.