Setting the right room rates at the right time to attract the right guests and maximize revenue can feel like an impossible task. The ongoing manual calculations and pricing updates across all your distribution channels are huge headaches to most hoteliers, especially if pricing isn’t your only responsibility at your property.

While it might be simple for us to tell you that all you need to do is get a revenue management system (RMS). It will do all the hard work for you, but I also understand that switching to a high-tech solution when you’re used to using Excel spreadsheets to calculate your pricing might feel a bit overwhelming.

Never fear… I’m here today to give you all the info you need to feel more confident about establishing the best pricing strategies for today’s dynamic market and understand the importance of an RMS in supporting them.

How and why should you set business objectives for your property?

In the hospitality industry, setting business objectives involves establishing short- and long-term goals related to several key metrics, including RevPAR, occupancy and average daily rate (ADR).

First, assess how much revenue your property is making and the current occupancy levels. Compare these figures with those from the previous year to identify areas for improvement. Key metrics include Revenue per Available Room (RevPAR), which combines occupancy and ADR to give a comprehensive view of performance and reflect how well you use your available inventory.

Set targets for total revenue, ADR, and RevPAR based on past performance and future goals. This helps ensure you’re not underselling rooms too far in advance or overpricing them at the last minute, which could lead to last-minute price drops to fill rooms. Regularly track these metrics to stay on course and adjust strategies to optimize revenue and occupancy.

How can you use data to improve your pricing strategy?

In revenue management, leveraging data is crucial to developing effective pricing strategies. Knowledge derived from data empowers us to make smarter decisions more quickly and improve overall performance. Here’s how to effectively use data to enhance your pricing strategies:

Learn from the past

Use reports from your property management system (PMS) to analyze historical data. This can help you understand past performance and make informed decisions about future pricing. For example, suppose your booking report reveals a high volume of deeply discounted rates through an OTA channel well in advance. In that case, it may indicate that you’re allocating too much inventory to that channel. Adjusting your distribution accordingly will help you maximize revenue closer to the booking date.

Booking window insights

Pay close attention to your booking window. If you notice that deeply discounted rooms are being booked far in advance (90 days out) while your typical booking window is only 14 days, it suggests you might be offering discounts prematurely. This insight lets you change your strategy to offer discounts more strategically, maximizing revenue opportunities.

Understand the market segments that are most interested in booking with your property.

Understanding the type(s) of guests who book at your property most frequently is essential.

Are your guests primarily corporate or leisure travellers?

What booking behaviours are consistent with your guests?

Do they have shared price sensitivities?

Knowing the answer to these questions will help you improve your marketing strategy by developing promotions targeting these audiences and converting more bookings. This is particularly important during times of low demand and/or when you’re struggling to fill rooms closer to the arrival date, as you might need to adjust your pricing or offer a discount to drive more traffic.

Use PMS reports strategically to monitor your performance.

Use reports from your PMS to track crucial metrics, including occupancy rates, average daily rates and revenue per available room (RevPAR). Accurate reporting can help you understand when it is necessary to pivot strategies quickly to address performance issues or to capture potential revenue opportunities. For example, if you have high occupancy but low RevPAR, you should consider increasing rates to match the current market or adjusting your marketing strategies to maximise revenue.

Ensure you are collecting the right data. 

Make sure that your data is accurate. Hotels’ reports often collect the wrong data. To be sure, train your staff to ensure they are correctly filling in PMS fields for each reservation, as this will improve the quality of your data.

Compare your property’s performance with market data 

This helps you understand if you’re on the right track. For example, if your value-for-money scores on OTA sites are significantly higher than your competitors, you might have room to increase prices. Conversely, if your scores are lower, you may need to enhance your offerings or adjust prices. 

How can you properly leverage data without hiring a full-time revenue manager?

The least time-consuming way to consistently monitor and update your pricing accordingly is to automatically implement a revenue management system (RMS) to track demand and pricing fluctuations and your market position.  

What data should you use to calculate your property’s rates?

Given the vast amount of data available to hoteliers today, there are many possible data sources to consider when setting your rates. Still, they aren’t necessarily applicable to all properties. To determine which data would be most important for your property to use when establishing your pricing, consider the following:

Size and location of your property

More significant properties with more revenue management-related resources should delve deeper into data analysis, while smaller properties might start with basic comparisons.

Monitor your comp set’s pricing & offerings.

Examine your competitors’ pricing to understand their revenue management strategies better. Also, consider the amenities they offer and their reputation scores on the online booking channels.

Your property’s offerings

It’s important to compare your rates and strategies with your direct competitors, who offer similar amenities, have comparable reputation scores, etc. (For example, if you only offer breakfast, you should not compare your rates directly with resorts that provide all-day meal service.) Each amenity adds value and can influence how guests perceive the value of your property, so they should also be considered when establishing your pricing strategy.

Set realistic goals

Finally, set realistic revenue goals based on your property’s unique characteristics and business objectives.

Whether you aim to maximize revenue to the last percentage point or take a more straightforward approach, understanding these variables will help you set competitive and profitable rates. 

How do you know you are pricing your rooms correctly?

You must monitor your property and market data to determine whether you’re on the right track with your pricing. Start by ensuring you have a clear budget and objectives. If your occupancy rates are consistently around 85-90% during high-demand periods and your lead times are reasonable, you’re likely maximizing revenue effectively. However, if you’re reaching high occupancy too far in advance, it suggests you may have priced too low, losing out on opportunities for potential revenue.

Additionally, review your value-for-money scores on OTAs and/or review sites because potential guests’ perception of your property is essential in effectively pricing your property. If your property has good reputation scores, it suggests that your guests perceive your service offerings as vital when compared to your pricing; keep in mind that if your guest reviews are high and your occupancy is constantly being filled up well in advance, you could likely increase your room rates and still sustain consistent (albeit slightly lower) occupancy, while maximizing revenue opportunities. Suppose your reputation scores are low and occupancy is also sluggish. In that case, it suggests that you might be overcharging for your rooms (and that you have important work to do to improve the service levels offered at your property).

To ensure that you are always pricing yourself at the optimal rate to maximize bookings and revenue, it’s crucial to continuously monitor your booking pace, competitor pricing and customer value perception. 

How frequently should you review your pricing performance?

Determining the frequency of pricing performance reviews is crucial. It varies depending on several factors, such as the size and type of property and the tools available for managing your room rates. For large properties, like a 400-room hotel near an airport, frequent price checks are essential due to the high volume of bookings and the market’s competitive nature. In contrast, small, family-run hotels may find it unnecessary to review their performance as frequently.

Properties using RMS (even smaller establishments with 10-30 rooms) can efficiently manage pricing by conducting strategic reviews 3-4 times a month. You can be confident that the RMS automatically keeps your pricing in line with market demand and competitive pricing as the market changes.

Ultimately, the goal is to find a balance that suits your property’s specific needs, enabling you to optimize your pricing while dedicating more time to improving guest experiences and overall operational efficiency.

Hopefully, this article has answered some of your most important questions about how to implement dynamic pricing at your property. Given the unpredictability of the current hospitality market, hotels must update their pricing based on the current supply and demand in their local market regularly to stay competitive; however, without automated tools (like RoomPriceGenie’s RMS), the process of executing these pricing updates manually will become overwhelming and still fall short. A reliable pricing tool can significantly reduce the manual workload, automating daily price adjustments and allowing you to focus on strategic tasks such as enhancing guest services and training staff. 

Want to learn more about implementing automated pricing strategies at your property? Watch our recent webinar, “Increase Revenue with the Right Pricing Strategies,” in which three of our experts share their best pricing tips and tricks.

 

 

 

Written by: Marvin Speh, Co-Founder & COO of RoomPriceGenie.

 

 

 

 

 

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