Imagine two properties. At one, the manager updates rates every day, taking into account things like market demand, seasonality and historical data. What are the competitors doing? How many people are searching for a place to stay in that area? What happened around the same time last year?
At the other property, prices always stay the same, because that’s what the manager has always done, and it’s always seemed to work up till now. Which of these do you think applies to you?
When it comes to your property, you’re the expert. But if the second scenario is sounding more familiar, we’d like to make a case for why you should challenge this habit.
Pay attention to your market
It can be easy to develop your own habits when it comes to your room rates. However, if you don’t question your decision-making process, you might be letting easy earnings slip through your fingers.
Why? Because at any point, you could be undercharging for a room that guests would pay much more for elsewhere – and therefore losing out on profit. On the other hand, you might be charging more than you should be, and customers look elsewhere for better value – 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. Think about it in terms of a diet. Small, healthy changes to one’s eating habits are ultimately more effective than drastic crash diets. In the same way, regular tweaking of your property’s rates can bring significant profits over the course of a year.
The best way to do this is with a revenue management system like RateIntelligence, which gives you all sorts of relevant market data in one place – saving you time and boosting your profits.
Small changes, big results
Here’s a made-up example of how small, but regular, adjustments to room rates can increase a property’s occupancy and 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 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 revenue management system, the hotel has adjusted rates every day on its two room types. The 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’s rates have been more competitive within the local market – thanks to the revenue management system – it’s been able to sell more rooms, and its average occupancy rate has increased from 70% to 75%.
These adjustments might not seem like much, but let’s consider the impact these changes can have 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 rooms for an entire year, this incremental increase makes an impact of thousands of euros on the bottom line.