Setting The Right Price For Your Hotel Rooms

Setting the right price for a hotel is a process referred to as yield management strategy

. This is something that every hotel should use, no matter the size.

Understanding Yield Management

Basically, yield management is selling the right product to the right client at the right price and time. Any business which has a fixed amount of products for sale (such as seats on a bus or rooms in a hotel) can use this method. Other factors include customers that will pay different prices for the exact same item or a product that will lose its value after a specific date or time.

In a hotel, this means that there are only a certain number of rooms to rent out and once they are all taken, you cannot earn any more. Seasonal prices may also limit earning potential. If a guest books early, they will usually pay a lower price.

Something that many hotels do, which is considered value constraint, is to offer a special deal that is only available for a specific number of rooms or when booked before a certain date. For example, a New Year's 2 night package deal works for this. Another example of this would be offering lower rates for stays that include several nights, with one falling on a Saturday. Conference rates are another option.

Follow the Formula

Using yield management strategies is the best way to increase revenue in general. The actual formula is:

Revenue per room available = occupancy rate X average room rate

If you start to add some numbers, it makes more sense. If your rooms go for an average of $100 per night and you multiply this by 50% average occupancy rate, you end up with $50 as your revenue per available room. To increase this, you need to change one of two numbers.

Forecast demand affects your business and it means estimating how many rooms you can rent at any given time in the future. Obviously, holidays will tend to fill up, but you can also look at your records to see what other days can be predicted.

Look back over your records and you will see that there are patterns. If you were to graph the rooms rented by day, you could see easily when the pea points are. Also look at no-shows.

In order to understand the information you are looking at, you will need to pull out the most important details which include:

- Type of room rented

- Rates range

- How long people stayed

- Average booking distance

- How many and which days demand is higher than supply (including by how much and reasons)

- Limits

A software program lets you be more accurate in this area by focusing on small amounts of time, but you can also do up your own spreadsheet and look at longer periods of time.

by: Jerome Serot

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