Not long ago our industry standard was a single simple rate, it was the Rack Rate and it was printed on brochures and in magazines and it was put up out the front of the property. Everyone paid the same, regardless of the time of year, when they booked, and whether they were regular customers who stayed a week every year, or had turned up on the doorstep that night. Now we have incredibly powerful tools in the internet and online search engines and booking agencies, and the days of having that one fixed rate advertised everywhere are history.
No matter your size, Revenue Management has become crucial to being successful. If we don’t sell a room today, the opportunity is gone and you can’t sell yesterday’s room. Revenue Management becomes ever more crucial the smaller you are. There is a greater margin for error – 1 unsold room in 20 is a 5% loss, 1 unsold room in 200 is 0.5% loss. Add that up over a year.
Revenue Managers have a raft of information at their fingertips, starting with your channel manager insights, to help refine the decisions that go into rate. Prior to changing a rate on a specific date, a good Revenue Manager will review and take into consideration the following points:
Day of the week:
What is the date and day of the week & where does the date fall in the calendar year. Be aware of what is normal for your establishment and respond accordingly when you are not performing. If you know that a specific month is quiet, then target a different audience.
Look at how long in advance on average your guests generally book. Your goal is to increase rates as you steadily move towards the date of arrival but if you are inside your average lead time and still empty, you may need to do something to increase bookings.
If there is a lot of availability in a local area and not much demand, you may wish to lower your rates to stimulate demand or you may wish to hold because there is no reason to lower when no-one is booking. You will know your market and you will know what is normal for it.
Who is booking you and what are they booking? If booking levels are up, test the water and put the rates up, if they are down then rates go down. Don’t make a drastic change as you are looking for the perfect point, where the rate is good and people continue to book.
Some events will drive rate and some will drive occupancy, the best events will drive both resulting in a town with demand for more rooms than they have. Know your events and adjust your rates accordingly. Follow your local tourist board so that you are the first to know when dates are announced.
Cost vs Revenue:
There will be a point at which it will cost you more to sell that room than you make in revenue, you need to know that point. Different customers bring different levels of extra revenue to your business as well, as a customer that uses the bar is worth more to your bottom line.
Your competitor set is a realistic set of hotels that guests would use if you were fully booked. You may have hotels in that set that are not geographically close, or have different facilities. You may also have two or more competitor sets because of different types of traveller. Check what is happening in the set before you move your rates and when you notice any changes in booking activity. There is no point in being the cheapest and losing potential revenue, nor is their sense in being twice the price when everyone else is cheap. You have to remain with the competition. Install STAAH’s RateSTalk feature when using their channel manager to know where competitor rates are tracking.
Having read through this, you may be feeling quite daunted by the volume of work involved in managing your rates, but don’t be! There are programmes than can email you competitor information on a daily basis, there are tricks to getting the information from your online travel agents on a daily and weekly basis for free. Your channel manager insights are another free and very intuitive read into room rates and inventory data. Besides, there are people such as myself who work with small independent suppliers to help manage their rates. Once you start actively managing your rates and seeing the increases in revenue, you will wonder why you didn’t do it sooner.