Building a rate strategy 2021: Where to start?

Understanding costs and their impact to your bottom-line will be crucial and for that, you need to start from the bottom and work your way up! 

When re-assessing a Revenue strategy one of the first questions you should ask is: 

“What is the cost of an occupied room?” (Not in generic terms – but here – at my hotel).

Hotels often don’t have a clear picture of the cost of an occupied room and this can lead to discrepancies in pricing strategy and operational misunderstandings. 

If you, as a business,  don’t know the true cost of an occupied room, how can you begin to formulate an effective pricing strategy?

Furthermore, do members of the team have knowledge and understanding of this figure? Often team members at the coal face; the critical members of your teams who are responsible for sales, marketing or reservations do not know.  These are the people who have the power to directly impact a hotel’s bottom line and yet often they have no idea what costs they need to cover in order to ensure the hotel is profitable.  

So why not empower your team!

Make them aware of the true cost of an occupied room. Encourage them to have an understanding deeper than merely ‘laundry and servicing’. Discuss whether you include fixed and variable costs. Remind them of the hidden costs of sales/marketing/commission. What about new costs associated with the pandemic, they have to go somewhere… Ensure Sales, Revenue and Reservations understand this.  

Once you and the team have an understanding of the costs, you have taken the first step to developing a culture where the whole team is invested in your rate strategy.

The next step in building your strong and robust rate strategy (even before you think about yielding and dynamic pricing), is to understand how profitable your rates and packages really are.  

Knowing the cost of an occupied room, as discussed above, is a great starting point but what about the other costs that impact your bottom line?

What are you losing in tax? Third-party commission? F&B allocations? Marketing spend? 

Before you publish, sell or market any rate, you need to understand just how profitable it will be and what portion of that rate will end up on your bottom line. 

If the team has a clear understanding of the costs of an occupied room and the profit levels of a rate they will be able to confidently ‘walk away’ from business that may not be profitable for the hotel. 

These tasks may sound simple, but many hotels do not review these aspects of their business often enough (or at all!) and dedicating some time on this can often uncover some surprising ‘home truths’. 

So if you are re-thinking your revenue and pricing strategy perhaps now is the time for you to dig a little deeper into your costs and profitability?

If you’d like an effective tool to help you Right Revenue has released, for free, access to our ‘Calculate Hub’.

The Calculate hub is an area of the Right Revenue System with tools which enables you to quickly calculate the cost of an occupied room and measure the profitability of different rates and packages.

For more info and to sign up (no credit card required!) head over here. 

This blog post is adapted from a more detailed blog post “Why data will be your salvation in 2021” which is well worth a read and you can find it here.

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