Advertorial from Rooms Online
Mastering Room Pricing: Finding the sweet spot!
When you think revenue you think pricing, and outside of online visibility this is one of the trickiest parts to navigate. The price that you set will determine the profit margin on the room, but it will also determine the guest who stays, and the expectations that guest has based on what they paid. So how do you get this right and what are the factors to consider?
1. How much do I need to sell a room for to make a profit?
If you haven’t done this calculation, you really need to. Whilst a room sold is a great thing, if every room you sell is at a loss, why sell rooms at all?
2. What price I am happy to sell and customers are happy to buy at?
As New Zealanders, we strive to offer our guests great value without overpromising and underdelivering. Price often signals quality - setting a price that reflects the value you are offering will attract willing customers, but if your prices are too low, you risk deterring your ideal guest. Finding that “sweet spot” where the customer’s expectation meets your price point (identifying your Target Market), and where your sales are consistent, is an ongoing challenge and focus.
3. What is happening in my market, and who should I be comparing myself too?
Looking at pricing in the area is important, but you need to be also comparing yourself to alternatives that your guests may choose based on their wants and needs. A big part of this is going back to who is your target market, but it’s also important to identify the key features of your property and how you are highlighting these. If a booker is looking for the comforts of a motel unit, self-catering, lounge space etc, they may not want a simple hotel room. Choose a range of “similar” properties to make comparisons with - this is now your Competitor Set. View your listings from the guest’s perspective - does your pricing align with the level of comfort your offering provides compared to other available options?
4. When is it right to reduce my price?
When the bookings are not coming in and the pricing around you is dropping, it is very hard to hold your rate. However, these are the questions you need to ask:
- Is my lack of bookings due to a lack of area demand or because my rate is too high?
- Are the properties lowering rates equivalent to me? (I.E are they my competitor set?)
- Is a price reduction the best solution or would a promotion give me better visibility?
Lowering your rate may seem like a quick fix when visitor numbers are down in your region, but it is unlikely to make a significant difference. Guests who are still travelling during slower periods are typically looking for specific experience or level of comfort, and they are willing to pay for it. By discounting too much, not only has your revenue reduced, you also risk devaluing your product. The key is to maintain a rate that reflects the quality of what you offer, ensuring that your guests are getting what they want, even during the quieter times.
Still confused? Drop me a line and let’s talk about pricing that may work best for you.
Amy Billaney, Rooms Online Managing Director | Winner 2024 Supplier of the Year – Hospitality New Zealand.