How To Set Your Hotel Daily Prices or Room Rate?

In general, your hotel’s ideal rate must be:

  1. Low enough to attract customers to buy.
  2. High enough to give your business a profit.

You must have certain information before you decide what prices to charge. To set your
prices you need to:

1. Know your costs – Get a sense of your total average monthly rooms expenses by adding all the direct expenditure on rooms including cleaning and maintenance, supplies and labour in the last six months and divide the number by six to get rooms department direct cost.

Then calculate the average overhead cost in the last six months by taking all overhead costs such as administration, sales and marketing, insurance and depreciation etc. and allocating a portion of that to rooms. The allocation percentage should be in proportion to the size of your rooms operation compared to your F&B operation.

This gives you your overhead costs for the rooms department. Add rooms department direct cost to overhead costs and then divide that by the number of rooms in your property to understand your cost per room.

2. Know how much customers are willing to pay – you can find out how much they are willing to pay by asking them directly. Then test the market by quoting different rates to see customers’ reaction. If you are filling your rooms very quickly, then your rate has room to go up.

If many customers are not buying after receiving your quotation, ask them for the reason and if you find rate resistance, then reduce your quotation until you get to a comfortable point.

3. Know your competitors’ prices – call around to find out what your competitors are quoting.

4. Know how to make your prices more attractive – you can either lower your price or add more value by packaging such as including breakfast or late checkout in your rate.

The price becomes a strategic business tool that will set you apart from your competitors. Use a flexible and creative price management strategy.

Here are some rate management guidelines:

  • Seasons: offer lower prices during the off-season
  • Groups: offer discounts for groups (do not publish these rates for all to see)
  • Special offers: two-for-one specials, or ―buy two nights, get a third free‖
  • Advance purchase: offer discounts on early bookings
  • Product add-ons: discounts or gifts, such as free room-category upgrades, free bicycle rentals, etc.
  • Set one price for all online sales: If you set different prices for different online travel agents (OTAs), they are all going to be competing with each other on price. That will cause them to ask for the same or better prices than their competitors. (You may have favourite sales channels or new ones you want to develop – but instead of giving them lower prices, give them higher commissions.)
  • Applying Discounts: If you choose to change your prices for the high season versus low season, last-minute discounts, and other discounts – keep in mind that whatever price you charge on a given day should be the same for all sales channels