Are You Selling Rooms for $0?

It¹s amazing to me how many of the hotel industry¹s standard processes are based simply upon Œwhat worked in the past¹. Consider MLOS (check out last article ³The MLOS Myth² on this very subject), historical pricing,

apprehension about using OTAs and then today¹s topic ­ jacking up room rates when your property¹s occupancy hits a predetermined level. The one thing that all of these long-standing beliefs have in common is that they are less and less likely to yield the best results in today¹s online market.

I believe that the major reason that hoteliers still increase their rates when their occupancy hits a predetermined level (normally, around 65 to 70%) is because they often gauge their successes and failures on ADR (average daily rate) instead of RevPAR. They think ³we¹ve got the occupancy, now let¹s work on the ADR²Š and then they start increasing the prices beyond what the market will bear in order to create a higher ADR. As a result, it often stops sales altogether, leaving the hotel with almost 30% of their rooms on a given night unsold.

But ADR is not what puts money in the bank; RevPAR is.
 RevPAR is a metric that gives you concrete details about what you have actually earned and how much money is actually being deposited into your bank account each day. This is the metric that hoteliers should be paying attention to if they want to see continued growth in hotel revenues.

Instead of increasing rates when occupancy hits a predetermined level, hoteliers should measure demand based on a variety of other factors such as how far ahead/behind their pace is, business mix (especially groups that might not be equivalent to the prior year), booking window but most importantly current market rates. If a property is selling its room, that means that consumers are incentivized to purchase at that rate because they find greatest value in your property over the rest of the hotels in the area. Closely monitoring and adjusting your rates while effectively accounting for the above variables will ensure that you continue to meet demand levels without pricing the hotel out of the market. Moreover, it will allow you to reach consistently higher occupancy points.

Does that sound too good to be true? It¹s not, as long as you don¹t make these common pricing mistakes.

Don¹t price yourself out of the market
Since the creation of OTAs, consumers have had complete transparency into hotel pricing (of course, unless the rate is part of a package or posted on an opaque channel). If you¹re pricing yourself out of the market (i.e. much higher than other properties in the same area, with a similar star rating and amenities), then you won¹t sell your remaining inventory, no matter how many of your rooms are already sold.

Don¹t sell your rooms for $0
When a property has unsold rooms, they might as well have been sold for $0. Actually, they are being sold for less than that; unsold rooms are actually costing you money on rent, utilities, etc. Price your rooms according to the competition in your destination and you¹ll find that you can increase your occupancy past 70% on a regular basis.

Don¹t ignore the HUGE benefits of revenue management technology
You¹ve heard me talk about this common mistake over and over again. Revenue management technology is a tool to increase productivity – NOT a replacement for a revenue manager -because it manages a completely different function: strategy vs. data analysis. A sophisticated RMS helps the revenue manager handle the minutiae of collecting and analyzing data to calculate daily room rates, leaving the revenue manager additional time for strategy, interdepartmental meetings, monitoring the rate recommendations offered by the RMS, etc.

So I ask you this: doesn¹t it make more sense to act in a way that puts money in your bank account? Doesn¹t it make sense to sell your rooms for a price that consumers WILL pay?

So let¹s all stop selling our rooms for $0. It¹s time to sell our rooms for what they are actually worth, every day, all day, no matter your property¹s occupancy rate