The importance of pricing policy in the hotel industry has been increasing recently. However, many hotels still miss profit opportunities because they do not use the potential of optimised pricing. In order to exploit the full potential, different components of pricing have to be taken into account to create your rate structure.
- Record and reduce costs
- Determine rate structure strategically
- Adjust prices dynamically
In this article you will learn why the right rate structure is essential for your pricing and also what you need to consider for your rate structure. In addition, you will receive a free Excel template for download, with which you can easily create your rate structure.
- The importance of the right rate structure
- The requirements for a functioning rate structure
- How to set up your rate structure
- Your Excel template
- Corporate rates
The importance of the right rate structure
The first requirement is to know your costs in order to determine a price floor. You can find out how to set your price floor here.
Each hotel has its own pricing policy, which depends on the characteristics and quality of the hotel service. Therefore, there is no general recipe for success for the rate structure. However, there are basic requirements that you should consider.
Once the rate structure has been set, there must be a continuous adjustment of prices to the following factors:
- Occupancy situation
- Demand volume
- Price sensitivity
- Day of the week
Rates must be set at least 365 days in advance. A hotel with 5 categories and 6 different rates would have more than 10,000 price decisions per day. For this, you should definitely use a revenue management system that adjusts the prices for you with the help of an algorithm. This way you can coordinate and automate the pricing decisions. happyhotel considers all important influencing factors for you.
The central challenge and initial prerequisite for long-term success in revenue management is the rate structure. Without a sensible rate structure, any dynamic pricing is in vain.
The requirements for a functioning rate structure
Comprehensibility and transparency
First and foremost, your prices should be comprehensible and transparent for the guest. This is the only way to achieve price acceptance among your guests. Imagine a hotel that offers different categories. Different prices are justified, for example, by the size and furnishings of the rooms. To convince the guest to book a higher category at a higher price, the advantages must be clearly communicated to him.
A rate must also be feasible. For this, it must cover costs and be profitable, adapted to the competition and to the target group’s willingness to pay.
Pricing strategies always flow into a rate structure. Sustainable implementation must always be taken into account. Are the rates enforceable in the long term?
How to set up a rate structure
What parameters you should initially set:
Price floor and ceiling for the bar rate in single and double rooms.
- What is the minimum rate you have to achieve in order not to make a loss?
- What is the maximum rate you can sell in case of very high demand?
The rates you want to offer: What rates do you want to offer where? Keep in mind the requirements mentioned above!
The dependencies of the rates:
How are the rates interdependent? Start from your BAR rate and determine in percentages or in Euro differences how the rates are related to each other. These dependencies can usually be transferred to your PMS, Channel Manager and/or RMS. This way you ensure that your rates are always in the right proportion and avoid errors. You only have to adjust your BAR rate and everything changes automatically!
The category mark-ups (price difference between the categories): How big is the difference between the categories?
In our Excel template you only need to enter your price limits, the rate mark-up and the dependencies of the rates. The rest will calculate
itself! You either have the option to use 5 price levels or to define only the first and fifth level as limits. You can then hide the others. This would be useful if you use happyhotel. Because happyhotel calculates your prices dynamically.
Your Excel template
Here we have created an Excel template for you to start immediately.
Corporate rates are reduced rates for partner companies of hotels and hotel chains. In the meantime, so-called “floating rates” have become established. These work through percentage reductions on the daily rate and are therefore dynamic.
It is a good idea to provide your partner companies with specific booking codes, which they indicate when booking. This allows you to track how high the booking volume of your partner companies is in a year. Based on this, the company rates for the following year are negotiated. This encourages your partners to generate as many bookings as possible. Depending on the company contract, employees and suppliers, for example, can then also stay overnight in the hotel for both business and private purposes with this booking code. The advantage of this is that you increase both your occupancy and your direct sales.
In addition, the corporate contracts contain further advantageous conditions, such as free room upgrades if available, free breakfast or improved cancellation conditions.
Many booking engines provide you with the function of specific booking masks for your companies. You can access these with the corresponding code. In this booking mask, the company has direct access to the corresponding rates and conditions.