Getting your room rates just right can feel a bit like walking a tightrope. Price too high, and you risk driving away business. Set them too low, and you’re leaving money on the table. Every dollar counts, especially during these days of rising costs and razor-thin margins. So, how do you know if you’ve hit the pricing sweet spot or if you need to adjust? Here are some key strategies and KPIs to help you find the perfect balance.
Like any other business, a property does best when clear financial and operational goals are in place. A SWOT analysis (strengths, weaknesses, opportunities, and threats) can help you assess your position realistically without selling yourself short. A crucial question to ask is: How much revenue does your property need to generate a profit that supports both your business and your team?
The average hotel net profit margin ranges between 5 and 10 percent, with some properties achieving as high as 35 percent, particularly in the luxury segment. To calculate your current profit margin, divide your net profit (revenue minus expenses) by your total revenue, then multiply the result by 100. This will give you a picture of your financial health and help you set achievable targets.
To price your rooms effectively, it’s essential to know who your guests are and how much they are prepared to pay. Selling luxury suites to student backpackers won’t get you very far. Both your property management system (PMS) and customer relationship management system (CRM) enable you to gather guest data, including demographic information such as income and occupation.
The purpose of a guest’s trip also influences their spending habits. Business and leisure travelers, for instance, often have different price tolerances. In the case of business travelers, their expenses may be covered by their company—though a high bill could lead to some tough conversations with accounting. Leisure travelers, on the other hand, might be more likely to budget carefully and prioritize value for their money. Tailoring your pricing to align with your audience’s needs is key to maximizing revenue and guest satisfaction.
If you have too many empty rooms, it could be your prices. As of May 2024, the average occupancy rate worldwide was 68 percent. Rates between 60 and 80 percent are considered healthy, but this may differ depending on your location, seasonality, economic headwinds, and other variables. If your occupancy rate isn’t keeping pace with the market, it’s time to review your pricing.
It’s even more useful to examine your occupancy rate in conjunction with RevPAR. If your property’s RevPAR is low, but your occupancy is high, there’s room to raise prices.
Across the USA, RevPAR and ADR are predicted to grow by 2.6 percent and 2.0 percent respectively in 2025. However, if you aren’t managing this growth, it may not be your pricing strategy. Properties catering to lower-income travelers are expected to see smaller increases than upscale lodgings. To stay competitive, it’s crucial to know your property’s own historical occupancy and RevPAR trends and the economic conditions your guests face.
Take your analysis one step further by comparing your occupancy rate to that of your competitors to find your MPI (market penetration index). This metric shows how much of the overall market share you’re receiving. Calculate it by dividing your occupancy rate by the average occupancy rate of your competitors, then multiplying by 100. An MPI score of 100 or higher indicates your property is capturing an appropriate share of the market, while a score below 100 suggests there’s room for improvement… possibly by adjusting your pricing.
It not only matters if guests are booking your rooms, it matters when they’re booking them. According to a SiteMinder survey, guests book an average of 32 days before their stay. However, your average booking window will vary based on factors like location, guest demographics, and purpose of travel. For example, business travelers tend to book closer to their stay dates than leisure travelers.
Your booking window is another metric to evaluate alongside occupancy rates. If your rooms are booking far in advance, it may indicate you’ve priced too low.
Closely related to your booking window is your booking pace—the speed at which your rooms are booked. Booking pace is measured as the percentage of rooms booked by a specific point in time and helps you identify patterns in demand. If your booking pace is slow when you expect it to be fast (or the other way around), check your pricing to be sure that you’re in sync with demand.
Demand patterns fluctuate based on seasonality, day of the week (e.g., midweek vs weekend bookings), and even specific times of the day. External factors like special events—such as Taylor Swift’s Eras tour—can also spike demand. A robust revenue management system enables you to monitor these shifts and adjust your pricing in real time to optimize occupancy and revenue.
Guest reviews offer valuable insight into whether your pricing aligns with the service you provide. Some review platforms even have a “value for money” category, providing feedback on just that.
If your rates are too high, guests may expect more than you deliver, resulting in poor reviews. For instance, you generally can’t charge resort prices if you’re operating a motel. While your marketing should always highlight your strengths, it’s equally important to set realistic expectations. If you don’t, guests are more likely to perceive your pricing as unfair and write a bad review.
Positive reviews, on the other hand, indicate you’re meeting or exceeding guest expectations, and you may even have room to increase your rates. Studies show that travelers are willing to pay more for accommodations with better reviews. Keep in mind that your reviews will never be absolutely perfect. There’s always room for improvement… and someone who can’t resist an online rant.
To gain a bigger picture, compare your competitors’ reviews for context as well as your own reviews in past years, even past months. Is your rating going up or down? Don’t rely too much on single reviews; use trends and patterns to establish how your property is really doing.
Pro-tip: Integrate your property management system with an automated reputation management system to effortlessly generate and manage reviews.
The state of the market and competitor pricing affect the prices you can charge for your hotel, so use your revenue management system to track this data closely. Shifts in the market can directly impact your property’s demand as guests shop for the best deal.
However, competing solely on price can quickly lead to a race to the bottom, eroding profitability. Instead, focus on emphasizing your unique selling proposition (USP) in your marketing materials. What differentiates your property from the competition? Whether it’s your exceptional service or prime location, showcasing your strengths can attract guests who prioritize value for money over the lowest price.
If guests are coming back again, it’s a sign that you’re doing something right! Repeat business is one of the strongest indicators that your pricing aligns with the value you provide.
WebRezPro enables you to track repeat business through detailed guest profiles, including reservation history. The system also features color-coded VIP statuses, allowing staff to identify and prioritize loyal customers quickly.
Regularly review your prices to stay competitive and maximize revenue. Integrating your PMS with an automated revenue management system (RMS) streamlines this process as data flows between the two systems automatically, ensuring demand is analyzed in real time and prices are updated across all connected channels instantly. WebRezPro connects to leading hotel revenue management systems, including IDeaS and Pricepoint.
In addition, a strong PMS should provide comprehensive reporting tools that help you track revenue and other key metrics. WebRezPro’s custom reports allow you to tailor the data to your specific needs using advanced filters. These reports can also be conveniently emailed directly from the system. If you rely on a particular report frequently, take advantage of report templates to save time and ensure consistency.
Like Goldilocks searching for the perfect bowl of porridge, your goal is to find the pricing that’s just right. With careful analysis and the right tools, you can strike the perfect balance to maximize revenue and guest satisfaction.
