Guest Post by Jim Leitch
Finding the right price for each room type at your inn or bed and breakfast can take time — and sometimes, a lot of manual trial and error. If the price for a day, period of time, or room type is too high, you could miss out on travelers. Too low, and you leave money on the table. When it comes to hotel revenue management, there are plenty of missteps or common mistakes that lodging owners and property managers can make.
As an inn owner for nearly two decades, I spent a lot of time weighing different hotel pricing strategies. At one point, I thought increasing occupancy was the best way to positively impact revenue. I changed my marketing to boost occupancy rather than monitoring demand patterns to learn how to improve revenue. I just didn’t know how to effectively assess what I was seeing with the data in front of me.
It was only through implementing and trusting an automated pricing solution that I appreciated the impact that booking pace and Average Daily Rate (ADR) had on my property's success.
I also realized that AI-powered price optimization software could identify and apply historical reservation data, booking trends, and market insights better than I could. I saw higher revenue because the pricing system increased rates when recognizing customer demand for higher certain dates. It also took into account length of stay patterns and shifting market conditions.
And something amazing happened: Guests continued to book, and often during times when bookings in the past weren’t as high, such as midweek. The same held true when the software identified higher demand in shorter booking windows.
Without a system that does this and accounts for myriad other factors, innkeepers and property owners can lose out on revenue or bookings without even realizing it.
Before this, I was falling into the trap of not leveraging technology enough and instead relying more on gut instinct and what I remembered in the past to influence room rate pricing. I wasn’t the only one in the lodging industry making this mistake, either.
According to Forbes, “These properties are missing out on potentially vast profits by failing to price appropriately for the market.”
If you want to generate more revenue by increasing your room rates (and your ADR) but aren’t seeing the desired results, you might be falling into one or more of these four rate-setting traps.
Mistake #1: Using the same pricing | “The Set It And Forget It”
The first mistake property owners make is never or rarely changing room rates. Peaks and valleys in traveler plans (i.e., demand changes) aren’t factored into your hotel pricing strategy. Rates, for the most part, remain untouched.
In this approach, also known as flat rate pricing, there’s no ongoing effort by property owners or innkeepers to optimize room rates. Sometimes, there’s very little revenue management going on at all. Room rates are sometimes set based on gut feelings, bias, or what worked last year.
In other cases, maybe you adjust rates seasonally during peak and low travel periods or for weekends vs. weekdays. In the Northeast, for example, you might adjust rates when guests are booking trips to see fall foliage. However, if you wait too long to increase rates, you’ve lost out on revenue. Some large-scale events, such as the Albuquerque International Balloon Fiesta, can see bookings a year in advance.
While you might be adjusting rates somewhat, it’s not done systematically or based on data. These minimal adjustments are better than doing nothing, but there’s still room for improvement. With how much you have to manage, it’s understandable why this approach happens so often. Unfortunately, it’s not very effective in pricing optimally.
Mistake #2: Paying too much attention to competitor rates | “The Compset Follower”
It’s good to know what your competitors are doing so you have a benchmark to compare against. But if that’s your main consideration for setting rates, you might miss out on pricing at the best rates at the right time for your property. A competitor-based pricing model may be holding you back.
That’s because your property is unique — every independent hotel, inn, or B&B is. Your uniqueness draws in guests year after year and earns you rave reviews. Therefore, your hotel pricing strategy should always reflect your unique amenities or experience.
If occupancy or bookings are not where you want them to be, it’s tempting to look to competitors and drop room rates to match them in a panicked moment. In times like these, remember Seth Godin’s wise words: “The problem with the race to the bottom is that you might win. You might make a few more bucks for now, but not for long and not with pride. Someone will always find a way to be cheaper or more brutal than you.”
You might get the booking, but ask yourself:
- Is that rate the most optimal one for your unique property and location?
- Will lowering this rate hurt your brand or property long-term? If customers see a lower rate during their trip research and you end up raising it as the dates get closer, they might wait to book until it goes down again.
- And does it match the guest experience you provide? If you have different room rates and a great overall experience, guests might always book the lowest-price room because they know they’ll have a great stay no matter what. This might make it harder to secure bookings for suites or higher-priced rooms, especially if the differences are unclear.
If the answer is “No,” to any of the above, chances are, it’s not the right rate.
Mistake #3: Only looking at historical rates | “The History Major”
The opposite of only looking at competitor rates is only using historical bookings to influence rate-setting. If you are “The History Major,” you might be placing too much emphasis on using rates from the same time last year because it’s comfortable or what worked in the past.
As everyone knows, COVID-19 upended everything, so only looking backward might not be the best strategy.
Past reservations can help you plan for seasonality, but you might not be adjusting to current market conditions and traveler behavior. You likely aren’t factoring in adjustments for market changes, any improvements you’ve made to your property, or changes in traveler demand.
For example, summer 2023 saw travelers heading overseas instead of staying close to home as they did during the pandemic. According to Travel Pulse, 76% of active leisure travelers expressed interest in traveling abroad. If you were just using past reservation data to set pricing, you might have missed this trend and, thus, missed out on bookings by not adjusting rates.
Mistake #4: Adjusting with static rules | “The Rules Follower”
At first glance, this hotel revenue management approach might not seem like a mistake at all.
In this scenario, you might change rates using a yield management tool with a percentage or dollar amount to boost occupancy. You may have rules on when to adjust room rates, but they’re static. They are not derived from all of your available reservation data or fluid demand patterns at your property. Worst of all, setting up static, rate-change rules (which may take time and effort), may not increase revenue or bring in the bookings you want.
In my experience, changing a rate may not help with bookings when price sensitivity is already at the highest threshold. The same may be true in low-demand periods; adjusting rates may not automatically lead to more bookings. Further, you may not see the revenue if the perceived value of your property from your guests does not match the rate you are offering. It’s crucial that both rate and experience align.
Without the capability to keep track and analyze the results and impact of static rules, you will never get the necessary feedback on whether the rules actually helped or hurt reservations and revenue. Since simple rules aren’t based on real-time data, they don’t factor in changing demand or adapt to shifting market conditions like an AI-powered dynamic pricing tool like TakeUp would.
Optimize your unique property’s pricing strategy and room rates
If any of these mistakes sound familiar, it might be time to look at your room rates and see where you could employ a different type of strategy.
You could also explore different software to help provide more input, such as features within your PMS or a dynamic pricing tool.
The first step is to see where you could be falling short of revenue or occupancy goals. Take it from me: It’s never too late to reassess your pricing strategy!
About the author
Jim Leitch owned the Inn on Lake Granbury with his wife for 19 years. A background in corporate business development, marketing, and sales helped him build his 15-room inn into a top lodging destination with a robust conference and event center. Like many innkeepers, Jim leverages technology and data-driven strategies to drive higher revenues and optimize his operations so that he can focus on delivering an exceptional guest experience. He’s currently an advisor at TakeUp, an AI rate optimization tool built exclusively for inns and B&Bs.