Pricing basics
This Pricing basics Info Guide can help you to make the right pricing decisions in order to improve your profits.
Correct pricing is an art – every hotel is different and to set the right price you need to balance the needs of your customer with your profit requirements.
Know your price limits
The price that you charge for rooms, meals or beverages has a direct impact on the profits you make. If you set your prices too low, you risk losing profit or making a loss. Setting high prices may lead to low sales and you may make a loss.
Remember!
If you don’t get your pricing right from the start, it will be difficult to adjust your advertised prices if customers think your prices are too high.
VAT
When you have decided your price, add VAT.
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You need to get the right products and services to your target customers, at the right price.
You should also consider timing when setting prices.
Product
Should you charge a premium price which reflects your product’s premium quality?
Consider:
- the quality and range of the product, service and facilities offered to your guests.
- your product’s strengths and weaknesses.
- the image you project in the marketplace through your promotions.
Your price should be consistent with your marketing message, and reflect the value to you and to your customer of the product you are offering.
Customers
Do your customers understand the quality of your product offering as compared with competitor hotels? Customers are willing to pay more for the following:
- High standards.
- Excellent quality products.
- Personal attention by staff.
- Something that is different from or better than that which your competitors can offer.
Consider the price that your target customers are willing to pay for your product and which will provide perceived value for money.
Added value
During a recession customers are particularly focused on added value. Improved quality is one way to add value and improve your competitiveness without incurring huge cost increases.
Competition
Why would your target customers prefer a competitor’s product to yours? Consider how your product differs from that of your competitors in terms of quality and customer benefits.
Check competitor prices on their website, in newspaper advertisements or by phone. You may be able to charge a higher price if you offer something different or better than them, eg, free parking or Wi-Fi access.
Costs
You need to estimate all the costs incurred in running your hotel to ensure that your pricing makes a profit.
For practical help with costs and profits see:
Controlling your costs
Profits basics
Timing
Perishables
Unoccupied rooms or tables cannot be stored for sale on another day or night and are worthless if unsold. Run special offers to sell food that may spoil if unsold.
Seasonal business
If your business is seasonal you may be able to charge a higher premium in summer than during winter. Consider increasing your prices to maximise profit in peak periods.
During periods of low-demand, you may need to reduce your prices to stimulate demand for your product or service.
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