There are two main ways to push profit: reduce costs or increase rates. A hotel that drives a higher average daily rate (ADR) will see profits increase. But how to do this?
An Open Pricing strategy enables you to yield each segment, channel and room type independently in real time, rather than setting rates tiered off a Best Available Rate (BAR) benchmark.
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Our client Ruby Hotels operates such a strategy. “With Open Pricing we have the possibility to react to the market at a much faster level. We can see the demand coming in and react on that by changing the price by only one or two Euros and see how the market reacts. And, if we see it's still working and demand keeps coming in, we can raise the price even higher,” says Tobias Koehler, Group Director Marketing & Commerce, Ruby Hotels.
Stop Following your Competitors
RevPAR Index is an important metric, but simply following the crowd is not going to put your hotel ahead. Those hotels who are brave and constantly flex their pricing in line with market demands will turn a greater profit.
“You should benchmark against your comp set to see its performance, but you have to carve out your own profit path and not merely ‘be a follower.’ Being a market leader means not being afraid to take chances where others may not. So while it’s imperative to track the data on your competition, you must make your own individual choices based on your hotel. Take in as many inputs as you can to maximize your outputs,” says Pablo Alonso, CEO of HotStats.
Ally Northfield, Managing Director of Revenue by Design, says hotels should always be mindful of their unique selling points, and bear these in mind when pricing.
“If a hotel has been built for a reason it has a unique demand. Therefore, you have to work to the unique demand of the property and you have to uncover that. ‘Why is this hotel where it is and do what it does?’ Don’t look to your competitors to tell you how and what is going to happen. Strike out on your own but don’t do it with arrogance; have appreciation for the people that want to stay in your hotel but be curious with what you can do,” she says.
Determine your Most Profitable Business Mix
Placing a focus on optimizing business mix will help you drive the most profit. Take advantage of upselling opportunities, yield room types appropriately, and understand your guest segments.
For hotels that are more than just rooms there’s a lot of opportunity to support other profit centres, for example meetings and events, or spa and leisure. This is where focusing on gross operating profit per available room (GOPPAR) comes into play. Consider the total spend of each guest – some may have longer lengths of stay, but if they are not spending on ancillary services such as F&B then they may not be worth as much as transient guests who only book in for one night. Always look at the bigger picture.