Are You Pricing for Profits?

By S. Lakshmi Narasimhan Founder, Ignite Insight LLC | October 16, 2016

A consistent misconception among hoteliers is that pricing for profits means operating at the highest price level within your competitive set. This is as far from the truth as anything. Pricing for profits is an approach which takes into account how well your pricing strategy deals with one of the most common phenomenon in hotel or any form of business - price resistance. Price resistance is a price point where customers feel the need to look elsewhere. A superior indication of price leadership and pricing for profits is to see where you stand in terms of REVPAR against the Market Average. This is principally because if you are well above the market average REVPAR, you are exhibiting price leadership more than merely an average daily rate in the higher levels.

Revenue Contribution

The most fundamental question in any revenue performance is: What is contributing to the revenue increase or decrease? Revenue Contribution has three major factors: capacity, business volume and price. For instance, in the case of room revenues, these are represented by: Rooms Available, Occupied Room Nights and Average Daily Rate.

Capacity is related to the original owner investment. In the case of the rooms, it is your total rooms available. Your occupancy % shows at what level of business volume compared to this rooms available you are currently operating. Your Price shows the average of room rates of all your market segments which your customers have paid at the occupancy % you are operating. It is customary to look at these three factors when you are looking at room revenue contribution.

Price in Revenue Streams

So, one of the three factors in the revenue contribution is your price. It is your per unit revenue earned depending upon the particular revenue center in a hotel. In room revenue terms, the price is represented by the Average Daily Rate.

Choose a Social Network!

The social network you are looking for is not available.


Hotel Newswire Headlines Feed  

Frank Vertolli
Paul van Meerendonk
Steve McKee
Ray Chung
Tara K. Gorman
Vanessa Horwell
Steve Van
Richard Dahm
Jim Poad
Paul van Meerendonk
Coming up in April 2019...

Guest Service: A Culture of YES

In a recent global consumers report, 97% of the participants said that customer service is a major factor in their loyalty to a brand, and 76% said they view customer service as the true test of how much a company values them. And since there is no industry more reliant on customer satisfaction than the hotel industry, managers must be unrelenting in their determination to hire, train and empower the very best people, and to create a culture of exceptional customer service within their organization. Of course, this begins with hiring the right people. There are people who are naturally service-oriented; people who are warm, empathetic, enthusiastic, pleasant, thoughtful and optimistic; people who take pride in their ability to solve problems for the hotel guests they are serving. Then, those same employees must be empowered to solve problems using their own judgment, without having to track down a manager to do it. This is how seamless problem solving and conflict resolution are achieved in guest service. This willingness to empower employees is part of creating a Culture of Yes within an organization.  The goal is to create an environment in which everyone is striving to say “Yes”, rather than figuring out ways to say, “No”. It is essential that this attitude be instilled in all frontline, customer-facing, employees. Finally, in order to ensure that the hotel can generate a consistent level of performance across a wide variety of situations, management must also put in place well-defined systems and standards, and then educate their employees about them. Every employee must be aware of and responsible for every standard that applies in their department. The April issue of the Hotel Business Review will document what some leading hotels are doing to cultivate and manage guest satisfaction in their operations.