Rate Checking

One of the difficulties of maximising your revenue is understanding how the other hotels in your competitive set are behaving. Although you don’t necessarily want to follow the herd, having up-to-date information will definitely help you decide on your rate strategy.

There is now technology available that will constantly monitor the web and compare various advance booking rates for hotels that you can select. Contact your reservation or representation company for details of which companies they use, or contact direct organisations such as TravelClick or RateTiger. A less costly alternative is to call up a site such as laterooms.com regularly and check what rates are being offered by your competition.

Rate Parity

You will often be asked by agents and internet sites for ‘rate parity’. All that they are doing is making sure that they are not undercut by other agencies that have lower rates. This is an entirely reasonable request and it makes sense to keep faith with the agencies that you are asking to distribute your rooms.

Guaranteed Lowest Rate

This is a completely different proposition. Some internet sites will ask you to ensure that they are offering your rooms guaranteed to be at the ‘lowest rate’. This is not very helpful, since you should always be in control and make sure that your own site offers the best rates that are available. However it is not a phrase that you want to use either, since it focuses on price rather than benefits.

Revpar

Revenue per available room (RevPAR) is a useful way of measuring your performance, particularly against your competition or industry standards. It removes the sometimes conflicting influences of occupancy and average rate and enables hotels of different sizes to be compared directly. If you are only measuring your own performance then you can just measure total revenue to see if this year was better than last. But even this can be misleading. Your revenue may have been up but maybe your occupancy was also up, with its consequent increase in costs. Maybe the extra costs are more than the increase in revenue?

To calculate revenue per available room merely take your net daily revenue and divide it by the number of rooms in your hotel. If you have already calculated the occupancy and average rate you can multiply these two together for the same outcome.

You can calculate costs (fixed and variable) on the same basis to see what the margins are. This can assist in calculating the lowest rate at which it is sensible to sell rooms to make marginal revenue.

Revpash

If you are interested in using some yield management techniques in your restaurant you need to calculate your revenue per available seat-hour (RevPASH). This really helps you to focus on those times of the week and times of the day when revenue is weakest. To calculate this figure divide the net revenue taken in each hour by the number of seats available in the restaurant.

Yield Management

Yield management is a relatively simple concept, and one that you intuitively practice anyway. What you are trying to do is maximise revenue whatever the prevailing circumstances. Where there is high demand, you try to maximise the rate from each guest. Where the demand is not so high, you try to maximise the occupancy, albeit maybe at lower rates. The idea is that you can shift the demand of those customers who are relatively price sensitive but time insensitive to off-peak times. This then clears the peak time for customers who are relatively time sensitive but price insensitive.

Rooms

To institute any strategy of maximising room yield you need information. Without it you cannot do anything. You need to be able to predict the peaks and troughs by keeping details of what happened last year, noting any planned major events in your area and by keeping an eye on developing forward reservation patterns.

A very useful measure for forward bookings is to know how many reservations you have in the books for up to, say, 90 days before arrival. This answers the question ‘How are we doing?’ If last year on the 30 April you had 400 leisure room nights booked for the next 90 days and this year at the same time you only have 200, then you should probably take some action!

In an ideal world you would know the specific outcomes from adjusting prices for each of your market segments (the demand elasticity). Unfortunately the hotel business is not yet that scientific and, even if it were, you can never know the reaction of your competitors; their actions usually subvert any strategy you implement. What you do know is that in the short term you cannot influence corporate or group business but that you can affect weekend and leisure guests; by how much is mostly subject to trial and error.

In the airline industry it seems more acceptable that the seat is sold at different prices, usually on the risk that you take by booking late or early. Perhaps airline seats are scarcer than hotel rooms, so customers are more forgiving? You need to try to keep stable rates at least for each day but if you cannot, then implement some restrictions.

You cannot just be arbitrary in your rate setting. Each rate needs its conditions that appeal to the segment you want. For instance you can set a Saturday rate of £ 125. You can also have a rate of £ 100 if guests stay for two nights including Saturday. What is unreasonable is to have a rate of £ 125 plus a rate of £ 100 for the same night but to try to hide the £ 100 rate unless the customer asks for a discount. Make logical conditions and your guests will be happy.

Although in essence yield management is a simple concept, it can become very complicated when you have a large hotel with a number of market segments and many distribution channels. There is helpful software that you can run on your property management system. But the most important factor is the human one, so never let the machine persuade you to do something that doesn’t sound sensible. Intuition and gut feel are the best judges.

There are some difficulties and these need to be taken into account:

• Demand is sometimes difficult to forecast for small market segments.
• It is hard to estimate price elasticity.
• You need to keep market segments separate from each other by erecting ‘hurdles’.
• Maximising capacity sometimes disguises revenue opportunities lost.
• Too many deals are difficult for staff to manage.