If you set a starting price of 100 EUR too low for a special high-demand day, and you only realize this after the first 30 rooms have been sold, you have already lost 3.000 EUR. For a 5-day fair that would mean 15.000 EUR lost.
How do you then find the correct price point from the start?
Published January 12, 2023
Whether working with a pricing system or applying a manual approach for your hotel, the starting price for any given day when opened up for sale, is crucial. To be clear, a static pricing sheet is something of the long past, any dynamic pricing is the obvious way to go. However, some think that numerous price changes and updates are key to the RevPAR success, which it sometimes can be, but even more crucial is finding the right starting price. The so-called “price elasticity of demand” is the bottleneck of all this. A certain price will give you a certain pick-up pace of bookings. The goal: to sell the last room just before arrival.
THE COMBINATION LEADING TO REVPAR SUCCESS
Have you ever found yourself selling out your hotel months in advance? Then the chance is high that you sold your rooms too cheap, and vice versa. In theory, having a correctly set price from the beginning could lead to a perfect booking curve, allowing you to never have to change the price one single time. In practice, never updating the price seldomly happens, but, the vital importance of the right starting price is still a fact, and the combination of both is what leads to the RevPAR success.
AN EXAMPLE
If you set a starting price of 100 EUR too low for a special high-demand day, and you only realize this after the first 30 rooms have been sold, you have already lost 3.000 EUR. For a 5-day fair that would mean 15.000 EUR lost.
HOW TO FIND THE CORRECT STARTING PRICE
How do you then find the correct price point from the start? The answer lies in setting the right RevPAR target, and doing so based on data and not using your gut feeling. This is best done by analysing both market share and internal data, looking into the future on the books data, as well as learning from the past historical. Once the RevPAR target is set, you can calculate the starting price by considering the weight of your segmentation mix, and the amount of sold rooms on your different public pricing products. This weighted average calculation, could for e.g. result in that a 170 EUR starting price, and increasing it upwards over time, will yield a net ADR of 140 EUR, which perfectly aligns with your set RevPAR goal.
As said as well, sometimes, there are even days where your starting price will perfectly allow you to reach your RevPAR goal without changing it a single time.
TO CONCLUDE
Make sure to do your analysis, set your prices already now for 2023 before you open for sale, and set them correct! Follow your pick, don’t worry about having to change your prices all the time but do adjust when and where necessary, and increase that profit of yours!
Fabio Morandin
CEO at MoreHotelier, Outsourced Revenue Management