At times as a child, I was overly-dramatic and often made exaggerated facial expressions to the point that my mother would often sternly tell me “Fix your face!” I can only imagine some of the ‘before and after’ expressions I made.
Today, revenue management (RM) has grown well beyond setting rates… we applaud the RM evolution. There’s one problem, however – as we spend more time on other things, we must not allow ourselves to forget the basics. If you find yourself in lots of meetings discussing how your property can drive demand, be more creative with marketing, how the sales team can be more aggressive and effective, re-tuning offers and incentives, maybe there is a more important question: Do you need to fix your rates?
Clarification: As a practice, revenue professionals will often defend rates suggesting rates should only be dropped as a last resort, after all marketing and sales efforts have been exhausted. In theory, this is true… however, it is also based on the assumption that your current rate is the right rate… I’m suggesting you stop and ask yourself if it is, in fact.
You can spend hours designing gorgeous, captivating campaigns, adjusting offer reinvestment, setting higher sales goals, but if the rate is wrong it will bleed into every part of your strategy. How do you know if your rate is wrong? If your rate is set solely based on the competitive set (are you chasing the lowest market rate?), based on the budget or forecast (setting your rates to support the last forecast?) or some other equally arbitrary guidance, you need to fix your rates.
As a revenue professional, whenever I found myself starting to look at ways to drive bookings, I always paused and asked myself this critical question: Do I need to fix my rates?
If the honest answer is yes, you’ll want to act fast. The first thing you need to do is assess what your goals are… how does your demand forecast compare to your available inventory? Are you trying to sell the hotel out (closer arrival dates) or are you trying to get your pace back on track (longer lead times)? Once you establish your goals, you need to understand what rate your inventory is actually selling for. If your rate is currently set at $100, and the rate you are achieving after promotions and discounts is $80 then your rate is probably 20% too high. Promotions, discounts, and the like require planning (and time and money!)… you will always be better off selling the inventory outright by setting the right price.
Understanding the trends in your market that impact your property are crucial, as well. Once you have your goals set and understand what rates will actually sell your inventory, you can take a look at what the competition is doing and fine tune your pricing decisions accordingly. Simply matching the lowest rate in town is never a good idea… you need to take a more analytical approach and make decisions based on the needs of your property. Perhaps you don’t have to beat the market by offering the lowest rate in town… especially if the market is moving rates up.
Fixing your rates is not always easy… but always necessary. Make sure you have the tools you need to make the best business decisions.
Please feel free to join the discussion by leaving your comments, or contact me directly at firstname.lastname@example.org.
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