The age-old debate in revenue management: do I sell out at cheap rates or retain rate integrity and run at a lower occupancy?
NB: This is an article from Duetto
In today’s dynamic market, where not only is demand fluctuating on a daily rate but also staffing levels and the ability to turn rooms, the question of putting profit before revenue has never been more important.
Let’s consider it in more detail.
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If you are constantly looking for high occupancy and low ADR you are possibly ‘fishing in other waters’. For example, you are a four-star hotel pricing as a three-star property. By doing this you are systematically losing your price point. You are effectively devaluing your hotel. And if you do that for too long it can be a struggle to regain your right pricing position in the market.
A high occupancy also comes with high operating costs. These might be offset if the guest is spending on property in your F&B outlets, spa, or other ancillary spend. But chances are the higher operating cost and lower room rate are just eroding your profit margin.
And this is before we consider the challenges around staffing levels right now. A lower rate might be acceptable if you are pushing for a longer length of stay and the guest is not expecting a daily clean, turndown service, or complimentary breakfast.
The alternative is to control your ADR and accept that you are not going to sell out.
Rate integrity is good, but there are going to be certain days that need to have special attention and where you push occupancy. For example, Sunday nights see traditionally very low demand.
And this is where you need to employ ‘revenue management by exception.’
You need to treat each day as a unique proposition but not in isolation from the market.
Look at your STR reports, understand how your hotel works now, also how your competitors work. Consider if they are the right competitors now?
Generally, focusing on ADR is always better than focusing on occupancy, but in today’s ever-changing market conditions, you do need a combination of both.
Be sure to set your min/max bounds. Understand what is your bottom and what is your top in terms of rate. And understand that the market is changing. The new hybrid work/life balance may mean that Sundays are no longer a low-demand day, or that Thursdays are a night to watch as the bleisure market comes back into play.
Analysis is more important than ever. Be aware of new patterns in demand, analyze your data, and get truly granular with room type analysis, length of stay patterns, and booking windows.
Make sure your revenue strategy is running in tandem with the market, but also make sure it is your revenue strategy and not that of your comp set. Hold firm on rates and understand the value of your offering.
