Price your rooms too high and you might not get enough bookings, but price them too low and you sacrifice revenue in the name of higher occupancy. If creating a hotel pricing strategy has you feeling like Goldilocks plundering the house of the three bears, you’re not alone.
Hotel pricing strategies define how you set room rates based on booking date, room class, and guest type. There are seemingly infinite hotel room pricing methods to consider, but ultimately, you have to find just the right price for your small hotel to maximize occupancy and revenue.
We know small hotel owners are busy, and chances are you don’t have dedicated analysts or revenue managers on staff to help you create a just-right pricing strategy, so we’ve done the research for you. In this post, we’ve compiled the best pricing strategies for small hotels, featuring simple strategies that can be executed using information you can find easily in your property management system.
Keep reading to learn about:
- 5 factors that affect hotel pricing strategies
- 7 hotel pricing strategies that work for small hotels
- When to adjust your pricing strategy
Let’s jump in.
5 Factors That Affect Hotel Pricing Strategies
Before we dig into different hotel room pricing methods, it’s important to understand that there is no one-size-fits-all approach to creating hotel pricing strategies. Ultimately, how you price rooms depends on a variety of factors that are unique to your small hotel. Here are five key factors to consider:
- The size of your property: Smaller properties may have fewer rooms to fill, but profit margins may be tighter and maximizing RevPAR by creating the right hotel pricing strategy is crucial.
- Location: Your hotel’s location can affect seasonality and other booking patterns that may require different hotel room pricing methods to maximize your occupancy.
- Competition: Understanding how your competitors price their rooms can help you determine the right rates for your rooms so you don’t over- or under-price yourself compared to other hotels in your area.
- Target market: Are you targeting budget or luxury travelers? Families or corporate travelers? Your target market should inform your hotel room pricing methods in order to maximize bookings and revenue.
- Anything that makes you unique: If there’s something about your small hotel that gives you that extra special edge over your competition—like stunning views, a top-notch chef, or a destination spa—your hotel pricing strategy should reflect what makes you unique.
Often, small hotels need to employ multiple pricing strategies to account for each of these factors. So without further ado, let’s dig in.
7 Hotel Pricing Strategies That Work for Small Hotels
1. Demand-based pricing
Demand-based pricing is one of the most popular pricing strategies. It involves setting room rates based on travel demand—when demand is higher, room rates are higher, and when demand is lower, room rates are lower as well.
Demand-based pricing includes common pricing strategies like:
- Seasonal pricing: Adjusting your rates based on historical and forecasted seasonal demand. For example, if you run a beach hotel, rates will be higher in the summer and lower in the winter. If you run a ski resort, rates will be higher in the winter and lower in the summer.
- Discounted pricing: Reducing rates during slower times to boost occupancy.
INNROAD TIP: If you discount rates during your off-season to improve occupancy, look for other ways to make up that lost revenue, such as seasonal packages, length of stay requirements, upsells, or unique off-season experiences.
Effective demand-based pricing strategies should be based on two things:
- Historical data, such as occupancy rate, revenue, and average guest spend, as well as any other relevant metrics.
- Demand forecasts, including predicted seasonal trends, local events, and planned promotions.
To set a demand-based pricing strategy, take the time to review your occupancy information and identify patterns in booking demand. Pay attention to room classes as well—you can adjust room rates for the most popular rooms and classes to generate more revenue per booking, or reduce rates for less popular rooms to maximize occupancy.
Who should use demand-based pricing strategies:
2. Dynamic pricing
Dynamic pricing in the hotel industry refers to pricing strategies that are based on real-time demand—room rates increase as demand increases, and vice versa.
Dynamic pricing sounds similar to demand-based pricing, but it’s different in one key respect: dynamic pricing is employed in real-time in response to current booking activity, while demand-based pricing strategies are developed based on historical data and demand forecasts. For example:
- If you run a beach hotel and have a few rooms available for next week, but a major storm is expected, reducing your room rates for the coming week may help you get more bookings despite the bad weather.
- If you run a boutique hotel near a venue like a sports arena, concert hall, conference center, or festival grounds, you can take advantage of spikes in demand around major events by raising rates when bookings surge.
The right software is key for small hotels looking to make the most of dynamic pricing. Without a dedicated revenue manager to handle it for you, it’s just not practical for busy small hotel owners to monitor booking demand and make pricing adjustments in real-time. But with the right software tools, you can respond to booking demand in just a few clicks (or even automate the process entirely).
Many property management systems include revenue management tools that help you understand occupancy patterns and set rates accordingly, but if you’re interested in dynamic pricing, you’ll need a PMS that notifies you when bookings increase around certain dates so you can adjust pricing in real-time. Some PMSs, including innRoad, even include yield management features that will automatically increase rates in response to booking demand.
Who should use dynamic pricing:
3. Day of week pricing strategies
Day of week pricing strategies involve—no surprise here—adjusting room rates based on the day of the week.
For example, if you typically have higher occupancy on weekends, offering lower rates through the week can help you boost mid-week occupancy. On the flip side, if your small hotel primarily caters to business travelers, higher weekday rates and lower weekend rates can help you maximize occupancy and revenue from Friday to Sunday.
INNROAD TIP:Monitor daily and weekly occupancy rates to help you determine whether day of week pricing is right for your hotel.
Who should use day of week pricing:
4. Length of stay pricing
Length of stay pricing strategies involve setting minimum stay requirements or offering discounted rates for extended stays. For example:
- 2-night minimums for weekend bookings or during peak travel periods
- Discounted weekly or monthly rates during peak travel periods
- Discounted rates for 3+ night stays
Length of stay pricing can help you generate more revenue per booking. For example, if a guest wants to reserve a room for Saturday night only, their one-night reservation will prevent someone else who may want a room from Friday-Monday from booking—and that means two nights of lost revenue. Plus, one-night stays also mean more work for your housekeeping staff to ensure that room is ready for the next guest—that means increased operating costs and lower revenue per room.
Who should use length of stay pricing:
5. Market segmentation pricing
Market segmentation pricing strategies involve pricing rooms based on different audience segments. For example, offering lower rates for corporate bookings or for large groups who are booking a stay in order to attend an event at or near your hotel, such as a wedding, reunion, or retreat. You could also offer discounted multi-room packages for family bookings.
Who should use market segmentation pricing:
6. Cancellation policy-based pricing
Cancellation policy-based pricing involves charging higher room rates in exchange for a more flexible cancellation policy and offering lower rates for bookings that cannot be canceled.
Who should use cancelation policy based pricing:
7. Booking packages
Booking packages include additional value-added features on top of your base room rate to help you earn more per booking. Booking packages can include anything that is unique to your hotel, such as:
- Wine and chocolates upon arrival
- Spa visits or gym packages
- Meeting spaces
- Access to local experiences
Booking packages are also a great way to target different audience segments. For example:
- Packages for business travelers could include breakfast and access to meeting spaces
- Packages for families could include equipment rentals (like boats or bikes), meals, childcare, or other unique offerings
- Packages for couples could include romantic meals, room service, or spa visits
With the right direct hotel booking engine, add-ons, booking packages, and other upsells can even be reserved right at booking.
Who should use cancelation policy based pricing:
When To Adjust Hotel Pricing Strategies
Just like hotel pricing strategies aren’t one-size-fits-all, they also aren’t fix-it-and-forget-it. Small hotel owners should regularly review their hotel room pricing methods and adjust rates throughout the year in order to respond to seasonal fluctuations, local events, competition, and other factors.
Plan to adjust your hotel room pricing methods around factors like:
- Major local events—festivals, conferences, concerts, sports events, move-in and move-out dates for local colleges…anything that causes a surge in booking demand.
- Seasonal demand patterns
- Changes in competitor rates
- Any time demand or occupancy is very high or very low
Detailed reporting and analytics can help you understand your occupancy trends, revenue patterns, and other key metrics so you can create an effective hotel pricing strategy. Tracking occupancy, RevPAR, and other key revenue metrics can also help you monitor how your pricing strategy affects occupancy and revenue so you can make adjustments as needed, experiment with new strategies, introduce promotions, or employ other revenue management tactics.
An all-in-one PMS that includes advanced reporting and analytics, revenue management tools, and yield management features like surge alerts is critical to developing an effective hotel room pricing strategy.
The best hotel pricing strategies employ a Goldilocks approach—price your rooms too high and you might not sell enough rooms, price them too low and you sacrifice revenue in the name of higher occupancy, but price them just right and you’ll hit that sweet spot of high occupancy and high revenue.
There is no one-size-fits-all hotel room pricing method. Ultimately, your small hotel pricing strategy will depend on factors that are unique to your hotel, including how many rooms you have, where you’re located, how your competitors price their rooms, and anything else that sets you apart from your competition.
Understanding your booking demand and revenue patterns is crucial to developing a profitable hotel pricing strategy. With an all-in-one PMS like innRoad, you can:
- Easily review historical occupancy data to determine seasonal and other demand patterns
- Review revenue reports to understand your most profitable times
- Adjust rates in real-time in response to booking demand across your website and OTAs
- Offer booking packages and other upsells during booking to increase revenue
- Make it easy to reserve multiple rooms for larger groups