There’s a reason why procrastination is such a prevalent problem in people’s lives. It’s the inevitable outcome of avoiding tasks. Being proactive is important for a number of reasons, one of which is making sure you’re setting your business up for financial success. Let’s make your business a priority and ensure you’re getting the revenue you deserve.
Calculating your overhead
The first part of any pricing strategy should start with overhead. This is the bare bones amount you need to earn in order to run your business. This should include every single expense, regardless of how small or trivial you think it is. If it is a necessary part of running day to day operations, count it. Every penny matters when you’re calculating your minimum cost to keep your doors open. These can include obvious large expenses such as your mortgage, utilities, and your internet bill, as well as the cost for cleaning supplies, toiletries, ongoing savings for upkeep and maintenance, and the cost of employees. And don’t forget to pay yourself! Be sure to include your time invested. It’s vital that you have created a thorough list of operational costs and have a clear view of what it takes to run your business. This is the building block for creating your pricing strategy.
Survey the competition
You know the old saying, keep your friends close and your enemies closer. It’s important to know your competition, keep an eye on what they’re doing and understand how your property compares. In today’s marketplace, there are a wide variety of lodging options. You’ll want to account for all of them and then assess where your rates should fall. There will likely not be an identical 1-to-1 property you can compare yourself to, but take into account the location, amenities and décor for similar options. While doing your reconnaissance work, you’ll want to take note of their booking calendars. They should have rates populated for months in advance. If you see spikes for upcoming dates that you haven’t accounted for, you’re likely missing out on potential revenue from a high tourism opportunity and can adjust accordingly. Even though you should be planning a year in advance, you should continuously be monitoring your competition’s rates so you stay competitively priced. Your vigilance will pay off.
Knowing your destination
A big tourism driver revolves around events that happen specifically in your location. These have a big impact on the overall demand for lodging, so it’s important that you’re in the know for what they are and when they’re happening. Pretend you’re a traveler throughout the year and subscribe to your city’s tourism emails. Big events can provide big opportunities to raise your rates to meet demand. Keep a historical list of recurring events your corresponding booking information to best inform your pricing for the year ahead.
Finding a balance
It’s a delicate balance to set up a competitive nightly rate. Setting your price too low means you’re losing out on potential revenue and too high means you may be passed over for another property and not make the booking. You want to strike a balance where your room rate is competitive for the season and the existing marketplace in your location. Your nightly rate should have a great deal of variance from taking into account low and peak season, events and weekends, and you should also take into account the fluctuation of your occupancy rate. You may be booked 95% of your available nights during the peak season and only 55% of your available nights during the low season. Your annual pricing strategy should allot for the fluctuation of monthly revenue.
Why it’s important to plan in advance
Each piece of information may seem like something you can do throughout the year, but you should commit yourself to create an annual pricing strategy. Why? It’s the same reason that billion-dollar businesses set goals for the upcoming year, it’s important to have benchmarks for revenue. By setting up expectations, you’re giving yourself revenue goals and actively making an effort to pursue them. And if after the first quarter of the year goes by and you’re not booking rooms as planned, pivot. Make adjustments to ensure that your business is seeing the bookings you need. Look at what isn’t working, adjust room rates that aren’t competitive, run a promotion, or expand which channels you’re listed on. And if this isn’t your first rodeo, you have a wealth of information at your fingertips. Compile, assess and use all of your past booking information to understand what your upcoming calendar year holds.