Hotel Room Pricing Basics - Are You Maximizing Revenue?

Are you ignoring these hotel room pricing basics?

Revenue maximization is not rocket science.

It is grounded in basic revenue management strategies.

Pricing strategy is one of those.

Do your revenue maximization strategies include these 3 simple ways?

It is amazing how sticking to fundamentals can be a game changer.

The same applies to hotel room pricing basics too.

Are you ready to take the plunge?

You will sky rocket your revenue maximization with these no brainer solutions.

Let’s go!

This Blog Post will cover

The Heart of Revenue Generation

Pricing is at the heart of revenue generation.

It is also one of the most powerful triggers for profitability.

However, it is unfortunate that often you can easily miss the forest for the trees.

What do I mean by that?

In a previous post, you looked at the first of the contributories to revenue generation - business volume.

You learned about:

• occupancy for the Rooms and 
• Covers Served for the Food & Beverage department.

In this topic we will look at the other contributory to revenue generation - price.

Price works in tandem with business volume.

However, it is almost the opposite of the latter.

These differences can be utilized in decision making.

In this post, we will address guest room rates.

You know how rack rates are the foundation to a hotel pricing strategy.

Quickly, rack rates are the highest non-discounted rates set by a hotel for every room type.

This is the pillar on which hotels build a discounting strategy that optimizes yield.

Hotel room types are the building blocks of revenue on which a room rate strategy rests.

Let us quickly visit that.

A hotel room type may typically be classified in at least three ways:

• by category
• by bed size
• by a unique feature

So, the question is: how to calculate room rates for hotels?

Room rates are tied to room types.

Although room rates can be set in different ways, they normally follow how room types are set up.

Three such set ups are as below:

• Base Room Rates (by category and bed size)
• Rates tied to Floors
• Rates tied to Unique Features

Hotel Room Pricing and Base Rates

Base Room Rates are rates tied to the lowest common denominator of room types.

These base room type elements (if you want to call them that) are usually:

• category and
• bed size.

For example:

A Base Room Rate for a Standard King Size bed room type would be a Standard King Rate.

Base Room Rates tend to be the basic rate category for that particular room type.

Meaning that they do not include any element of rate for say, a unique feature of the room.

Using the above example, a Standard King Rate is rate for a room type which typically will not tell you:

• what floor it is on or
• whether it has a view etc.

It will only indicate what bed type it has which in this case is a King Bed.

Similarly a Deluxe Queen Rate will only indicate what bed type it has which is a Queen Bed.

Although a Standard King Rate or a Deluxe Queen Rates are base rates, their prices differ.

Hotel Room Rate Pricing Structure

Pricing strategies in the hotel industry need to align with room types.

Let us structure the room types we just learned about into the room rates they may command.

This will be in descending order of price (highest to the lowest - within the rate):

• STANDARD ROOM RATE
  • Standard King (the highest room rate among Standard room type)
  • Standard Queen ((the second highest room rate among Standard room type)
  • Standard Twin (the lowest room rate among Standard room type)
• DELUXE ROOM RATE
  • Deluxe King (the highest room rate among Deluxe room type)
  • Deluxe Queen ((the second highest room rate among Deluxe room type)
  • Deluxe Twin (the lowest room rate among Deluxe room type)
• SUITE ROOM RATE
  • Suite King (suite room beds are usually King type)

A few things to understand about the above structure:

• The Standard and Deluxe Room Rates are Non-Suite room rates
• The Standard Room Rate is the lowest rate for any non-suite room type in the hotel
• The Deluxe Room Rate is the highest (between Standard and Deluxe) rate for any non-suite room type in the hotel
• The Suite Room Rate is the highest rate for any room type in the hotel

At the time of conceptualization of the hotel project, one of the foremost decisions to be taken would be:

• how many total number of rooms should the project have,
• how many should be of the Standard, Deluxe, Suite room type and
• what kind of rate structure that should be adopted.

I would like to clarify that the above structure of room type and room rates is just one of the ways to do it.

It will depend on a lot of other factors like target audience, location and so on.

Generically, the price difference between a Standard and Deluxe room type, say King would be between $20 to $30.

This difference is maintained for other bed types too like Queen, Twin and so on.

So, you could say that you are paying $20 to $30 more for staying in a King bed room compared to a Queen bed room.

And remember that all this is while we are still discussing basic room rates.

Let us bring in the unique features into the pricing.

Hotel Room Rates Tied to Floors

Until now, we have been talking about rates for room types without brining in any additional element or unique feature.

Let us repeat what we said earlier.

A Standard King Rate will only indicate, on the one hand:

• what the room size is
• which is a bigger room in the case of a Deluxe Room and
• a smaller room (smallest in the hotel too) in the case of a Standard room and

on the other

• what bed type it has which in this case is a King Bed.

A Standard King Rate, thus is rate for a room type which typically will not tell you

• what floor it is on or
• whether it has a view etc.

Three of the most common unique features for which a hotel may charge a rate over and above the base rate or a supplement (as it is known in the industry) are:

• Room Floor
• Room with a View
• Room Location

It is important to clarify up front that room rates for downtown hotels will differ from resort hotels.

The above discussion is based on a typical downtown city hotel.

Hotel Room Floors

A downtown hotel typically categorizes its room floors as

• regular floors and
• high floors.

If, say, the building is a 25 storied one, the top 5 floors may be designated high floors.

High floor guest rooms carry a supplement.

This may be, say, $20 all the way to $50 higher than regular floor rooms.

It is important to understand that this $20-$50 is applied to both a Standard and Deluxe room type if situated on the high floors.

Many hotels also have what are known as Executive Floors which are actually the high floor rooms we are discussing.

Executive floors often have an Executive Floor Lounge.

This is where free:

• breakfast,
• snacks and
• drinks (the latter two served all day)

are offered.

Obviously, only Executive floor room guests are admitted to this rate based lounge service.

Check Ins for Executive Floor guests also happen in the Executive Lounge.

It is a form of exclusive floor based differentiation marketing.

Hotel Room Rates Tied to Unique Features

Apart from room rates tied to floors which we discussed there are two other rates tied to unique features.

A hotel will charge a rate over and above base rate as a supplement (as it is known in the industry) for:

• Room with a View
• Room Location

It is again important to clarify up front that downtown hotels will differ from resort hotels.

The above is based on a typical downtown city hotel.

Hotel Room Rates Tied to Room View

A downtown hotel also categorizes its room floors with a unique feature - the view it commands.

Resorts also do this but in a different way.

Two things are to be noted here:

• Most often supplements will be charged for a higher floor view and
• View will matter only if the hotel is located commanding unique views.

In general, if in our earlier example, say, the building is a 25 storied one, the high floors are the ones which will command views.

Lower floor rooms mostly will not command any view worth charging supplements for.

High floor guest rooms with a view can carry a supplement which may be, say, $30 all the way to $50 higher than regular floor rooms.

High Floor rooms with a good view often have the supplements combined into one.

Resort rooms typically (or even downtown hotels) located overlooking a river or the ocean) may have the following rates tied to views:

• Garden View (often misleading since this view may not be worth paying a supplement for!) or
• Ocean (or River) View - this view is sought after by resort customers.

Ocean View rooms often have balconies (depending on type of room).

Balconies thus make the view supplement worth charging a premium for.

Hotel Room Rates Tied to Room Location

Another way of price differentiation of a guest room can be by location.

Meaning, designating rooms located at the end of corridors in a hotel floor.

These are commonly known as corner rooms.

Corner rooms are higher priced rooms.

Often these corner rooms are bigger than others on the same floor.

Often a corner room could be a room with a view commanding both the view and the corner location supplement.

If a corner room has a great view, consists of a balcony and is on a high floor, the supplement can be substantial.

You can thus see that the hotel has numerous pathways to price its guest rooms and maximize hotel room revenue.

How well a hotel or resort leverages these unique features depends on a pitch that differentiates them clearly.

That is an overview of how hotel room prices can be structured to achieve maximum revenue.

Want to know more about leveraging major hotel revenue sources?

Read this step by step guide.

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