The Perfect Price—5 KPIs for Selling More Rooms at Higher Prices
Learn how to set the right prices, at the right time, for maximum profit and occupancy rate. All by using 5 game-changing KPIs.
Some hoteliers love the idea of finding the “perfect price”—but is there really any such thing? And if there was, how would you even begin to work it out?
We’re here to tell you that the perfect price does exist. Not only that, but it’s calculated from well-defined and measurable characteristics. But before we dive into that, we need to clarify something. The “perfect price” doesn’t necessarily mean “the biggest amount of money possible”. Rather, it means the most advantageous price for a given situation.
Because as you probably know, rental properties and hotels don’t have just one price: they have many different prices that can be applied according to their revenue management strategy.
In other words, the same numerical price can, in different situations, range from the “best” to the “worst” price. In some cases it can be right and wrong simultaneously!
So amidst all this chaos, how can your business define its perfect price for any given situation?
Key Performance Indicators (KPIs)
It’s actually not all that complicated. The perfect price is simply the price that, when applied to the current market, produces your desired results. These results are usually expressed in the form of Key Performance Indicators (or KPIs).
These magical numbers help us to understand, almost at a glance, whether we are nearing or slipping away from our objectives. These KPIs therefore provide feedback on whether we need to change course (because we’re not heading in the right direction) or keep doing what we’re doing.
In hotel pricing-speak, this is known as tariff monitoring. Tariff monitoring can be linked to dozens of different KPIs, some more relevant and impactful than others. In this post, we’re going to share what we believe are the 5 most important KPIs for finding your perfect price.
1. Conversion Rate
The conversion rate is a measure of how effectively your business turns enquiries into bookings. If your property has a “request a quote” button on its website, your conversion rate might be the ratio of the number of quotes requested versus actual bookings made.
The traditional quoting methods (via email or over the phone) have largely been superseded by internet searches. Most vacationers now get their quotes directly from the booking engine on your website or that of an OTA.
Conversion rate measures the real-time effectiveness of your pricing for the current level of demand. If your conversion rate is low across the board (email, phone, and online) this is most likely a sign that your rates are acting as a “blocker”, discouraging customers from booking.
Assuming there is scope to do so, one solution to a low conversion rate would be carefully lowering prices and monitoring the effect on conversions.
Now imagine that only one of your quoting methods is suffering from a low conversion rate. In this case it is usually worth investigating the customer’s purchasing path—it could be that a broken link, vague information, or another problem is preventing bookings. Adjusting the rates in this case is unlikely to make any difference. This is also a common problem for properties that rely on one single quoting method.
2. Occupancy Rate
When demand allows for it, properties should always look to maximize occupancy rate to generate as much profit as possible.
If your occupancy rate is lower than desired, even with consistent demand, you should definitely be reviewing your tariff strategy. If high prices are diverting some bookings to competitors, a tariff reduction could unblock a proportion of that demand and bring it your way.
Calculating the occupancy rate is surprisingly simple. All you need to do is divide the number of rooms sold by the number of rooms available, for a given period, at your property. Even if it seems easy, actually recording this data (and calculating the occupancy rate) on a daily basis is surprisingly challenging.
This data will be essential for calculating all of our other essential KPIs on a daily basis.
3. Booking Window
When considering the occupancy rate for a given time period, we always need to consider the booking window. This is a KPI that infers, for a given period, how far in advance of that period the greatest number of bookings are made. We know that’s not easy to digest, so let’s look at a practical example:
If we consider a regular August in a Sardinian hotel, we could say that bookings will generally be made months in advance, with a peak around the first half of July. A reliable booking window in this case could be defined as “between 30 and 60 days from arrival”. For a different property in an artistic city, in mid-November, the booking window might be as little as 2-6 days from arrival.
The booking window therefore shows us the period of greatest demand for your rooms and, therefore, the time to sell rooms at their optimum rate. It is necessary to consider that:
- If most rooms were sold before the booking window, the average room price was probably lower than if we’d focused on selling rooms during the booking window.
- If, on the other hand, we move past the booking window with a lower occupancy rate than expected, we may have over pitched our pricing during the window.
4. I competitors
Direct competitors are an important and delicate factor in revenue management and marketing.
Something we need to make very clear is this: unless you have verified and extremely accurate data on your competitors’ occupancy rates and room pricing (i.e. not just accepting whatever they say the numbers are) you should never blindly apply their strategy to your situation. It would be a total shot in the dark and would almost certainly fail to produce meaningful results.
So, unless you have an objective and impartial source of data to use as a benchmark, don't hold your competitors on any pedestals (unless, of course, there are pertinent and obvious anomalies in sales trends).
For example, if you observe that occupancy for a specific date or period is following a highly unusual trend—for example filling up abnormally quickly or slowly—and you can’t attribute this to any of your own actions, then it is a good idea to examine the broader market in search of answers. Here’s a more concrete example:
Say that a large property receives a late cancellation request from a historically-reliable group, or that rooms have filled up very quickly outside of the booking window. In this case, your rates relative to the market might be unusually high or low. This will affect your predictions and could mean that you’re either under-charging or under-occupying your rooms. It would then be appropriate to look for broader market trends and then adjust your strategy accordingly.
Just make sure that you always operate consistently with your strategy and don’t make drastic changes without careful consideration.
Nine out of ten travelers admit that they read online reviews before booking accommodation.
Multiple reliable studies and sources confirm that a strong online reputation significantly heightens perceived brand value.
Even in our day to day lives we’re seeing the rise of comparison tools. These tools are constantly guiding demand towards the most attractive and most highly-rated properties.
In light of this, we can say with confidence that encouraging positive reviews and proactively responding to all reviews are not trivial activities—these can have a profound effect on your ability to extend the optimum booking window and charge premium rates for your rooms. In other words, they can seriously bolster your tariff strategy.
As an added bonus, mining customer reviews arms your team with a near-infinite source of feedback that allows you to improve existing services, develop new targeted products and make your messaging more effective and persuasive.
How to guarantee the perfect price
It’s clear that in order for your tariff strategy to work optimally (i.e. to consistently generate the perfect price) you need to collect a lot of data and constantly monitor your KPIs.
However, these phases of data collection, processing and analysis (which underpin this entire philosophy) can be exhaustingly time-consuming—if done manually.
In order to save time and fully automate these processes, you can leverage an AI-based tool like Smartpricing.
To find out more about how Smartpricing works and to learn how it can help you reach your perfect prices, book a free demo.