As a hotelier, you’re likely familiar with the impact of inflation. Prices for goods and services continue to rise, and this includes the cost of operating a hotel. But how should this influence your pricing decisions?
Many hoteliers hesitate to raise their prices, fearing it may deter guests. However, if you don’t adjust your rates to keep pace with inflation, you may end up losing money in the long run.
There’s no one-size-fits-all answer to this dilemma. The best approach will vary depending on your unique situation, but there are a few key considerations to keep in mind when deciding whether to raise your prices in response to inflation.
Why is inflation a concern for hoteliers today?
Inflation is a significant issue for hoteliers because rising prices affect everything, from food and beverage costs to wages and utility bills. Whether it’s due to higher raw material prices, increased labour costs, or other economic factors, inflation can quickly eat into your profits.
As competition in the hospitality industry intensifies, hoteliers are focusing more than ever on maximising revenue from each guest. It’s no longer just about filling rooms but about optimising every aspect of the guest experience while keeping costs in check.
Many hoteliers grapple with whether to lower their prices to attract more guests or raise them to keep up with rising costs. While both strategies have merit, hoteliers are increasingly finding that raising prices, when done thoughtfully, can be more sustainable in the long run.
How should inflation affect your pricing?
In general, there are two ways to adjust prices in response to inflation: raise them or lower them. Each approach has its advantages and drawbacks, so it’s essential to consider your specific situation before deciding.
If you opt to raise prices, ensure the increase aligns with the rate of inflation. Overpricing can make your hotel less competitive, while underpricing could mean you’re leaving money on the table. For instance, if inflation rises by 3% and you increase your prices by 5%, you’re effectively charging 8% more than guests would have paid last year. If not managed carefully, this could drive guests to other options.
Conversely, lowering prices might attract more bookings, but it could also reduce profitability. If inflation is at 3% and you lower your prices by 2%, you’re effectively charging 1% less than last year. While this may increase occupancy, it could make maintaining profit margins more difficult.
Ultimately, adjusting your prices upward to match inflation is often the most effective approach.
Should you adjust your room prices for inflation?
There’s no simple answer. Your decision should be informed by several factors:
- Guest profile: If you cater to budget-conscious travellers, small increases may not deter them. However, luxury travellers may be more sensitive to substantial price hikes.
- Competitor pricing: If your competitors are raising prices, you may need to do the same to remain competitive. If they aren’t, you might maintain your current rates.
- Economic climate: Guests tend to cut back on travel during economic downturns, so it may not be the best time to raise prices significantly.
- Operating costs: If your costs have risen due to inflation, it may be necessary to adjust your prices just to maintain profitability. If they’ve stayed steady, you might avoid price increases for now.
Other ways to protect your margins
Rethink your daily costs
Protecting margins doesn’t always require raising room prices. One way to combat inflation is to look for savings within your current operations. Consider cutting non-essential expenses, negotiating better deals with suppliers, or improving your processes to become more efficient.
For example, you could switch to energy-efficient lighting or install motion sensors to reduce electricity usage. Sourcing food locally might also lower transportation costs. Reducing operational costs can give you more flexibility to reinvest in your property and maintain profitability.
Invest in an All-in-One PMS
Another way to protect your margins is by investing in a robust property management system (PMS). A PMS can streamline many aspects of hotel operations, from managing bookings to automating routine tasks, helping you save on labour and operational costs.
Most importantly, a good PMS provides real-time data that can inform better decision-making, ensuring you stay ahead of market trends and can adjust your pricing strategy accordingly.
Develop a loyalty programme
Loyalty programmes can help increase guest retention and build long-term relationships. By offering rewards that your guests value, such as free stays, room upgrades, or exclusive discounts, you can encourage repeat business without needing to lower your prices.
Develop new revenue streams
To further protect against inflation, consider creating new revenue streams. This could involve diversifying your room offerings, adding services or amenities such as a spa or on-site dining, or catering to new markets such as business travellers or families. Creative package deals that include local activities or services can also boost revenue without significantly raising room rates.
Track and review pricing changes
It’s essential to track the impact of any pricing changes and adjust as needed. Regularly reviewing key metrics like occupancy rates, RevPAR (revenue per available room), and guest feedback will help you identify trends and make informed adjustments.
Monitoring your profit and loss statements, using market analysis tools, and forecasting future trends will also ensure your pricing strategy remains aligned with your financial goals and the broader market landscape.
How to ADAPT and protect your margins in future
No matter what pricing strategy you adopt, monitoring your margins regularly is critical to ensuring long-term profitability. The ADAPT method—adjust, develop, accelerate, plan, and track—can help your hotel stay competitive in the face of inflation.
- Adjust your prices to reflect inflation and market conditions.
- Develop a strategy that reflects your hotel’s unique features and clientele.
- Accelerate your marketing efforts to maintain guest interest.
- Plan for unexpected costs and challenges.
- Track your results and make changes as needed.
By implementing these steps, you can ensure your hotel remains profitable, even during periods of inflation. While raising prices may seem daunting, thoughtful adjustments and proactive cost management can help protect your margins and sustain your business through uncertain times.
