Adjusting for Inflation: Should You Raise Your Hotel Room Prices?
As a hotelier, you’re probably well aware of the effects of inflation. Prices for goods and services are steadily rising, and that includes the cost of running a hotel. But how should this affect your pricing?
Many hoteliers are hesitant to raise their prices, fearing that it will deter guests from booking rooms. But if you don’t adjust your prices to keep up with inflation, you could end up losing money in the long run.
There’s no one-size-fits-all answer to this question. The best approach will vary depending on your specific situation. But in general, there are a few things you should keep in mind when deciding whether or not to raise your prices in response to inflation. Let’s take a closer look.
Why is inflation a concern for hoteliers in 2022?
Inflation is a big deal for hoteliers at the moment because prices for goods and services are steadily rising. This is due to a number of factors, such as the increasing cost of labor and raw materials, as well as the on-going effects of the global pandemic. This is a big deal for hoteliers because it directly affects the bottom line. When the cost of goods and services goes up, so does the cost of running a hotel. This can eat into profits and make it difficult to keep up with the competition.
As the hospitality industry sees a welcomed rise in number after Covid-19 had all but halted the industry, there is a newfound appreciation for hotels and the experience they offer. No longer are hoteliers worried about whether people will want to stay in their hotels, but rather, how do they make sure they are getting the most out of every single guest?
Many hoteliers are unsure of how to approach this new landscape and are utilising a variety of methods in order to find the best way to keep up with the competition while still making a profit. Two popular approaches used by hoteliers are either to lower their prices in order to be more competitive or to raise their prices in order to make up for lost profits during the pandemic.
While there are benefits and drawbacks to both of these approaches, many hoteliers are finding that the latter is more successful in the long run. In order to understand why this is, we must first take a look at how exactly inflation affects pricing.
How should inflation affect your pricing?
In general, there are two ways to adjust your prices in response to inflation: you can either raise your prices or lower your prices. There are benefits and drawbacks to both of these approaches, so it’s important to consider your specific situation before making a decision.
If you choose to raise your prices, you’ll need to make sure that the increase is in line with the rate of inflation. Otherwise, you could end up pricing yourself out of the market. For example, if the inflation rate is 3% and you raise your prices by 5%, you’re effectively charging guests 8% more than they would have paid last year. This could make your hotel less competitive and cause guests to look elsewhere.
On the other hand, if you choose to lower your prices, you’ll need to make sure that the decrease is significant enough to attract guests. Otherwise, you could end up losing money. For example, if the inflation rate is 3% and you lower your prices by 2%, you’re effectively charging guests 1% less than they would have paid last year. This might not be enough to entice guests to book a room at your hotel.
The best approach will vary depending on your specific situation. In general, though, raising your prices is a more effective way to offset the effects of inflation.
Should you adjust your room price for inflation?
There’s no easy answer to this question. The best approach will vary depending on your specific situation. But in general, you should keep a few things in mind when deciding whether or not to raise your prices in response to inflation.
First, consider the type of guests you typically attract. If you cater to budget-minded travellers, a small price increase is unlikely to deter them from booking a room. But if you cater to luxury travellers, a significant price hike could put them off.
Second, take a look at the competition. If your competitors are also raising their prices in response to inflation, you’ll need to do the same to stay competitive. But if they’re not, you may be able to get away with keeping your prices unchanged.
Third, think about the state of the economy. In general, people are less likely to book expensive hotel rooms during economic downturns. So if the economy is struggling, you may want to hold off on raising your prices.
Forth, check to see whether your other operating costs have risen. If your overhead costs have gone up, you may need to raise your room rates just to break even. But if they’ve stayed the same, you may be able to keep your prices unchanged.
Other ways to protect margins
Rethink your daily costs
There are many other ways to protect your margins besides raising your room prices. One way is to adjust your costs, and see if there’s room to improve in your current processes. This can involve cutting back on non-essential expenses, negotiating better deals with suppliers, or finding ways to increase efficiency.
For example, you might switch to energy-efficient light bulbs or install motion sensors in your hotel to reduce electricity costs. Or, you might start sourcing your food from local farms to reduce transportation costs. By finding ways to reduce your costs, you can free up more money to reinvest in your hotel.
Invest in an All-in-One PMS
Another way to protect your margins is to invest in an all-in-one hotel property management system (PMS). A PMS can help you automate tasks, manage bookings, and improve operations. This can save you time and money which you’d usually spend on labour, and ultimately help boost your bottom line.
Most importantly, a good PMS will give you the data you need to make informed decisions about your hotel. With real-time data at your fingertips, you can track your progress, identify areas for improvement, and make changes that will help boost your profits.
Develop a loyalty program
Another way to protect your margins is to develop a loyalty program for your guests. A loyalty program can help you build long-term relationships with your guests, and encourage them to keep coming back.
Loyalty programs can take many different forms, but the most important thing is to offer rewards that your guests will actually value. These could be free nights stays, upgrades, discounts on food and drink, or access to exclusive events. By offering rewards that your guests will appreciate, you can encourage them to keep coming back, and ultimately boost your bottom line.
Develop new revenue streams
Another way to protect your hotel against inflation is to develop new revenue streams. There are many different ways to do this, for example, you can:
- Diversify your product offerings: add new room types or packages
- Expand your market to reach new guests: business travellers or families
- Offer new services or amenities that guests are willing to pay for: a spa, an on-site restaurant, meeting space, or event space
- Get creative with your package deals: include flights, activities and rental cars.
- Add new promotions or discounts to attract guests during slow periods.
These can all greatly improve your hotel revenue, without adding to the rising cost of your business – especially if you’re using an All-in-One PMS to manage your property. Simply update your up-selling options on your Booking Engine, and adjust pricing promotions on your Channel Manager, and watch the magic happen.
Track and review pricing changes
Finally, it’s important to track your progress and adjust your plans as needed. Doing so will help you identify any potential problems early on and make necessary adjustments to protect your bottom line.
This can be done in many ways such as:
- Review your monthly P&L statements to track revenue and expenses
- Use market analysis tools to compare your hotel’s performance to competitors
- Use forecasting tools to predict future trends in the industry
- Conduct customer surveys to gauge satisfaction levels and get feedback on pricing
- Meet with your team regularly to discuss recent results and brainstorm ways to improve margins
- Monitor your occupancy rates, RevPAR (revenue per available room), and other key metrics.
How to ADAPT and protect your margins in future
No matter what approach you take to pricing now, it’s important to monitor your margins closely moving forward. This will help you make sure that you’re still making a profit and that your prices are in line with the competition, no matter what happens to inflation. We suggest using the ADAPT method (adjust, develop, accelerate, plan, and track) to keep your business in check:
- Adjust your prices regularly to ensure that they keep pace with inflation.
- Develop a pricing strategy that takes into account the unique features of your hotel.
- Accelerate your marketing efforts to attract more guests.
- Plan for unexpected expenses.
- Track your results closely.
By following these tips, you can make sure that your hotel is able to adapt to the ever-changing landscape of the hospitality industry.
Inflation can be a big problem for hoteliers, as it can eat into your profits if you don’t adjust your prices accordingly. But raising your room rates is not always the best solution. You’ll need to consider the type of guests you attract, the state of the economy, and your other operating costs before making a decision.
There are also many other ways to protect your margins, such as investing in a hotel PMS, developing a loyalty program, or cutting back on expenses. By taking these steps, you can help ensure that your hotel remains profitable, even in the face of inflation.
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