May it be a little more? The value of my hotel product

Wert des Hotelprodukts_Birgit Haake

An empty room costs money. That is true, but what is the minimum revenue that an occupied room must generate in order to cover all costs or at least make a contribution margin? The current and future price increases require a continuous review and adjustment of the price floors.

To calculate the price floor (PUG), the hotelier must know exactly the fixed and variable costs of a room. The hotelier should not sell his rooms below the price floor. The price floor is calculated as follows:

Fixed costs per room + variable costs per room = price floor.

Fixed and variable costs include:

Fixed und variable costs Revenue Management

The analysis of costs is the starting point for setting the room rate.

But what value does my hotel product have for the hotel guest?

Setting a sales price is of strategic importance for every hotel. This is because the price is by far the biggest lever for maximising a hotel’s profit and often a decision criterion when booking. But the price is also an indicator of quality. A thorough understanding of the guest’s demand and willingness to pay is therefore indispensable for determining the price and adjusting the price.

Scientifically, it has been proven that there is a direct correlation between pricing and the positioning of a company and its products/services as well as turnover and market share.

Why should the guest choose my hotel instead of my competitor’s hotel?  Only a continuous analysis of one’s own hotel product/services compared to the market helps the hotelier to identify the added value for the guest.

STR’s Hotel Performance survey shows that the average room rate in March 2022 has increased significantly in Europe compared to March 2019, with the exception of Getaway cities and Germany. 

hotel performance 2022
Figure 1: How the hotel performance landscape has changed- Europe focus; STR- CoStar Group, Robin Rossmann, 13. May 2022

The conditions mentioned at the beginning offer great opportunities to say goodbye to historically grown prices and to courageously not shy away from price increases. Together with a well-considered dynamic pricing, the hotelier can defy the cost increases and promote his own growth.

Birgit Haake - Expertin Revenue Management

Author: Birgit Haake

Birgit Haake has more than 25 years of practical experience in the hospitality industry and healthcare. With her company Haake Revenue4U, she supports individual hotels and hotel chains in Germany and Europe as an expert in revenue management. Her core competencies are booking management, (MICE) revenue management, pricing and online distribution. Birgit Haake holds a degree in business administration and has completed her training as a hotel manager. She is a certified trainer and has been a university lecturer in international hotel management and tourism management for many years.

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