Revenue Management for B&Bs and Boutique Hotels: Dynamic pricing basics

Home » Revenue Management for B&Bs and Boutique Hotels: Dynamic pricing basics

What you will discover in this article:

• What is Revenue Management and why it's not just for big hotels
• Key parameters: Occupancy vs ADR vs RevPAR
• How to set a dynamic pricing strategy
• Common mistakes to avoid (and why last-minute discounts are dangerous)

Many owners of non-hotel accommodation think that Revenue Management is complicated or requires expensive software. In reality, it is a mindset: stop thinking about the cost of the room and start thinking about the value the market is willing to pay at a precise moment.

What is Revenue Management?

In short: "Selling the right room, to the right customer, at the right time, at the right price". If your rate is the same in mid-November as during a major holiday, you are losing money in both cases: either you are too expensive and don't sell, or you are too cheap and "give away" margin.

Key parameters

To start, you need to know these three pieces of data:

1. Occupancy: How many rooms are occupied compared to the total.
2. ADR (Average Daily Rate): The average price at which you sell rooms.
3. RevPAR (Revenue Per Available Room): The most important piece of data. It is calculated by multiplying occupancy by ADR. It tells you how much you actually collect for each room you have, occupied or not.

How to set a pricing strategy

You don't need to change prices every hour like stock markets. Start by defining 4 or 5 "price levels" (Rack Rates).

• If occupancy for a future date is low, stay at the base level.
• As rooms sell, move to the next level.
• Monitor local events that can skyrocket demand.

Why last-minute discounts are dangerous

Drastically lowering prices at the last minute educates the customer to wait. Furthermore, it often attracts a target audience less in line with your structure, who only looks for low prices and will be more likely to leave negative reviews for small details.

At MKDA we help accommodation facilities implement marketing and positioning strategies that justify premium rates.

Author: Matteo Kiramarios

Founder of MKDA. Strategic consultant for the non-hotel sector and luxury hospitality.