How do Hotels Grow Rates? 5 Strategies for Success
The annual budget season for hotels has come around again! For dedicated sales teams, this means deep planning and foresight to improve the past year’s successes and overcome potential failures. A big part of this planning is tackling the challenge of rate growth while also driving direct bookings.
Our goal today is to provide 5 successful approaches to rate growth we’ve come across in our work. We’ve been in the trenches, and we hope these tactics will be relevant, successful approaches for your hotel.
We’ll be chatting about:
- Distribution Segments
- Competition Analysis
- Giving your Hotel Website the Advantage
- Group Bookings
Let’s dive right in:
When examining your distribution segments for rate growth opportunities, start by reviewing each segment for the year gone by.
Challenge yourself on the lowest performing ADR segments. Ask yourself what you might have done differently on each segment.
Could you have started your Best Available Rate at a lower figure? By starting with a lower BAR then gradually increasing as the date approaches, you gain more total revenue than you would by starting too high and needing to reduce at the last minute to pick up bookings.
Are each of your locally negotiated corporate rates reaching the necessary annual room night threshold to entitle them to a corporate rate? If not, try giving them a dynamic percentage discount – for example, 10% off your Best Available Rate rather than a fixed corporate rate.
It is important that when you review your segments to examine the net rate, subtracting commission paid to each channel from gross gains. If you remove a channel with higher commission rates, could you replace the business with bookings from channels with a better cost per acquisition? It’s very likely that you can, and you’ll be saving your bottom line.
Take a look at the example below. It explores the differences in commissions and net values between a direct booking and three OTA commission levels which are currently popular within the Irish market and a market average commission a hotel may pay for its direct site bookings to its provider.
|Commission||Booking Value||Commission Paid||Vat 9%||
*figure chosen for example purposes only.
As you can see in the table above, when you make sure your marketing spend is profitable, direct bookings are the most profitable. Higher commissions make a huge difference to your bottom line, even if they seem like the path of least resistance.
Analyse your competition carefully. In a few hotels I’ve worked for, there have been instances where a group enquired and we knew we were directly competing with our neighbours for the business. There are a few approaches to take here to drive your overall goal of rate growth.
In some cases, we would drive them into the arms of the competition by quoting a higher rate. This would let our competitors fill up on group business at a lower rate. When the next group inquired, we were able to drive higher rates for the next group, knowing when they enquired that the competition didn’t have the space to quote for them. If this strategy is successful, you could then take complete rate control within your market.
The same concept applies for BAR and Package business. Review your competitors in detail – how many rooms do they have? How many rooms do they have within each category – can you identify their rate strategy? Try and be as independent as possible with your rate growth strategy.
Give added value to your guests, and they will understand the differences when they compare your higher rates to your competitors’. If you make your value proposition strong enough and your market allows for it, value can trump price to a certain point. The strongest added value at the moment within the market is a complimentary breakfast, and we recommend bringing this into packages and rate plans where possible.
Give Your Hotel Website the Advantage
Give your website the advantage over your other channels. Managed correctly, your direct channel has the lowest cost per acquisition, and it should be your biggest focus for rate growth. When guests book directly, you get two important benefits: you save money and increase revenue in the short term, and you have a much bigger opportunity to acquire loyalty and repeat bookings in the long term.
One easy way to promote direct bookings and achieve ADR growth is to remove the Single room option from all channels except your own site. This will benefit you in a number of ways. Firstly, your website will truly be offering a “Best Rate Guarantee“ for the Single room category, rather than simply maintaining rate parity with OTAs.
Other channel partners currently actively bidding on your brand name will immediately reduce spend, since the fact that they are no longer able to match the Best Rate Available will cut into the conversion percentage. This in turn will reduce your average CPC – you’ll save money, and every Single Room booking will come directly through your website.
It is important to note that won’t affect your parity agreements with OTAs and other channels. The only change will be that you are only offering a specific room category on your own site.
However, a room category by itself is not a reason to book direct. You must also offer a clear, compelling and unique reason to book direct. These are different from your hotel’s overall selling points (e.g. free WiFi, no booking fee, a free children’s club, and other things that should be offered across all channels).
For example, free breakfast is a compelling, valuable, and affordable (for you) reason for guests to book directly on your site. You can also consider an offering like a free item on arrival, early check in or late check out. Avoid putting in ‘ordinary’ perks with the extraordinary ones – you’ll dilute the overall value of the offering!
Your availability strategy comes with huge opportunities for advantage. Review your lead time and cancellation percentages for each channel. Reconsider when you give availability to channels: instead of giving them 12 months in advance of inventory, try reducing it to 6 months. Let your website sell your longer lead bookings, rather than keeping long term availability on all channels.
In a few recent cases, I have seen hotels who offer availability on all channels 12 months in advance. Their business on the books looks strong, but once you dig down and analyse cancellation trends and percentage, the majority of the business on the books will wash down from OTA partners.
If you are a property with a high volume of weddings bookings, consider implementing a minimum stay policy to try and maximise the shoulder nights. Offer package options to your guests, rather than just your Best Available Bed and Breakfast rate.
Net Affinity’s Wedding Packages solution offers the perfect opportunity to do this. Any of our hotels can build a unique wedding package code within our Booking Engine for each couple due to be wed at their property. This allows the couple to give their guests that special code to use when booking their rooms for the wedding.
Hotels can assist the couple by personalising the page for them with a picture, or even the running order of the day. A hotel might include dining and spa packages if some guests are staying longer than one night as another option to Bed and Breakfast. The key is to upsell your hotel packages.
The Art and Science of Group Bookings
A former General Manager of mine in London would always ask a series of questions as we discussed the group highlights for Incentive, Corporate and Leisure group bookings for the past year: Did we need them? Could we have got more on the rate? Can we push them to a different week next year?
I always found his thought process extremely interesting: our GM challenged the entire sales team on a weekly basis when we met each week to discuss the Group forecast for the year.
We would review week by week, 52 weeks in advance, and try and make the jigsaw fit. We put a massive emphasis on group business. Food and Beverage spend was paramount. However, with a whopping 447 rooms to sell on a nightly basis, the room block size was even more so.
The greater the room block, the more we could drive our Corporate Rate – and, more importantly, our Best Available Rate and Packages on our own website.
Groups Bring Their Own Challenges
When groups confirmed, however, the real work begins. The saying is true: “sales sells operations nightmares”!
When a group confirmed, a member of the sales team would pay a visit to the hotel manager – when she heard our knock, she knew that a group bringing some operational challenges had arrived. Those operational challenges could be a mass group arrival, breakfast or even parking for the coach.
An Ideal Group
A perfect group would consist of 150 rooms arriving on a Sunday/ Monday and departing after 3/4 nights. To achieve this, it’s key to use rate to incentivise a Sunday and Monday arrival. A group arriving on a Wednesday, for example, would displace too much Corporate and Leisure travel. If one group did not consist of 150 rooms, the new goal would be to get 3 or 4 groups in house adding up to that total room block.
The fundamental goal of group business for any hotel is to get confirmed group business on the books early. After you have that, you can adjust your rates accordingly to maximise rate.
All of the above is the ideal scenario for any mid- to large-sized hotel. However, adding an extra 200 bedrooms to your property isn’t the only way forward! There are plenty of other opportunities for hotels to maximise occupancy levels whilst still growing your average rate.
Achieving rate growth is a challenge, whether you’re city centre property in London or situated on Ireland’s far west Dingle Peninsula. However, the key factors and influences are comparable for every property, and the questions required to challenge any team to achieve the rate growth goal remain constant.
Do we need that business from that channel? How much did it really cost us? Could we have got more on rate?
When you start seriously asking yourself those questions, you’ll come up with the innovative solutions you need to see strong rate growth.