Industry  |  3 June 2022  |  Eva Lacalle  |  4 minute read

Why is rate management important in hotels and how can you improve it?

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Rate management is important in hotels because it is key to profitability, and pricing is one of the factors that most affects guest’s purchasing decisions. Maintaining a balance between prices that allow hotels to generate revenue while at the same time attract guests is essential to an effective revenue management strategy. With the right tools and integrations with your property management system or hospitality cloud, you can without a doubt improve and optimize your strategy.

In this article we’ll look more in detail about what rate management is, why it’s important in the hotel industry, and how to improve this process. The better your process, the more you’ll be able to boost your revenue by having optimal rates. Keep reading to find out the keys to a successful strategy.

 

What is rate management for hotels?

Rate management is the process by which the hotel industry controls rates by adjusting prices based on various factors such as length of stay, season and day of the week. Through this process, hotel revenue managers can keep prices competitive based on multiple market factors and maintain rate parity across distribution channels.

Through a robust revenue management strategy, hotels can ensure that they remain competitive and ensure profitability no matter the time of year or occupancy rate at any given time. By using the right front office software you can create rates and rules that best suit your property in order to achieve growth. Shortly, we will discuss in more detail the different features you should look out for to help facilitate this process.

Find out more about revenue management and why it’s important.

 

Why is rate management important in the hotel industry?

Rate management is important in the hotel industry because it’s the key to profitability and growth. By controlling prices in a flexible manner, you’re more likely to position yourself ahead of the competition. Seeing as price is one of the elements that most influences purchasing decisions, it’s important to make strategic decisions informed by big data, market analytics and business intelligence.

With the right management strategy, pinpointing the right metrics and understanding the market dynamics, you can find a balance between profitability and revenue management that allows your hotel to unlock the key to a successful business. Let’s take a look at some more reasons why this practice is important in the hotel industry.

Ensure rate parity

It’s important to achieve rate parity across channels, because it helps provide price transparency and ensure that prices are uniform across the different distribution channels. By keeping track of your prices and making sure they are the same across channels, you create a better image of your brand, which can help contribute to brand loyalty, and may even contribute to direct bookings. Learn more about rate parity.

Reduce the risk of pricing errors

Controlling prices and keeping track of them on a daily basis helps reduce the risk of pricing errors, which can be detrimental to your hotel’s profitability. Using revenue management tools to manage prices helps you to better control prices based on market factors such as supply and demand. This ensures that you are generating the most income per available room per night. 

Increase revenue

A strategy for managing rates is crucial to increase revenue. This means that you can offer competitive pricing that leads guests to book at your hotel over the competition. Even if your hotel isn’t at 100% occupancy, by pricing higher during peak season you can optimize the revenue when your hotel is at full capacity so that your hotel is profitable even when you aren’t at full capacity. It’s a matter of maximizing earnings when demand is high.

 

How to improve the rate management process in hotels

Because rate management is such an important process in hotels, it’s important to have a tool that helps make this easier in order to avoid manual tasks that create inefficiencies. With Mews’ revenue management software you can improve rate management by setting up base pricing and creating flexible restrictions and rate dependencies, all which will help optimize your revenue. 

Let’s take a look at each of these features to better understand how to improve the process.

Base pricing

Whether you’re a one-star hotel or a five-star hotel, your base rates will vary. This is why having a base rate is key as a starting point. Once you have the starting point, you can better manage price fluctuations. Setting up a base price allows your hotel to ensure that you are getting a minimum income based on occupancy. Base pricing is one of the keys to a successful strategy. Learn about the 10 most successful revenue management strategies.

Dependencies

While you may have a base price, there are a lot of dependencies that will influence how your prices fluctuate throughout the year. With a tool like Mews you can create these dependencies with the revenue management software, so that when the base rate changes, so do these dependencies.

Categories

Each category of rooms, whether that be sea-view, deluxe suites, or standard rooms will have a standard base price, but you can make your life easier by having these categories adjusted at once. This means that when the base rate changes, so do the prices in each category level. Having the ability to streamline this process is fundamental to a successful operation and ensures that prices remain standardized across categories.

Price override

There’s an exception to every rule, and being able to compensate for these exceptions is key to improving your price management. In order to put control into the hands of hoteliers, Mews allows you to override rates depending on specific dates, days of the week and space categories.

Flexible rate restrictions

Prices will change based on many factors; whether it’s a public holiday, if there’s a conference in the city where your hotel is located, or because of occupancy rates. With Mews you can set these parameters and automatically adjust prices based on these parameters. Flexibility is key to improving the overall process.

Conclusion

In this article we’ve looked at what rate management is, why it’s important in hotels, and how to improve the process. Having the right tool will help you create rules and dependencies that help make the process more manageable and require less manual work to get it done. This way your revenue managers can focus on making the important decisions about pricing that will positively influence profitability instead of manually adjusting prices.

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Author:

Eva Lacalle | 3 June 2022

Eva has over a decade of international experience in marketing, communication, events and digital marketing. When she's not at work, she's probably surfing, dancing, or exploring the world.

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