Establishing Room Rate

Room rate are the rate charged daily for a hotel room. Management must set room rates that will be profitable for the hotel, large enough to cover costs and reasonable enough to attract and retain the hotels targeted markets When developing a room rate, hotel needs to consider several factors: 1. 2. 3. 4. 5. 6. Rates of their primary competition Age of the hotel, including recent renovations and improvements Perceived value of the products and services delivered by the hotel Location Cost of the hotel and the return of investment (ROI) required by investor Any competitive advantages the hotel might have over its competition.

Two of the most common approaches to pricing your hotel rooms are as follows: Market Based Pricing - The assumption behind this approach is that a hotel can only charge what the market will bear; therefore, price is dictated by the competition and is an approach that allows the local market to determine the rate. This approach fails to take into account what a determined sales effort can accomplish. Top-Down Pricing - This approach is often used by hotels entering a new market or trying to identify a gap which is unfilled and still requires an element of cost-based pricing in order to ensure that the prices being charged are realistic and will result in an overall return on investment.