How to choose the correct pricing software at your independent hotel: From no tool to the right tool

If you’re running a hotel, it goes without saying you want to fill all of your rooms for the best possible price, ultimately leading to improved profitability. 

That means getting your room rates right is essential. To the uninitiated it may seem like a  simple exercise but a lot of work goes into room pricing. And, unfortunately, without pricing software at your side all this time and effort may be going to waste as you will still leave money on the table and allow your competitors to move past you.

A correctly formulated room pricing strategy will drive incremental revenue at your hotel and elevate your business performance to a new level. 

The preeminent room rate strategy today is known as dynamic pricing. 

With dynamic pricing, room rates are not fixed but are adjusted based on market demand, competition, time of booking, customer behavior, occupancy, and other factors that can influence booking patterns.

However, it's practically impossible to manually collect, analyze and adjust room prices in real-time before the data loses its relevance. This is where technology steps in - in the form of room pricing software.

What do we mean by pricing software? 

Pricing software is an umbrella term for inventive intelligence tools that empower you to optimize your room pricing by providing data-driven price recommendations or even fully automating your room rates. 

These tools simplify the process of monitoring and interpreting internal and market data, enabling you to position your room inventory at a price that ensures maximum revenue from each reservation.

You may be thinking that you can do this all yourself, and you certainly can. But, is that the most effective and efficient approach? 

Let’s examine manual hotel-pricing and get to grips with why this strategy may not help you hit your business goals.

The challenge of manual hotel-pricing 

You know your market better than anyone and setting room prices yourself appears to be cost-effective. But, it is likely to be counterproductive when it comes to fully optimizing your rates and maximizing room revenue.

In all likelihood, this approach may lead to undesirable results in the long term. It’s almost guaranteed that the money you spend on room pricing software will pay itself back with increased room revenue much sooner than you think.

Of course, it’s free of charge to set your own rates but how much money are you losing out on, without an automated, real-time, dynamic pricing strategy in place? 

Human made pricing decisions will unavoidably let money leak away, as these prices aren’t informed by accurate, timely data, the price is likely outdated when it’s set, and there is some degree of guesswork involved. 

When you pit manual pricing against an automated pricing tool that is using machine learning and AI to track and analyze billions of data points, generating tailor made room prices for your property - it’s a no contest.

Additionally, if your compset are beginning to implement a dynamic pricing strategy powered by software, they are at a distinct advantage. They will start seeing their revenue grow a lot faster than yours, in no time at all.

And, on the topic of time. It’s no secret that manually monitoring, analyzing and setting is a very time consuming and somewhat difficult process. Just think - if you had that task taken care of, there would be no more pricing conundrums and plenty of hours freed up in your day to focus on guest satisfaction.

What are the benefits of using pricing software?

To truly perfect your room prices, you need pricing software to handle the substantial workload on your behalf.

Running your hotel with automated dynamic room pricing you will start to see the following benefits:

Time saving: Automatic pricing recommendations eliminate the need for manual rate research and analysis, so your decision making process is streamlined, freeing up significant time to spend delighting your guests.

Preventing revenue loss: Automating your room pricing strategy mitigates the risk of manual pricing inaccuracies and human error, effectively preventing potential revenue slippage.

Capturing revenue opportunities: The ability to adjust room prices based on real-time forecasts and competitor data allows you to capture every revenue opportunity, regardless of demand fluctuations. This enables you to target different guest segments depending on the season and your active distribution channels.

Competitive edge: Swiftly understanding and responding to demand and competitor pricing with the appropriate price point enhances your competitiveness. If you can provide better value at a similar price to your competitors, you're likely to attract more bookings.

Optimizing occupancy: Price optimization aids in managing occupancy levels. During high-demand periods, higher prices can prevent overbooking, while lower prices during low-demand periods can draw more guests. Implementing length of stay restrictions depending on the season can further optimize occupancy.

Now that we’ve established that having pricing software is certainly a better option than using no software, it’s time to see what software is right for a smaller independent hotelier looking to optimize their room rates.

When aiming to optimize your room pricing with a dynamic pricing strategy, solutions generally fall into two categories. There is a Revenue Management System (RMS) and a Pricing Optimization Tool, each with their own use case depending on your business needs. Let’s take a look.

Revenue Management System: In-depth insights or overkill?

An RMS is a suite of advanced tools that facilitate, simplify and partially automate the process of hotel Revenue Management by analyzing historical, future, competitor, and market data in real-time.

With features such as detailed analysis and pricing recommendations, they’re typically built to be integrated with a range of systems at your hotel, drawing in your data and data from third-party vendors.

RMSs are undoubtedly comprehensive commercial solutions that come with significant benefits. They can help hoteliers optimize pricing and occupancy rates, provide data-driven insights for smarter decision-making and competitor analysis, and increase operational efficiency. 

Overall, these advantages can contribute to improved revenue and strategic planning for hoteliers. Yet, there can be notable drawbacks, especially for smaller independent hoteliers:

Cost: RMS can be quite expensive, especially for small hotels. The cost of the software, along with the cost of training staff can be a significant expense.

Complexity: RMS are often sophisticated systems that require a certain level of expertise to use effectively. This can be a challenge for small hotels that do not have dedicated revenue management staff.

Integration issues: RMS needs to be integrated with other hotel systems like Property Management Systems (PMS), Central Reservation Systems (CRS), and Customer Relationship Management (CRM) systems to receive the full benefit. This integration can be complex and time-consuming.

Typically, an RMS isn’t the right fit for a small independent hotel seeking to automate a dynamic pricing strategy, who isn’t in need of extra, more advanced features - which when brought together equate to revenue management software, not purely pricing software.

Such systems are more suited to seasoned revenue management teams with larger budgets, who aim to automate an all-encompassing revenue strategy, not just pricing.

With that being said, is there a happy medium? For smaller independent hoteliers, a Pricing Optimization Tool could well be the answer.

The perfect balance: A Pricing Optimization Tool

A pricing optimization tool automates tailored, dynamic pricing at your hotel. Leveraging real-time data, this tool delivers pricing suggestions for hotel rooms (up to a year ahead), ensuring you are always ready to maximize your Average Daily Rate (ADR) and seize every revenue opportunity, without distracting you from the essential task of running your hotel. 

The sole focus of this tool is to successfully automate a dynamic room pricing strategy, so you can make better decisions based on data analysis, and optimize Revenue Per Available Room (RevPAR) as easily as possible, with no headaches.

For small hotel owners with little time and resource to conduct lengthy analysis of competitor rates, market trends and historical data, this is your sweet spot. You drive more revenue with the right price and labor intensive tasks are removed from your workload, giving you more time back to look after your guests.

Increased revenue and improved efficiency are two key benefits of using software of this kind. Now, let’s take a glance over the advantages of a pricing optimization tool for independent hoteliers:

Budget: While an RMS sits on the higher end of the cost spectrum, a pricing optimization tool is relatively inexpensive and affordable for most, if not all independent hotels.

Simplicity: Pricing optimization tools are easy to use, designed for a singular goal - to automate dynamic room pricing for you. They are also generally plug and play, without lengthy installation and are straightforward to operate without unnecessary bells and whistles, relying on a clear and straightforward user interface. So you can start optimizing your prices immediately after installation.

Control: With pricing optimization software you can set your pricing to be fully automated if you want, but there is always an element of control involved. Leading tools have flexible settings that can be adjusted to suit your requirements, with the ability to override suggested prices when you feel like it.

By handing over the burden of rate setting to machine learning you are carving out a competitive advantage in your market.

However, not all pricing solutions are made equal. When you’re in the market for new software it’s important to do your research, so you land on a solution that is right for your business with the best possible functionality.

What to look for when choosing a Pricing Optimization Tool

As a small hotel owner, here are some aspects that you should take into consideration:

Usability: Pick a tool that is easy to learn and straightforward to operate, so you can get to work immediately. This will usually present itself as an intuitive user-friendly dashboard, displaying pricing insights in a clear and visual way for more informed decision-making. 

Data quality: The saying 'garbage in, garbage out' is particularly relevant here. If the solution does not utilize accurate, real-time data, your pricing optimization efforts will be compromised from the outset.

Control: The tool should also offer customizable settings to maintain control over your pricing, including choosing between recommendations, full automation and the ability to override rate suggestions. 

Transparency: The tool should transparently reveal pricing calculation factors in just a few clicks, such as occupancy, competition, and demand.

Integration with your PMS: For maximum benefit it should integrate seamlessly with your existing property management system (PMS).

Installation: To start optimizing your prices right away after purchasing new software, consider cloud-based software that is painless and quick to install. 

Support: Prioritize providers known for excellent customer support. Just in case you run into any issues and have the peace of mind that someone is on hand to help.

Let automated data analysis do the hard work for you

An independent hotel operator’s day-to-day life is never easy, but in recent years it’s become more complex and time consuming.

Pricing optimization software opens up new realms of possibility. It enables you to become data-centric in your decision making without any of the inconvenience of intricate analysis.

Using the right software is now essential to stay competitive in your market and the longer you delay, the more opportunity you give to your compset to make a head start.

Pricing Manager by Lighthouse is the new pricing recommendation tool built specifically for independent hoteliers. It automates dynamic room pricing at your property, so you can maximize room revenue no matter the day or season, with little to no effort on your part, and without any prior revenue management experience needed.

With tailored and transparent AI-driven room price recommendations, drawn from the best data in the industry, you can capture new revenue opportunities and save time in the process. 

It instantly displays price recommendations for up to 365 days in the future, so there are no more manual updates and countless hours of estimating room prices, allowing you to focus your time on the guest experience.