Understanding how to set seasonal pricing to maximize hotel revenue

So much in revenue management is governed by supply and demand.

And in fixed-capacity scenarios like those of the hospitality industry, demand is all-important.

This much is obvious, as is the fact that demand fluctuates seasonally: operate a ski lodge and the phones will be quiet in summer; run a beachside hotel and snow won’t entice guests. All of which rightly implies prices correlate.

But don’t face this reality fatalistically; you can create demand, and even though prices drop, there are data-backed techniques to maximize hotel revenue in low-demand periods.

Take Málaga in Spain. Sun, sand and sea at Christmas might be a no-no. But for a change of scene in December, you could do worse than this historic coastal city.

And that’s what we’re exploring: maximizing revenue all year round.

Why you need a seasonal pricing strategy to capitalize on high demand – and react well to low demand

Maximize revenue during peak travel periods

During periods of increased demand, it's possible to elevate your room prices to make the most of the average daily rate (ADR). There are limits – don’t forget you have a brand and reputation to maintain, and your competitors can undercut you – but guests will expect to pay more at these times as long as it’s a fair price.

Occupancy is rarely a problem in the high season, so seasonal rates being raised allows hoteliers to maximize profits by capitalizing on this heightened demand.

By how much, you might ask? Well, by analyzing data on Rate Insight, we can see, for example, that hotels in Las Vegas were able to charge as much as 139% more than average during May’s Electric Daisy Carnival.

This isn’t profiteering; it’s a reflection of how keen travelers are to find accommodation and enjoy a positive guest experience, and these increased rates will help to offset the lower rates you charge in the off-season, the subject of the next section.

Maintain high occupancy rates during the off-season, a.k.a. low season

In times of reduced demand, strategically decreasing your rates – while keeping an eye on your compset to ensure that you don’t sell yourself too short – will enhance room occupancy, the key metric during these periods.

Get it right and you’ll keep your hotel full all year-round by setting competitive seasonal rates to beat the competition – but not by too much – or offering discounts to encourage bookings.

It’s all about familiarity with occupancy and its relationship with revenue. If you find that sweet spot, you can maximize revenue and stay profitable even though you’re charging less per room; just bear in mind your fixed costs.

If you can accurately monitor demand, you might not be able to guarantee full occupancy when pick-up is low but you can “stay the course and achieve a solid ADR” like Lisbon’s Inspira Liberdade Boutique Hotel, which saw this “KPI grow by roughly 10-15%” when using the right tools.

Remain competitive during the shoulder season

Of course, time of year is complex and seasons aren’t really binary; they have blurred edges. Which brings us to your shoulder seasons. Put simply, these are the periods between your peak and off-seasons (or low season).

Recognising that various months in your calendar can’t be neatly packaged into one box or the other, with off-the-shelf seasonal rates and promotions to match, might not be a convenient message, but it is an important truth, illustrating the need to keep a close eye on competitor rates and market demand, and act accordingly with your prices, offers and other activities.

How to create a strategy and set seasonal pricing

We’ve looked at the theory: why we must recognize the part that seasonality plays in affecting demand and therefore rates; and how maximizing revenue means focusing on (justifiably) higher prices for increased profitability in the peak season, and focusing on occupancy at lower but sustainable prices in the off-season.

But how do we turn these insights into actions that will maximize revenue at your hotel?

Let’s explore the key strategies.

Assess how seasonality impacts your hotel

You probably have a sense of when your peak and off-seasons are. However, in a world of dynamic pricing, where prices can change every day based on demand, relying solely on intuition may not be enough.

So supplement your broad understanding by assessing metrics such as:

• ADR

• Revenue per available room (RevPAR)

• Occupancy

• The way the three core metrics about correlate with each other

• Various profitability metrics

• Any other stats you can extract from your property management system (PMS), central reservation system (CRS), revenue management system (RMS) or business intelligence tools

The more future and historical data and the granular it is, the better, and if goes back five years, that’s a good starting point – but further will help to dilute the atypical effects of Covid.

Identify your peak seasons

We provide a long list above but ADR is the most important for identifying your peak season. Occupancy rates are helpful too. As we’ve discussed, though, by judiciously reducing your prices in the off-season, you can increase occupancy, so be mindful of this confounding variable.

Here are some common examples of peak seasons in the industry:

• The summer months for holiday-makers – these differ in the southern hemisphere, which means what’s summer for you won’t necessarily be summer for your guests if they’re traveling from afar

• The winter for those going skiing

• Conference season for business travelers

• Times in the calendar when festivals and other local events cluster

• School and religious holidays

Map these to your calendar as recurring items.

Identify your off-seasons

It’s tempting to suggest that to identify your off-season, you should simply look at the other ends of the above metrics’ spectrums.

This is true but only up to a point – remember our word of caution over occupancy, for example.

Sample off-peak seasons include:

• School term times – rates should be lowered but you can still capture demand among childless couples looking for a short break, for example

• Winter months at beach resorts – but remember that Málaga hotel we mentioned in the intro

• Summer months at ski resorts – but remember, snow won’t be the only attraction in your area, so create packages that cater to guests lured by other activities

Consider other seasons

As we’ve discussed, seasons aren’t always black and white, so it’s important to consider ‘mini-seasons’ that don’t comfortably fit into better-defined longer seasons, such as:

• That one short local festival that comes around at more or less the same time every year

• Public holidays

• Short week-long holidays in the middle of school terms

Establish a base room rate

Now you have a handle on your seasons, it’s time to set your base rate.

This is the price you typically charge for a room before you adjust to reflect seasonal demand. You can consider it your average rate, the one you might charge if everything were constant throughout the year, and it should always be your starting point.

To set your base rate:

• Define your compset

• Appraise their rates

• Analyze your fixed and variable overheads – clearly, your rates should exceed these

• Factor in everything else you might reasonably be able to sell beyond the basic cost of a room

• Set targets for profits

While you’ll adjust it for different seasons, getting a base rate right is fundamental to a good pricing strategy. It acts as your baseline for increasing or decreasing rates and ensuring you charge a competitive seasonal rate while still being fair to guests that book with you.

Determine minimum and maximum rates to set seasonal pricing

What’s the absolute minimum you’d be prepared to charge, one that keeps you profitable and doesn’t damage your reputation?

An appraisal of your compset and overheads will be a good starting point in establishing this figure, and it then sits at the lower end of your range.

At the other end, when demand is high the only limit is what you feel is reasonable and what your competitors charge if you don’t want to be undercut.

Once you have these parameters in place, seasonally adjusted prices can be placed on this spectrum – although there will be exceptions, pandemics being a recent example.

Recommendations vary but reducing your base rate by somewhere between 10 and 20% in the shoulder season is typical, and you shouldn’t be surprised at having to discount by more than a half in your lowest seasons.

Measure the impact of your pricing strategy

Hotel revenue management is about learning from the past and refining for the future, so periodically measure the success of your pricing strategy by:

• Monitoring bookings

• Comparing current to historic revenue

• Assessing your profitability

By doing this, you can identify lost opportunities and adjust for the future. This way, you can optimize all of your metrics, including occupancy and revenue.

Which brings us to our final section.

Gain insight into your pricing strategy’s success with the right revenue management tools

None of this is possible without sufficient data and the right tools.

Revenue management software – such as a commercial platform that deals with forecasting, demand, pricing, parity and revenue – provides the essential means for hoteliers to make informed decisions, either well in advance when setting strategy or on the fly when making tactical adjustments day-to-day.

Seasonality is one of the most important factors to take into account in your analysis, and such software offers invaluable insights into how you can set competitive seasonal pricing and monitor the success of your pricing strategy.

As we said at the outset, demand is all important. You might feel that it constrains you – and it does – but it only constrains you within limits and there’s all to play for.