Tips for passing on cost increases and raising room or other prices
New wage settlements for long overdue salary adjustments, rising energy costs and daily new announcements from suppliers, whether food, laundry cleaning or insurance. Everything is getting more expensive and this requires decisive action by entrepreneurs.
Good reasons to raise prices now:
- A reasonable commercial calculation must include that cost increases are also passed on to guests and customers. Those who do not pass on extraordinary additional costs through price increases have to ask themselves whether they were perhaps too expensive before the cost increase?
- Since many companies, indeed entire industries, are currently informing their customers about price increases, it is perhaps also a very good time.
Good reasons not to raise prices now:
- A price increase for hotels can lead to a decline in occupancy. Therefore, at least “good feeling” price increases should be avoided at all costs.
- The industry is far from recovering from the Corona aftermath. This means that reserves have been eroded. This fact would argue for an immediate passing on of rising costs. However, some types of travel are weakened anyway and decision-makers may consider whether an online meeting would not have the same success as a business trip or a face-to-face meeting.
An accurate calculation is always a prerequisite for a price adjustment. Here are the most important steps before adjusting prices:
1. determine the exact cost increases and work them into your budget. Do not rely on lump sums (such as personnel costs increase by xy %), but draw up a precise staffing plan with entry and exit dates and the wage adjustments for each position. It is very important to precisely quantify the resulting additional costs. Then divide the calculated additional costs by the number of realistically expected overnight stays, then you now know the surcharge that you theoretically have to achieve for each overnight stay.
2. In the next step, check whether savings are possible. Replacing suppliers who can offer cheaper rates, checking whether you are paying for IT licences that have not been used for a long time or limiting opening hours (for example at reception) can free up important resources. The same applies to digitalisation or sustainability projects, which are very often associated with the following savings. Perhaps company cars can be replaced with e-bikes or outsourced projects can be implemented more cheaply in-house.
3. Once the new cost situation is transparent, the next step is to examine the expected turnover. It is very important to determine the turnover shortfall that will result from rising costs. The goal is to achieve a secure result in the future through the measures to be planned now.
Once this key figure of the shortfall in turnover is known, the following questions should be clarified:
- How could a price adjustment be made that is gentle on occupancy? Probably hotels with good revenue management strategies and dynamic pricing will find better answers here than hotels with fixed or seasonal prices. It is very likely easier to distribute most of the necessary price increases to the days with high demand than to the already weak “sour cucumber days”.
- Additional, effective sales strategies and additional distribution channels can also compensate for lost sales after a price increase. The expansion of guest segments, which currently tend to grow, could be a sensible strategy.
- It is also important to ask whether existing contracts with tour operators or business travel customers allow for a price adjustment during the year. Especially with high-volume customers, renegotiating a cost surcharge should be worthwhile.
Of course, other price adjustments (for parking, breakfast or other F&B offers) should not be excluded. Here, too, a professional calculation underpins the subsequent argumentation and the actual necessity. And again: 3 € surcharge on a bestseller in the restaurant, has a greater impact than a 2 € surcharge on the sleeper.
- Especially with good business partners, one should seek discussion in advance of an unplanned price increase.
- Perhaps a special strategy for regular guests is a good measure. E.g. initially being able to book at the old prices for a few weeks.
- Prepare the staff for possible discussions with customers and guests.Observe the effect of the adjustments in order to counteract in time if necessary. In the end, it is not the average price achieved or the occupancy that counts, but only the turnover per available room (RevPar), as it combines both key figures.
Budgeting- Without intelligent budgeting, there is no control in hotels
The RHC Hotel Controlling supp…