Why Getting Your Room Rates Right Matters More Than You Think
Updated: 31 minutes ago
Revenue Management | By Lucy Bright, Founder of Offsite Hospitality
When it comes to running a hotel or guesthouse, there's a natural temptation to measure success by how many rooms are occupied.
A full hotel must be a successful hotel, right?
Not necessarily.
One of the most important lessons I've learned throughout my hospitality career is that occupancy and profitability are two very different things.
You can have a property that's fully booked and still be leaving money on the table. Equally, a hotel operating at 80% occupancy could be generating more room revenue than one that's completely full.
The difference often comes down to pricing.
The Problem With Setting Your Rates and Forgetting About Them
For many independent accommodation businesses, pricing can become something that's reviewed occasionally rather than actively managed.
Perhaps you have a standard weekday rate, a slightly higher weekend rate and another price for the summer months.
It's straightforward, it's familiar, and it feels manageable when you're already juggling everything else involved in running a property.
But hotel demand doesn't follow a perfectly predictable calendar.
A concert, sporting event, local festival or even a change in competitor availability can influence how much guests are willing to pay.
If your rates remain the same regardless of what's happening around you, you could be missing valuable revenue opportunities.
And those missed opportunities add up.
Let's Look at the Numbers
Imagine two independent hotels, each with 20 bedrooms.
Both are operating over the same 30-day period.
Hotel A: Higher Occupancy, Lower Rates
Available room nights: 600
Occupancy: 95%
Rooms sold: 570
Average daily rate (ADR): £85
Total room revenue: £48,450
Hotel B: Lower Occupancy, Higher Rates
Available room nights: 600
Occupancy: 85%
Rooms sold: 510
Average daily rate (ADR): £105
Total room revenue: £53,550
Hotel B has sold 60 fewer room nights but generated £5,100 more in room revenue.
That's a difference of £61,200 if the same monthly revenue gap were maintained over an entire year.
Of course, this is a simplified illustration. In reality, pricing affects demand, and every property has different costs, booking patterns and market conditions.
But it demonstrates an important principle:
Filling every room isn't always the most commercially successful outcome.
Understanding ADR and RevPAR
You don't need to work in a large hotel revenue department to benefit from understanding two important figures.
Average Daily Rate (ADR) tells you the average room revenue earned for each room sold.
ADR = Room Revenue ÷ Rooms Sold
Revenue Per Available Room (RevPAR) measures room revenue across all available rooms, whether they were occupied or not.
RevPAR = Room Revenue ÷ Available Room Nights
Using our example:
Hotel A | Hotel B | |
Occupancy | 95% | 85% |
ADR | £85 | £105 |
RevPAR | £80.75 | £89.25 |
Hotel B achieves a higher RevPAR despite having lower occupancy.
Neither figure tells you everything about profitability, but together with occupancy, they give you a much clearer understanding of how your rooms are performing.
Why Your Competitors Matter
Your room rates shouldn't exist in isolation.
If comparable properties in your area are consistently selling rooms for £140 while you're charging £95, it's worth understanding why.
Are they offering a better product? Do they have stronger reviews? Is breakfast included? Are they benefiting from better positioning or simply responding to demand more effectively?
Equally, charging considerably more than your competitors without offering guests a clear reason to choose you can make your property less attractive.
Competitor monitoring isn't about copying everyone else's prices.
It's about understanding your position in the market and making informed decisions.
And importantly, your competitors aren't necessarily the hotels closest to you. They're the properties your potential guests are genuinely comparing you against.
The Danger of Discounting Too Quickly
When bookings slow down, reducing room rates can feel like the obvious solution.
Sometimes a targeted promotion is exactly what's needed.
But discounting shouldn't automatically be the first response to a quiet booking period.
Before lowering prices, I'd want to understand:
Is demand genuinely lower, or are guests booking later than usual?
Are your rates competitive for the type of accommodation you offer?
Is your property visible across the right booking channels?
Are there restrictions or availability issues preventing bookings?
Is your website making it easy for guests to book directly?
Reducing your rate from £120 to £90 might generate additional bookings, but it also means you need to sell more rooms to achieve the same revenue.
And once you factor in OTA commission, housekeeping, laundry and other costs, the financial benefit of those extra bookings may be smaller than expected.
A cheaper room isn't automatically an easier room to sell, and an additional booking isn't automatically a more profitable one.
Pricing Should Respond to Demand
Effective revenue management doesn't mean constantly increasing prices.
It means understanding when to increase them, when to hold them and when a carefully considered reduction might help.
For example:
High-demand periods
Local events, school holidays, popular weekends and periods of limited availability may create opportunities to achieve higher average rates.
Low-demand periods
Rather than immediately discounting, consider targeted offers, value-added packages or promotions aimed at specific guest markets.
Booking pace
If rooms are selling significantly faster than usual for a particular date, it may indicate that your current pricing is too low.
If bookings are coming in more slowly than expected, investigate why before making changes.
Length of stay
A two-night reservation isn't always more valuable than two separate one-night bookings. It depends on the rates, demand, costs and the possibility of selling the remaining availability.
The aim is to make decisions based on evidence rather than guesswork.
Don't Forget the Cost of Distribution
Room pricing is only part of the equation.
Where a booking comes from can have a significant impact on how much revenue your business retains.
Imagine selling a room for £120 through an online travel agent charging 15% commission.
That's £18 in commission, leaving £102 before your other operating costs.
A direct booking at the same room rate could avoid that particular commission, although direct bookings still have their own marketing, payment processing and technology costs.
This is why pricing and online distribution should work together.
It's not simply about how much you charge. It's about how much revenue you retain and what it costs to generate each booking.
You Don't Need a Large Revenue Department
Revenue management can sound like something reserved for large hotels with sophisticated systems and dedicated commercial teams.
But the principles are just as relevant to a 10-bedroom guesthouse as they are to a 100-bedroom hotel.
In fact, when you have fewer rooms available, every pricing decision can feel even more significant.
You don't necessarily need expensive software or complicated forecasting models to start making improvements.
You need to understand your booking patterns, monitor your market, review performance regularly and be willing to adjust your approach.
The important thing is that pricing becomes an ongoing part of running your business rather than something you revisit only when bookings are slow.
Is Your Property Making the Most of Its Rooms?
Having worked across hotel operations, reservations and revenue management, I've seen how important it is to look beyond occupancy figures when assessing a property's performance.
At Offsite Hospitality, I help independent hotels and guesthouses take a more informed approach to pricing, distribution and commercial performance.
Sometimes that means identifying opportunities to increase average room rates.
Sometimes it's improving visibility, reviewing booking channels or finding ways to generate more profitable reservations.
Every property is different, and there isn't a single pricing strategy that works for everyone.
If you're unsure whether your current room rates are working as hard as they could be, I'd be happy to take a look.
Request Your Free Property Review
Discover potential opportunities to improve your pricing, online visibility and booking performance with a complimentary initial review from Offsite Hospitality.
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