Defining Rate Plans

Created by Katrín Magnúsdóttir, Modified on Thu, 28 Sep, 2023 at 1:00 PM by Katrín Magnúsdóttir

How to decide which (online) rates you need.
Rate Plans in their simple form are the rules on which you will want to base all your pricing. 

By default, have a rate that will be your base rate. That rate can be Room only (no meals included) and with your best cancellation policy (often the flexible one, with free cancellation up to just a few days prior to arrival).

 

The most typical other Rate Plan to add to that, is the Non-refundable option with the same mealplan (room only).

 

What many hotels choose to add is the same rate plans, but with included breakfast. 

 

Then there can be options such as Advanced Booking or Last Minute, set being bookable at a specific time prior to arrival. For example, the Advanced Booking can be available only for guests booking their stay 30 or more days in advance. Last Minute restricted to bookings done 0-3 days before arrival etc... Of course, each of them will have the best fit mealplan and cancellation policy. 

Best practice is to add your bestselling mealplan (whether room only, breakfast included or in some cases half or full board) on those rates. Being so restrictive, adjust the cancellation policy to the demand you see happening. It is most common that the Advanced Booking is on non refundable (full deposit) policy. Last Minute can be on any, depending on what is the market situation, what your competitors are offering, and how flexible your cancellation policy on your base rate is.

 

For larger accommodation units it is common to set rates with minimum length of stay restriction on any rate, depending on their operations and length-of-stay pricing strategy.  

 

Always make sure to know your cancellation percentage, best selling rate plan/ conditions, mealplans and room types. Know your guests´ behaviour in terms of how far in advance do they like to make the booking, which room types sell first, which cancel the most and when, and which rooms increase your revenue by guest´s postponed decision to upgrade. Know how your competitors have it, and know the difference between your direct, online and offline sales channels. By knowing your cost of sales, it will be easiest to focus on the way of selling that has least cost and most revenue. 

These factors will help you decide how to set the prices on each of the rate plans. Setting derived rates will make things easier, but be sure to update if you notice guest behaviour/ demand change. 

 

Since each of the above described rates offer different conditions, and should be priced differently. 

Let´s look at a simple example for a Standard Double Room. 

Say you have a base rate: room only - flexible cancellation (free to cancel until 3 days before arrival) - bookable at any time - no restrictions in regards to length of stay. 

The other offered rate is more restrictive for the guest: Non refundable Rate, and once they book they cannot cancel for free. They also might need to book it in advance (if talking about Advanced Booking), so a 10-20% discount from the base rate, on average, will be the best tool of convincing the potential guest to make that choice. For the guest it is a risk in case anything changes and they need to cancel, for the hotel it is less revenue but more security. And if you play your cards right and do some yielding, set the right "book until" number of days, you might turn it into a great revenue increase with the flexible bookings. 

You maybe want to offer an additional discount if the guest is staying for 3 or more nights, for the same non refundable cancellation policy. That means you are potentially saving on i.e. cleaning or other expenses so the lower rate does not affect you as much, and you are being more competitive in the market earning higher chances to get that guest. 

Make sure to monitor the market, occupancy demand or any factors that might affect your sales, and adjust your rates regularly!

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