Now you have been successful in setting up your B&B or guest house and you have complied with all the legal requirements for guest houses – congratulations. The next step is very critical in the success of your business – setting up your rates. Setting up rates is a fine balance. It can either make or break your business. If you charge too high, you risk losing customers to your competitors and if you charge too low, you run the risk of making little to no profit and worse failing to breakeven!
Here are the tips to set up your guest house rates:
The first step to setting up your rates is doing your research. Look at what other establishments in your area are charging. You are going into competition with them and you are probably going to attract the same customers that they already target, charge around what they charge too.
For example, if you have established a 3-star guest house and 10 3-star B&Bs and guest houses around your area are charging between R500 to R1000 per room per night, then your rates should be within that bracket, even if you feel that your facility is better than those who are charging R1000. Your rates are a great marketing tool and if your guests feel that you are giving them good value for money, they will come back or they will recommend you.
Running a guest house also costs money. As the guest house owner, it is important to understand what your monthly costs are to run your business. You have to know your fixed costs and variable costs.
Fixed costs are what you will have to pay monthly, regardless of your occupancy. They include the following:
Variable costs include the following:
As a rule of thumb, try to limit your operational expenses to about 40% of your income or less. Let’s say you are running at 10-room guest house and your monthly expenses when you are fully booked is R55 076, you will calculate your rates using the following method:
= R55 076 x 100 ÷ 40
= R137 690
Next, calculate the number of rooms to be sold per month.
(10 rooms) x (7 days) x (4 weeks) = 280 rooms
Next, calculate the single and double rate:
The single rate per room should be at least: R137 690 ÷ 280 = R491.75
The recommended double rate should be about: R491,75 x 1.33 = R654.03
Round these rates off to psychological rates of about R499 (Single rate) and R659
The above-mentioned rates will only be applicable if they compare favourably with the rates that guests are prepared to pay and within the rates of competitive guest houses. Always try to establish rates a bit lower than the major competitors and create client perceptions of a good value for money. You are a newcomer and you want to start with a high occupancy rate. You will increase your rates later should the need arise.
The accommodation business is seasonal. There are times when you will get a lot of customers and there are times when the demand is low. Offer special rates during low season and charge a little more during the high season. This will help sustain your business even during the dry spell. In hospitality, we say ‘1 night lost is 1 night lost forever’.
Most B&B and guest house owners are usually tempted of charging more on OTAs to recoup the commission they pay. Do not fall into this trap. It is like shooting yourself in the foot! Online travel agents like booking.com, Expedia, etc spend a lot of money to market your property and their brands. They have a huge customer base and if you charge higher rates than the ones you advertise on your website, you will deter guests from booking.
Believe it or not, setting up your rates to R899 sells better than R900. Try it and watch the difference.
R499 per person sharing per night sells better than R999 per room per night.
Because the rates of an establishment are such an important consideration when people are deciding whether to buy your accommodation, you can use your rates very effectively as a marketing tool. For example, use special rates as an enticement to get people to stay over, perhaps in the low season or during slow times. Once they have experienced your wonderful service and facilities, they may consider paying the full price on the next occasion or they may refer other people to you.
Try to avoid the following pitfalls when setting your rates:
In general, your prices must be:
“Quality is remembered long after price is forgotten.” – Aldo Gucci.
Are you a B&B or Guest House owner? Where are you based? Did you find this article helpful? We would like to hear from you. Please leave a comment below.
Hospitality Coach • Speaker • Consultant