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How to Set Up Your Guest House Rates | Ultimate Guide to B&B Management

 

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:

 

Tip# 1

Do your research

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.

 

Tip# 2

Calculate your overheads

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:

• Mortgage / rental fee / rates or levies, depending on where you are situated
• Insurance
• Utilities
• DSTV
• Staff salaries
• Web hosting, etc

 

Variable costs include the following:

• Food
• Cleaning supplies
• Guest amenities (shampoo, shower gel, tea/ coffee making facilities, etc)
• Telephone bills
• Marketing, etc

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

(Double rate).

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.

 

Tip# 3

Set up low season and high season rates

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’.

 

Tip# 4

Offer the same rates with your OTAs

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.

 

Tip# 5

Pricing strategy

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.

 

Summary

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.

 

• Never compromise on the quality of your service, whatever your rates.
• Other ways of using your rates may be to:

• offer better value at a better price than your competitors;
• offer special rates as an incentive to a valuable source of guests – for example, a major local institution that requires accommodation for visitors on a regular basis;

• reduce your prices outside of peak periods;
• give discounted rates for group reservations. It is always worth your while to give special group rates and to let tour operators stay free of charge when they bring a group with them;
• offer lower rates to guests staying longer than a week;
• offer weekend specials, low-season specials, midweek specials or bridal specials;
• apply the principle of yield management when changing your rates. This means that you need to be flexible and that under certain circumstances you may sell the room for less than your usual rate. It is far better to sell your room at cost than not to sell it at all. Remember, you can never sell last night’s empty room again.

 

Try to avoid the following pitfalls when setting your rates:

• Setting rates that are not market-related. Rates should not be set to offset a high bond repayment or to recoup high expenditure on the building or interior decorations. The fact that you may have expensive imported curtains does not really make any difference to the basic rate. Do not expect your guests to pay for your bad planning. First establish what the market will bear in terms of rates before deciding how much you are going to spend on decorating your guest house (rather than doing things to other way around).

 

• Compromising on the value of the product you offer. If you cannot afford a buffet breakfast, economise by preparing an individual meal for each guest. Organise your operations to minimise waste and guests will feel that they are getting special treatment.

 

• Falling into the trap of being greedy when things start going well. Everyone – including foreign visitors and large companies – is price-conscious.

 

• Underestimating the value of price as a marketing tool – and its potential to drive guests away. Sudden extreme increases, and even the sudden lowering of rates, will make valuable guests feel exploited. Take a long-term view and be prepared to build your guest house business slowly, with gradual increases in your rates.

 

• Not making sure that your normal rates allow for the payment of commission.

 

In general, your prices must be:

• Low enough to attract customers to book
• High enough to give your business a profit

 

“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.

 

 

Kindest Regards,

 

Samkeliso Nkwanyane

Hospitality Coach • Speaker • Consultant