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How Do Hotels Decide How Much to Charge for Rooms?

Receptionist handing key to guest.

I love to travel and to write about traveling, such as how to stay in hotels that are luxurious yet affordable. In order to understand the complete cost of travel in terms of dollars, I need to see what the hotel truly costs. This way, I see how much I am losing by staying in a hotel over another type of accommodation, such as a bed and breakfast or a hostel.

If I want to make sure I am getting my money’s worth, I start by seeing how hotels decide how much to charge for rooms. Here’s what I’ve learned so far to help you see the formula behind the real costs of traveling and hotel room accommodation.

Room Pricing at Hotels

Mature couple at the hotel reception.

Room pricing is part of hotel management and involves revenue intelligence in the hospitality industry. Along with having to calculate how much a hotel room costs, revenue management may change the price of a hotel room based on a variety of factors at any time of the day. This fluctuation has to do with the market, as well as guest demand at the hotel facility.

The goal, after all, is to maximize profit, and hotels do this to the penny and the second with room pricing.

So how much do hotel rooms cost for guests in the US? According to Hotels and Discounts, “U.S. hotel rooms cost, according to an analysis of 100 hotels, an average of $385. The cost per capita for a city is $177.

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In 2016, the average rate per night was 36. In order to determine how much the rate will be in 2017, I triangulated data. A guest pays about $80 per night for accommodations.”

This varies according to the geographical location, for the most part, as well as by travel seasons. The off-seasons are the cheapest times for travelers, and when room pricing is at its lowest. Busy seasons provide the highest rates and most turnover for hotel rooms, which is also when hotels make their most in profits.

I took a look at Los Angeles, California, for example, where I have traveled and found it to be the most expensive. Here on the West Coast, the hotel room rates are surprising. “Hotels in Los Angeles that are rated 3 stars generally cost 242.85/night, but on average, Jj Grand Hotel is available for 48% less than the average rate in the area.

You can usually enjoy a stay at Jj Grand Hotel for $128/night,” said Hotels Combined. I am shocked you can find a hotel room for three stars at slightly over $100 a night in LA.

Calculating Charges for Rooms in Hotels

Hotel receptionists at reception desk.

The amount a hotel charges for a hotel room is based on the market rate for that category of venue. If you are a hotel that is beachside, for example, the rate is much higher than a hotel in a back alley. The charges also differ based on the price of the accommodation.

A Hilton hotel will have greater expectations than a Motel 6. This is also where hotels differ in how they attract or lure in hotel guests.

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Ultimately, the factors that go into room pricing for hotels involve:

  • Level of competition
  • Location of the hotel
  • Market demographics
  • Size of the hotel brand and individual location
  • Types of amenities provided by the hotel

A hotel pricing strategy is necessary for a hotel to determine the rate to charge for individual rooms.

Hotel Pricing Types

Hotel bell and reception sign.

Once a hotel has a set rate determined by each of these factors, the rate of a room will fluctuate based on a number of variables. These can be honed in with hotel pricing types. There are several hotel pricing types that hotel managers can use in this area of revenue management:

  • Discount pricing
  • Dynamic pricing
  • Length of stay pricing
  • Open pricing
  • Penetration pricing
  • Positional pricing
  • Price per segment pricing
  • Value-added pricing

Each of these hotel pricing types allows the manager to streamline costs. The types are also good at determining the best rate possible for a specific date and time. The hotel industry pricing strategies depend on these pricing strategies.

For instance, with a pricing strategy, they are able to forecast the peak rates and times for guests. Promotions and marketing tools are developed that are based on this information, which is key to helping a hotel build its clientele and brand.

Strategies for Hotel Room Pricing

Receptionist passing room key.

There are several hotel pricing strategies that managers also utilize in helping them gauge the right rates for rooms. These include increasing midweek bookings by looking for local advertising and special packages for midweek guests. Hotels also use promotions and discounts, including online codes and the use of third party platforms, like Hotels.com, to help guests save money.

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Finally, hotel managers use revenue management technology to assist in planning and forecasting the best rates for hotel rooms.