WHAT SHOULD WE CHARGE?

The simple answer is as much as the customer is willing to pay. This, however, is governed by three main factors:

• the existing tariff (if taking on a going concern)
• what your competitors are charging
• what you need to make a profit.

 

When you take on a hotel already trading, you will have an opinion as to the level of prices charged. Even if you think they’re too low, you will still encounter some would-be guests who will express amazement at how high they are!

Unless the tariff is ridiculously low, it would be unwise (and maybe unlawful if you had already quoted prices) to immediately raise the rates. You would lose any chance of securing some of your predecessor’s trade.

Even if you know your prices are too low, if you exceed the going rate charged by the hotels around it will reduce your business, perhaps crucially, no matter how good or up-market your facilities.

Hence the importance of choosing your location carefully in the first instance, especially if you want to offer superior facilities. It is always better to have an inferior property in an up-market location than a superior one in a less desirable area. Remember what estate agents say about the importance of location? They can’t all be wrong!

If you are on your own, or at least have no close neighbours as competitors, you have more latitude. You will still need to find out what hotels similar to your own are charging, since would-be guests hunt through guides and other advertisements to make comparisons.

How Do You Calculate A Tariff?

In a service industry it is more difficult to work out what you need to make a profit than if you are manufacturing something. Obviously the amount of provisions used will vary according to the number of guests, but most other overheads vary to a lesser extent. When you are open for business you can suddenly fill up – or remain empty.

You will already have prepared a forecast of earnings for the cashflow and profit projections. By:

• calculating a level of trade as on page 65
• looking at your break-even figure as on page 70
• reducing your ‘drawings’ figure to a minimum,

you can work out a percentage reduction on the tariff levels you originally worked to.

Case Study

Andrew and Christine Bright’s break-even figure is £62,643. If they reduced their own drawings by half, their overheads would be £41,235. Multiplying this amount by 100 and dividing by their gross profit margin (77 per cent) produces a revised break-even figure of £53,552, a percentage reduction of 14.5 per cent. As a rough guide, the tariff shown on page 99 could then be reduced by over 40 per cent. In those circumstances, no profit would be made and no money could be reinvested or put by for emergencies.

Providing you know the minimum you need to charge, taking into account all other considerations, calculate your tariff above that figure.

Some Of The Other Considerations

Since advertising space in guides has to be bought months in advance, you will always need to fix the following year’s tariff well in advance. As a rule of thumb, increase your prices each year in line with estimated inflation, allowing a couple of per cent leeway. Bearing in mind the facilities you offer, if you think your prices are still lower than the market can stand, add a few per cent until you feel you’ve got it right.

You will soon know how accurate your calculations are by the level of take-up from passing trade and advertisements, and comments made by your guests. Whatever the standard of your accommodation, it is important to give value for money.

Never advertise different tariffs in the same year’s guides, nor charge more than you quoted (except for VAT increases). Some hoteliers put a warning on their tariffs that prices may be increased. Would you take that sort of chance as a guest? Nor will your guests. Fix your tariff, then stick to it. This also applies when someone calls and tries to get you to reduce your prices for them. To accede wouldn’t be fair to those already in residence. If all hoteliers gave such people short shrift, they wouldn’t try it. It is an increasing trend, particularly when the economy is not buoyant.