Should an independent hotel use dynamic pricing?

Yes, within limits. An independent hotel should have a best available rate that moves with demand: higher on nights that will fill, a little lower on nights that will not, set from a short list of price points you chose yourself. That is dynamic pricing. It is not a black box, it does not mean prices changing every hour, and it does not mean undercutting the hotel next door.

You probably already do some of this: you charge more in August than in November. The question is whether they do it night by night, on evidence, or season by season, on habit.

Why does this matter?

Because a single price for a whole season is wrong on almost every night. It is too low on the nights that fill weeks ahead, and too high on the nights that never fill. Both cost money, and neither shows up on any report. A night that sold out at £130 looks like a good night. It was only a good night if nobody would have paid more.

What does dynamic mean for a 24-room hotel?

Not much machinery. In practice:

1. Three to five price points per season. For example, for autumn: £95, £110, £125, £140. Every night sits on one of them.
2. A starting point for each night. Usually the middle step, or the lower step for nights that are quiet every year.
3. Moves on lead time. If a night has more rooms on the books than usual at a given distance out, step up. If it has fewer, look at why before you step down.
4. Moves on pickup. If six rooms book for one Saturday in a week, that night is telling you something.
5. A look at the market. What the hotels a guest would compare you with are charging, and whether they still have rooms.
6. The same price everywhere. Your website, the agents and the phone, so you keep rate parity.

That is the whole of it. An hour or so a week of looking, a handful of decisions, and a record of what you did.

What is it not?

• Changing prices every hour. A small hotel gains nothing from constant movement, and guests who see a price jump between two visits lose trust.
• Undercutting. Pricing below the hotel next door on every night starts a race that both of you lose. Dynamic pricing is as much about going up as down.
• A black box. If you cannot say why a night is priced where it is, you cannot defend it to a guest or correct it when it is wrong.
• Abandoning your floor. Every hotel has a price below which a room is not worth selling. Write yours down.

What does it cost to stay static?

Take our example hotel: 24 rooms on the Welsh coast, around £110 a night midweek in autumn and £165 on a summer Saturday, 68% occupancy, about £745,000 of room revenue a year. These numbers are illustrative.

Imagine instead a version of the same hotel that charges £130 on every night of the main season.

On the busy nights. Thirteen summer Saturdays sell out eight weeks ahead at £130, when the market would have paid £165. That is £35 × 24 rooms × 13 nights, or £10,920 a year left on the table, before counting bank holidays and compression nights.

On the quiet nights. On about 80 quiet midweek nights, the hotels around it charge £110 and it charges £130. Say it sells 10 rooms where at £110 it would have sold 14: £1,300 instead of £1,540, or £240 a night. Across 80 nights that is £19,200.

Together: roughly £30,000 a year, about 4% of room revenue, from one decision about how to set prices. The RevPAR calculator shows what that does to revenue per available room: about £3.44 a night across the year.

None of that is visible in the static hotel’s reports. Its occupancy looks fine. Its average rate looks fine. It is just lower than it needed to be.

How do you start without software?

1. Write your price ladder. Three to five points per season, with a floor.
2. Put the next 90 days in a spreadsheet. One row per night: rate, rooms on the books, rooms on the books at the same point last year.
3. Look once or twice a week. Update the rooms on the books. Mark any night running well ahead or well behind.
4. Check the market for the marked nights. What the hotels a guest would compare you with charge, and whether they have rooms left.
5. Move one step at a time. Up for nights running ahead, with the market in support. Hold, or step down once, for nights running behind with no reason you can see.
6. Write down what you moved and why. Next year, it is the evidence you price from.

Our guide on how to price hotel rooms sets this routine out in full.

When does software earn its keep?

The routine above works. Its limits are time and coverage. Checking six competitors for 90 nights by hand is an evening every week, and in practice it shrinks to the next two weekends.

A rate shopper gives you what the hotels around you charge, and whether they still have rooms, for every night ahead, without the clicking. That is often enough on its own. A revenue management system goes further, with a recommended rate for each night and the reasons behind it, which you accept or change.

Software earns its keep when:

• you look at fewer nights than you should, because there is no time;
• your market moves often enough that a weekly look misses things;
• you run more than one property;
• you want a second opinion you can argue with, not a price set without you.

It does not earn its keep if you will not look at it. Our comparison of rate shopping tools for small UK hotels sets out the options and who each one suits.

What should you watch out for?

• Moving down too fast. A night that is behind at eight weeks often catches up at three. Look for a reason before cutting.
• Moving up without the market. If the hotels around you have rooms at £120, your £150 will sit unsold.
• Too many price points. More than five per season and you will struggle to explain any of them.
• Forgetting restrictions. On a busy night, a minimum stay can be worth as much as a rate step.
• Changing the rate on one channel only. Guests find the cheaper one.

What next?

Tonight, write your autumn price ladder: four numbers and a floor. Then put the next 30 nights against it and move the three furthest from where they should be. If you would rather see what the hotels around you are charging for those nights, with a recommended rate for each, you can try RatePulse for 14 days.