Pricing Services in Your Hotel, Restaurant and Leisure Business

How do you fix prices in an hotel, restaurant or leisure business? Without a sound tariff policy your business will not flourish or even survive and pricing my be one reason why so many restaurants and hotels struggle to survive during those first important years of trading.

A few years ago a guest house owner was asked how much his room cost for one night. A shout from the other side of the hedge- ‘Whatever he said, mine are 50p less!’

And so a price is fixed and many businesses seem to charge according to the ‘market’, irrespective of their own costs or other considerations.

There are several ways to set prices:

Cost plus pricing, the old food and drink favourite, relies on the application of a margin set at a percentage above product cost on the assumption that it will cover operating expenses and profit.

Rate of return pricing, or deciding what percentage rate of return you want on your investment, then estimating the number of units likely to be sold, the associated costs and an amount to cover the return on investment is another option.

Competitive pricing has already been mentioned and then there is demand pricing where price levels are varied to reflect the strength of demand. Value pricing reflects the value of the product from the customer’s perspective.

Maximising your revenue and profit levels requires that you take all of the above into account. For example you must ensure your prices cover all costs and generate a return on your investment. Without that, your business has no future. So there must be an internal as well as an external focus within your pricing levels too. Your business cannot be priced to meet the cost requirements of your neighbour but you will probably need to reflect weaker levels of demand on occasions too.

Finally you need to focus on value too, for without sufficient value your customer will not buy. And if your value is too low? Try raising value before reducing prices, because pricing has a significant impact on market positioning and perceptions too.