How to set rates for a Bed and Breakfast in South Africa.

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Setting the rates for your B&B

WHY PRICING?

The price of your accommodation is very important from a marketing point of view. Your rates have a direct
influence on your profit margins. Many guest houses however experience difficulties with setting their rates.

WHAT DOES ROOM RATE MEAN?

It means how much you will charge when renting out a room for one night. The key question however is how
do you arrive at an appropriate price for your room.

WHAT DOES OCCUPANCY MEAN?

It refers to the percentage of available rooms rented. It can be divided into two namely:
Room occupancy and
Bed occupancy.

YOUR RATES OUR RATES SHOULD BE DETERMINED BY THE FOLLOWING :

1. Your costs
2. Unusual features, facilities and services.
3. By the rates of your competitors
4. By what the guest will be prepared to pay to stay at your establishment.
5. A double rate can never be twice a single rate, because your cost to maintain the room almost remains the same.
6. Reduced rates can be charged over off seasons.
7. If your competitors offers discount from time to time do the same
8. Thirty-three per cent occupancy should cover your monthly costs.
9. To achieve competitive rates you will need a thorough knowledge of your own costs and what competition charges for more or less the same product.
10. Make sure that you compare apples with apples; do not compare a five star guest house’s rates with those of a two star establishment.
11. Do not enter into a price war among guest houses – simply because someone will get hurt or forced to close down

HOW DO I ARRIVE AT MY ROOM RATE?

For the purpose of this exercise, fictitious figures are being used to illustrate how it is being done and may differ from establishment to
establishment as well as from depending on their modus operandi.( This is a 4 bedroom guest house)

For example:

To furnish the room cost R 30,000 divide this by 365 days	= R 82 – 19
Salary (R 800 x 2 = R 1600 per month) divide by 2 divide by 30 days	= R 26 - 67
Bond repayment R 3000 per month ( 3000 divide by 30 divide by 4 room	= R 25 - 00
Total (a)	= R 200.19
Water & Lights ( R 3000 divide by 4 rooms divide by 30 days)	= R 30 - 00
Licences (specify)
Liquor ( if applicable) R 1000 p.a. divide by 365	= R 2.73
TV ( R 400 divide by 4 divide by 365 days) Etc.	= R .27
Levies (specify) comes to R 3000 p.a. divide by 4 divide by 365)	= R 2-05
B n B Sure	= R 3-00
Guest Amenities per room	= R 5-50
Breakfast (each item to be costed separately)	= R15-00
Cleaning materials	= R 4-50
Marketing (specify)
AA = R 5600 divide by 4 divide by 365)	= R 3.83
Portfolio ( R12000divide by 4 divide by 365)	= R 8- 21
Local ( R 250 divide by four divide by 365)	= R -17
Associations R 150 p.a. divide by four divide by 365	= R - 10
Star grading R 1685-00 divide by 365 divide by 4	= R 1-15
Total (b)	= R 76 - 51
( more items that will influence the price can be added - refer to the table at the end of the article)
Total a + b	= R 276.70
(operational cost to keep one bedroom running per day)

How do I calculate my rate then?

The monthly operational expense for those for one bedroom will be:

(R 276– 70 x30 days = R 33204)

As a rule of thumb it is advisable that you try to limit your operational expenses to about 40%of your income.
Booked ome to be generated per month = ( monthly expenses) x 100 % divide 40%

1. Start by calculating how much income you should generate when you are fully(100%)

Booked ome to be generated per month = ( monthly expenses) x 100 % divide 40%

= R33204 x 100 divide by 40

= R 83010

2. Calculate the maximum number of rooms that can be sold.

(4 rooms) x (7 days) x (4 weeks) = 112 rooms

3. Calculate the single and double rate per room

The single room rate should be at least : R 83010 divide by 112 = R 741.16

The double room rate should be about : R 741.16 x 1.33 = R 985.74

Try to avoid the following pitfalls when setting your rates:

• Not setting rates that are market-related. Rates should not be set as a result of a high bond repayment or of having spent too much 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 the 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 raises as well as 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; and
• Not making sure that your normal rates allow for the payment of commission.

LIST OF POSSIBLE EXPENSES THAT MIGHT IN FLUENCE YOUR PRICE STUCTURE.

Types of expenses	Description
Bank fees	Cheque and credit card service charges
Business taxes	VAT
Commissions	Referral commissions
Communication	Phones and faxes, Internet charges
Food and beverages	Food and drink for the guest house
Insurance	Non-payroll insurance to cover theft, fire, personal liability, etc.
Legal and accounting fees	Covers legal and accounting fees.
Linen	Purchase price of towels, sheets, pillows, bathrobes, etc
Maintenance	Materials and purchases to maintain the guest house
Marketing	All expenses allocated to market your guest house
Miscellaneous	All expenses that do not belong to another category
Office supplies	Paper and pens
Housekeeping supplies	Soap, toilet paper, cleaning supplies, light bulbs, etc
Employees' salaries	All wages associated with the staff you employ
Training	Fees for workshops and seminars
Transport	Car, taxis, bus and train tickets, petrol, repairs
Travel and entertainment	Travel-related expenses and business entertainment
Utilities	Water, electricity, sewage Mortgage and interest
Mortgage	Money taken by the owner as a form of salary

Article supplied by Andre’ Burger, Tourism Grading Assessor
Email – Burgan@mweb.co.za