Imagine you’re a small hotel manager. Say, 100 rooms at $100 per night...
Now, your ideal scenario is to have all rooms booked at all times at their standard price. That’s where your profits are maximized.
However, it’s very rare that your hotel reaches 100% occupancy. Which means, every night that a room goes unbooked, you’re losing money.
And so, what you do is, you create something called dynamic pricing. And the metric you use to drive this new way of pricing is revenue per available room (RevPAR).
And it works like this…
You take all of the rooms that you have, which is 100, and you multiply that number with the % of the occupancy. For example, if your occupancy is 50%, you multiply your 100 rooms with 0.5, which gives you 50.
Then, you take that 50 and multiply it again with your standard room price per night ($100). So now you can see you’re generating $5,000 per night.
But, you’ve got 100 rooms available. So you need to divide the $5,000 with the number 100…
And what you end up with is your actual revenue per room (RevPAR), which is $50.
In other words, even though you’re renting your rooms at $100 per night, you’re actually only getting $50 per available room. Because only 50 rooms out of 100 available are booked.
But here’s the thing...
The moment you rent out the 51st room at anything over $51... that room becomes instantly profitable. And it’s extra money you didn’t have…
That’s why hotels never stick to one price for their rooms. Their prices per night are dynamic. And they change them based on the hotel's capacity and availability.
That’s why hotels never stick to one price for their rooms.
Anyway, here's the reason I’m telling you this…
When you have a business with perishable resources like a restaurant, a dental practice, or whatever... realize that every time you’re not at your 100% capacity, you’re effectively losing money.
So it would make sense for you to look at your metrics and find out your current revenue per asset. Say, revenue per table for a restaurant, or revenue per available hour, and so forth…
Because that’s going to be your magic ticket: Figuring out how high is high for you...
And then investing your focus and energy towards getting the maximum yield you can have with your available assets.