Dynamic pricing in hotels: The profit-maximizing potential

Dynamic pricing in hotels is a pricing approach that reflects changing demand, occupancy, and market behavior over time. Instead of using a rigid “single/double rate for the whole season” table, a hotel manages price continuously: responding to occupancy shifts, competitor movements, and external factors.

Just like airlines, where the price of the same flight can vary depending on when the ticket is purchased, dynamic hotel pricing allows the property to match the rate to the true value of a specific day.

Dynamic pricing is not an optional add-on. It is a modern standard, and without it, it is difficult to compete effectively in today’s accommodation market and maximize profit.

The purpose of dynamic pricing

The primary goal of dynamic pricing is to maximize revenue at a given level of demand. Changing the pricing method does not “create” extra market demand, but it helps the hotel use existing demand more effectively, so you don’t sell too cheaply on strong dates or block sales with prices that are too high on weaker dates.

If a hotel opts out of dynamic pricing in hotels, it effectively accepts that some revenue will be lost. It means earning less than real demand would allow, giving up a portion of profit that could be captured through more intentional pricing management.

Levels of pricing management maturity

In practice, hotels use very different approaches to pricing dynamics. Some properties apply a simple “weekday vs weekend” model, others adjust based on occupancy close to arrival, and some manage pricing with high precision months in advance, using both internal data and competitor behavior.

A comparison of three hotels shows how maturity can vary:

• Hotel A sets a “season rate” and rarely changes it.
• Hotel B gradually increases rates as occupancy grows closer to arrival.
• Hotel C analyzes demand and competition many weeks ahead, regularly adjusts rates and restrictions, and treats each day as a separate “revenue project.”

The closer a hotel gets to the “Hotel C” approach, the more likely its prices reflect true date value and fully capture market potential.

Defining seasons based on historical data

The first step in building dynamic pricing in hotels is defining seasons correctly. Instead of relying solely on intuition (“summer holidays,” “winter break,” “off-season”), it is worth analyzing historical daily and monthly occupancy data. This shows when the hotel genuinely operated at high occupancy and when performance was weaker.

A best practice is combining occupancy analysis with revenue analysis. Sometimes two months have similar occupancy levels but very different pricing structure. One may be “strong in revenue,” while the other is simply “full but cheap.” Only a combined view of occupancy and revenue enables meaningful season definitions (high, shoulder, low).

Guest segmentation should also be included. Segment data helps determine which customer groups generate the most revenue in different periods, and whether the segment mix should be adjusted. In some seasons, it may be more profitable to prioritize higher-margin segments or limit those that fill rooms at the expense of profitability.

Defining seasons based on historical data is the foundation for building a safe and effective pricing strategy.

Evaluating days of the week and setting base rates

The next step is recognizing that not all days within a season have equal value. Fridays and Saturdays behave differently in a leisure hotel than Mondays and Tuesdays in a business hotel. Analyzing historical occupancy by day of week in each season helps identify “strong” days versus those needing price support or marketing effort.

Based on this, the hotel can set a base-rate grid: higher for naturally higher-demand days and lower for tougher days. Each base rate should have several “steps” up and down so the hotel can react flexibly to incoming market signals.

Understanding day-of-week “value” turns the rate plan into a precision tool, not just an averaged seasonal table.

Building a competitive set (compset) and its impact on pricing

A hotel does not operate in isolation. Guests typically choose between several properties with similar location and standard. That’s why the next step is defining a compset: the set of competitors guests realistically compare you with.

When building a compset, consider factors such as:

• location and property standard,
• “freshness” of the product,
• online reviews and reputation,
• facilities (spa, pool, kids zone),
• loyalty programs.

After defining the compset, it should be “weighted.” Not every competitor is equally relevant. Some should be treated as primary references (closest match), others as secondary. Only then can you interpret rate levels and price movements meaningfully.

A well-chosen, properly weighted compset is a compass for setting your own prices in the right market context.

To make competitor positioning easier, hotels can use benchmarking tools such as benchWAVE. benchWAVE provides access to data within a selected compset, updates it regularly, and generates reports based on those insights.

Monitoring occupancy, pickup, and competitor rates

Even the best pricing strategy is only a starting point. What matters most is daily monitoring of occupancy changes (pickup) and comparing them with competitor pricing dynamics.

Example: If 30 days before arrival you see a sudden booking pickup and a simultaneous price increase in the compset, that is a strong signal to review your own rates and consider raising them. Conversely, low pickup combined with relatively high pricing may indicate you need to reduce rates to stimulate demand and avoid empty rooms.

Ongoing pickup and competitor rate monitoring enables real-time reactions rather than relying solely on a plan created months earlier.

Using lead time and historical data for decision-making

Knowing “today’s occupancy” is not enough unless you compare it with historical performance at the same lead time. Lead time is the number of days remaining until arrival.

It’s valuable to compare: what does today look like 30 days out, and what did 30 days out look like for similar days in previous years?

If last year you had higher occupancy at the same lead time, you may need to lower price to compete for volume. If occupancy is significantly higher than historical patterns, you have a strong justification to raise rates and monetize stronger demand through a higher average daily rate.

Using lead time and historical data turns pricing decisions into evidence-based actions, not guesswork.

Why consistency and operational resources matter

Most hoteliers understand the building blocks of dynamic pricing in hotels: seasonality, day-of-week strength, compset, pickup, lead time, etc. In practice, the biggest challenge is often not lack of knowledge, but lack of time and resources to perform these activities consistently and far enough ahead.

Creating a strategy is one thing, executing it daily is another. Without consistency, even the best plan stays on paper, and the hotel fails to capture the full potential in the data and the market.

True dynamic pricing requires not only analytical skill, but also processes and tools that make continuous execution possible.

Using technology and proRMS in dynamic pricing

Modern Revenue Management Systems (RMS), including solutions like proRMS, were created specifically to automate and structure dynamic pricing.

The software:

• analyzes historical data
• monitors occupancy
• tracks competitor pricing
• accounts for local events

Based on these inputs, it generates pricing recommendations and suggestions for restrictions and rate availability.

Hotels can manually accept selected recommendations, or (after building trust in the system) enable automated mode. This ensures pricing decisions are made continuously using a full set of data, rather than being limited by the revenue manager’s time constraints.

Using proRMS helps a hotel move from “we know what we should do but don’t always have time” to “our pricing strategy is executed consistently, every day, based on the best available data.”

Summary

Dynamic pricing in hotels is not a trend. It is the foundation of modern revenue management. Built on season analysis, day-of-week strength, compset monitoring, pickup, and lead time, and supported by the right technology, it allows hotels to monetize existing demand in the most effective way.

Hotels that stick to static (or only symbolically dynamic) pricing accept leaving revenue on the table. When a dynamic pricing strategy is well-designed and executed consistently, whether manually or with RMS support, it directly improves RevPAR, strengthens control over guest mix, and increases financial stability in a changing market environment.