Hotel Rack Rate
Understanding rack rate and using it for the optimal pricing strategy
One of the central pillars of the pricing process in the hotel industry is the so-called "rack rate", which is connected to the shelf rate or list price. But what is behind this term and how can hoteliers use it to develop the optimal pricing strategy?
Below we will explain what a rack rate actually is and why it is so crucial for price optimization in the hotel industry. In addition, we will discuss the different variables you should consider when setting your room rates and give you 7 valuable tips to help you set and optimize your rates.
What is a rack rate for hotels?
The rack rate, also known as the standard rate or regular room rate, is the officially published room rate of a hotel, which is stated including VAT.
This serves as a starting point for various price gradations and tariffs in the hotel industry.
How do you calculate the room rates?
In order to set your room rates successfully, you should analyze the most important data and key figures of your business and then develop an optimal pricing strategy for your hotel.
The most important factors that help you with the calculation include
1. room occupancy
The current occupancy rate of your hotel has a significant influence on pricing. In times of high demand, you should raise your prices, while in times of low demand, special offers or discounts can be a worthwhile option.
2. cost price
You should also consider the costs incurred for providing a room in your hotel. These include costs for staff, cleaning, maintenance and other operating expenses.
3. desired profit
Hotels usually have a profit margin in mind that they want to achieve. Pricing should therefore aim to realize this profit.
4. price floor (PUG)
The lower price limit is the lowest price at which a room can be sold without incurring losses. It is based on the cost price and the desired profit.
5. average daily rate (ADR)
This is the average room rate that your hotel achieves per day. The ADR therefore also serves as the basis for further pricing and is often considered in conjunction with the rack rate.
Variables in room price calculation in the hotel industry
When calculating room rates, you should also take various variables into account, such as
● Room category
Different room categories may have different prices, depending on individual features and facilities.
● Room demand
You can also use the demand for certain rooms or room categories to offer particularly popular rooms at the best possible price at peak times.
● Time of the booking
Early bookings or last-minute bookings, for example, could lead to different prices.
● Length of the stay
For example, many hotels offer discounts for longer stays, as staff costs are generally lower, making them more attractive for stays of several days, weeks or even months.
6 tips for optimizing room rates in your hotel
Below we would like to give you 7 tips that can help you optimize your room rates and benefit from higher occupancy and more revenue:
1. carry out cost analyses.
Review your costs regularly and adjust your prices accordingly so that your hotel makes a reasonable profit in the long term.
2. develop your individual hotel price strategy.
Develop a clear pricing strategy based on the above factors that is flexible enough to respond to changes in demand.
3. pricing intelligence as a competitive advantage.
Use tools and technologies to constantly keep an eye on your competitors' prices so that you can offer competitive prices.
4. ensure higher capacity utilization with revenue management.
It can also be worth investing in revenue management software. This will help you to adjust prices in real time and maximize your hotel's occupancy in the long term.
5. always offer your rooms at the best price with Yield Management.
Use smart yield management strategies to dynamically adjust your prices and increase your sales.
6. Take a bird's eye view of your pricing concept.
Occasionally seek external advice from experts to get fresh perspectives and ideas for pricing your hotel.
The TourSol recommendation:
Using the rack rate as the basis for an optimal pricing strategy! The rack rate is an important starting point for the pricing of any hotel. A well-founded pricing strategy based on data and market analyses enables you to offer your hotel rooms at the best price at all times. By taking into account various factors such as occupancy, costs and profit targets, you can set competitive prices for your hotel rooms while getting the most out of them.
But remember: a successful pricing strategy is not static, but adapts flexibly to changing market conditions.
More profit, more capacity utilization, less effort: we are at your side as a strong partner
As hotel and tourism experts, we specialize in revenue management for hotels. We not only optimize prices, but also sales and operating costs and, if required, develop individual strategies for your hotel's success.
