So the formula of Markup is:
Markup = Selling Price – Net Room Rate
A common mistake made in the hotel industry is to confuse markup with margin. This is because OTA working with a net rate model also use a commission in the contract or distribution agreement with hotels. If we take the example above with a markup of €20 and a final sell rate of €100, the margin in this case would be 20% (while the markup is 25%).
Here some more formulas to put this in perspective:
- Net Rate = Sell Rate / (1 + Markup) >>> €100 / 1.25 = €80
- Net Rate = Sell Rate x (1 – Margin) >>> €100 x 0.8 = €80
- Sell Rate = Net Rate x (1 + Markup) >>> €80 x 1.25 = €100
- Sell Rate = Net Rate / (1- Margin) >>> €80 / (1 – 0.2) = €80 / 0.8 = €80