What is the meaning / definition of Net Rate in the hospitality industry?
In hotel distribution we work with many rate levels. Room inventory is sold via some third party distributors at prices that are subject to commission. Others negotiate a (sometimes lower) price with the hotel that does not include a commissions. Such a rate is called a Net Rate.
The Net Rate is the price without the commission of the travel agent. The distributor can mark-up this price with the margin he wishes to make, or an amount which is contractually agreed. Hotel distribution partners which typically work with net room rates are:
- Merchant Model OTA
- Wholesalers
- Tour Operators
- FIT companies (aka Foreign Incoming Travel)
- DMC’s – Destination Management Companies
- Group bookers
From a hotel revenue management perspective you can also calculate a NetRate when subtracting the commission from a gross or sell rate. For instance if the rate paid was $100 (excl VAT) and the commission is 25%, the Net Rate would be $75. And with a commission opf 15% the Net Rate would be $85.
These kind of calculations are used to determine the real revenue contribution distribution channels. As well as a useful KPI called NREVPAR.
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