What is the meaning / definition of Rack Rate in the hospitality industry?
When it comes to setting prices for rooms, establishing the highest rate is important. This rate is called the Rack Rate, and it is from this maximum price that all other rates take their lead. But that is not to say that one Rack Rate will apply to every room in a hotel. No. With rack rate setting it is essential to apply a different rate to each room category, otherwise occupancy (and therefore revenue) could be adversely affected.
So, what are the different types of room category at a hotel? Well, taking a large hotel in a thriving European city as an example, the range of available rooms could include:
And types of:
When setting the Rack Rate for each category, a hotel will first consider key determinants, such as current and forecasted occupancy, deals, contracts with corporate clients, e.g., and any seasonal or out-of-season offers and discounts. Armed with this information, it can then set a Rack Rate that will ensure revenue is always maximised.