Rate structure in hotels: A practical example

The thing we love most at Hotel Price Reporter is to help hotels succeed at finding the right price for their rooms. And a key part in the process is gathering pricing data from the web.

Without data, it’s hard to know exactly how your revenue management strategy is performing and where you need to iterate to continue moving forwards.

Today I’d love to share with you a simple example of a rate structure used by a popular hotel brand in the U.K. You can use the same structure as a starting idea on deriving your own room rates.

Let’s get started…

A person setting the hotel's rate structure

The process

We all know that rooms in a hotel booking engine represent physical rooms at the hotel property.

We also know that every physical room at the property can be sold at different rate plans depending on what extras are included. Typical extras include, wireless Internet, breakfast, refund flexibility, airport transfers, etc.

When it comes to building a rate structure, the process is fairly simple. It all comes down to setting up physical rooms. And linking those physical rooms to one or more room rates.

A hotel example

Let’s look at the rates of one common household brand in the U.K. - Travelodge.

For the purpose of this example, we’ll pick a date in the future (11 August 2020) for a 1 day stay for 2 adults.

Here’s what their booking engine returns:

Screenshot of a rate structure

Observing the rates can reveal that this hotel is making extensive use of rate linking.

Rate linking is the practice of automatically adjusting the rates for the day based on a single base rate. See our other article How do hotels price their rooms? for more information on this step.

The above rate structure can be expressed with rate linking as follows:

Standard room formula

Rate typeFormula
Saver rateX
Saver rate with BreakfastX + $13.5
Flexible rateX + $12
Flexible rate with BreakfastX + $12 + $13.5

Superior room formula

Rate typeFormula
Saver rateX + $19
Saver rate with BreakfastX + $19 + $13.5
Flexible rateX + $12 + $21
Flexible rate with BreakfastX + $12 + $21 + $13.5

If we substitute X = $122.99 in the above, we get:

Standard room

Rate typePrice
Saver rate122.99
Saver rate with Breakfast136.49
Flexible rate134.99
Flexible rate with Breakfast148.49

Superior room

Rate typePrice
Saver rate141.99
Saver rate with Breakfast155.49
Flexible rate155.99
Flexible rate with Breakfast169.49

Therefore, to adjust the daily rate across all physical rooms and room categories, the revenue manager only needs to set the value of the baseline X.

Often times X starts with the Best Available Rate (BAR) or the rack rate from which all other rate plans as derived.

The value of X can be dependent on many factors. To read more about these factors head over to our article on hotel revenue management strategies.