Bottom rate

Why is it important to monitor the bottom rate in hotels?

Setting a clear bottom rate is essential to protect the hotel’s profitability and prevent impulsive decisions driven solely by market pressure.

During periods of low demand, the temptation to lower prices to attract guests can be strong. However, selling below the bottom rate means operating at a loss - generating occupancy without real profit.

It is important to note that the bottom rate does not always correspond exactly to the minimum price covering variable costs, and hoteliers often consciously choose a higher threshold. This is done for several reasons, including:

• Brand protection: a price that is too low can devalue the brand and give an image inconsistent with the level of service offered.
• Coverage of fixed costs: even if variable costs are covered, selling below a certain threshold may prevent contribution to fixed costs.
• Guaranteed minimum margin: hoteliers may choose to accept bookings only if they secure at least a certain margin, avoiding filling rooms without economic return.

How is the bottom rate calculated in hotels?

The bottom rate is calculated by summing variable costs per room (such as cleaning, breakfast, utilities, OTA commissions) and the desired minimum margin. In some cases, a portion of fixed costs is also added.

Example:
Variable costs per room = €25
Desired minimum margin = €15
Bottom rate = €25 + €15 = €40

This means that selling below €40 per night would result in a loss or a margin too low to be sustainable.