Mark-up

Mark-up is the amount added to the cost price of a room, service, or product to help determine its selling price. It is typically intended to help the final rate cover not only the direct cost of the item, but also overheads, labor, commissions paid to third parties, and your desired profit margin.

Why does mark-up matter in hotels?

In hospitality, mark-up generally shows up in two distinct areas: your internal pricing strategy (like Food & Beverage) and your distribution strategy (how third parties price your rooms).

For internal operations, mark-up is one of the tools that can turn a raw cost into a sale that better supports your business. If you buy a bottle of wine for €10 and sell it for €10, you may end up losing money once you account for storage, service, and cooling. Adding a mark-up can help you account for those operational expenses and leave room for profit.

For distribution, mark-up becomes especially relevant when working with wholesalers or “merchant model” OTAs. In these scenarios, you provide a net rate (a discounted price) to the partner, and they add a mark-up to create the final price the guest sees. If you do not keep an eye on this, a partner might apply a low mark-up that makes their offer look cheaper than your direct rates, or apply a high mark-up that makes your property appear less competitive.

Understanding mark-up can support more informed revenue management decisions. It can help you:

• Help ensure each sale contributes to your overall profitability
• Support rate consistency across channels
• Influence how your property is positioned in the market

What is a good mark-up for hotels?

There is no single standard percentage because mark-up depends heavily on what you are selling.

Food and Beverage (F&B)
In hotel restaurants and bars, mark-ups are often discussed in ranges like 200% to 300% on food and beverage costs, depending on the outlet, concept, and local market. The following examples are commonly cited:

• Beverages: Coffee and tea can carry very high mark-ups (sometimes 400%+) because the raw material cost is low, while service and the overall experience add value.
• Wine: Bottles often have a lower percentage mark-up than glasses to help encourage sales of higher-priced items.

Room Distribution (Net Rates)
When you give a net rate to a wholesaler or travel agent, they often apply a mark-up (frequently discussed around 20% to 30%) to reach the final retail price. For example:

• Example: You sell a room to a wholesaler for €100 (net). They mark it up by 25% to sell it for €125.

If the mark-up is too high, your rooms can become harder to sell because the retail price may be less attractive. If it is too low, you may increase the risk of undercutting your own direct booking channel.

How do you calculate mark-up?

The formula for mark-up focuses on the cost price.

Mark-up Percentage = ((Selling Price − Cost Price) ÷ Cost Price) × 100

Practical example
You purchase a breakfast ingredient for €2.00.
You decide to sell that portion for €8.00.

((€8.00 − €2.00) ÷ €2.00) × 100 = 300%

Your mark-up on that item is 300%.

To set a price based on a desired mark-up, you use this formula:
Selling Price = Cost Price × (1 + Mark-up %)
€2.00 × (1 + 3.00) = €8.00

What is the difference between mark-up and profit margin?

Hoteliers sometimes use these terms interchangeably, but they represent different calculations within your pricing structure.

• Mark-up is the percentage added to the cost to get the selling price.
• Profit margin is the percentage of the selling price that is profit.

Example

• Cost: €100
• Selling Price: €125
• Profit: €25

Mark-up calculation:
(€25 ÷ €100) = 25%

Margin calculation:
(€25 ÷ €125) = 20%

The profit amount (€25) is the same, but the percentage differs depending on whether you look at it from the cost perspective (mark-up) or the revenue perspective (margin). Mixing these two up can lead to pricing decisions that do not align with your expectations.

What factors influence mark-up?

Several variables can influence how much you add to your base costs. Here are the main factors:

1. Cost of Goods Sold (COGS)

If your supplier raises the price of linens, amenities, or food ingredients, your cost base increases. To aim for a similar profit outcome, you may need to increase the selling price (keeping the same mark-up) or accept a lower profit (reducing the mark-up).

2. Market demand and competition

You cannot set mark-ups in isolation. If competitors sell a similar room or burger for 20% less, a high mark-up strategy may reduce your sales volume. Market tolerance can limit how high you can mark up your services.

3. Distribution channel costs and commissions

Different channels have different costs. A direct booking often costs you less than an OTA booking with an 18% commission. You might accept a lower mark-up on direct add-ons because you retain more of the final revenue, whereas OTA rates may require a higher gross price to better account for commission fees.

4. Perceived value and brand positioning

Luxury properties may be able to apply higher mark-ups because guests often pay for the brand, service, and exclusivity, not just the raw cost of the room or meal. Economy properties may lean toward lower mark-ups supported by higher volume.

How do you optimize mark-up strategies in your hotel?

Setting the right mark-up is a balance between covering costs and staying attractive to guests. Here are five strategies that can help:

1. Know your true costs

You cannot calculate an accurate mark-up if you do not know the full cost of the item. This includes:

• For rooms: cleaning, laundry, utilities, and amenities (CPOR)
• For F&B: ingredients, waste, and preparation time

Review these costs regularly. Even small increases in supplier prices can affect profitability if pricing is not adjusted.

2. Differentiate pricing by channel

Avoid applying a flat mark-up across all channels. Instead, tailor your approach:

• Direct bookings: You can create stronger value perception through exclusives or packages, since you are not paying third-party commissions.
• OTAs: Align your pricing with commission structures so you can better understand the impact on net revenue and keep decisions sustainable.

3. Use dynamic pricing software

Fixed mark-ups can be limiting in a market where demand changes quickly. A software can analyze market signals in real time and suggest rate adjustments based on demand. When demand is high, pricing may rise and increase the effective mark-up on the largely fixed cost of the room. When demand is low, pricing may adjust to support occupancy. This can shift your approach away from rigid “cost-plus” pricing toward more value-based pricing.

4. Audit your wholesaler rates

If you work with wholesalers or merchant-model OTAs, monitor the final price they display online. You can verify key points by checking the following:

• You can confirm whether their mark-up matches the commercial terms you agreed.
• You can check whether they are “dumping” rates by reducing their mark-up in ways that can create channel disparity.

5. Review menu engineering regularly

In your restaurant or bar, analyze which items have high mark-ups and high sales volume (Stars) versus those with low mark-ups and low sales (Dogs). You should:

• promote high mark-up items on the menu
• re-price or remove items that do not justify their cost

This can help keep your average mark-up across the menu in a healthier range.