# Room rate calculation in the hotel industry

What is your Price

Calculate your room rates and calculate your price floor for maximum success.

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Calculate your room rates and calculate your price floor for maximum success.

Download our free CSV template now.

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## What is behind the calculation?

The aim of the room rate calculation is to determine the necessary average room rate.

To determine the price, you need various parameters. The necessary average room rate is therefore the price with which you have to cover your cost price and achieve your target profit.

For this, you need your planned room occupancy and the foreseen costs. The BWA of the previous months can serve as a basis. Once the price has been determined, the room rates are classified according to various criteria.

## What do you need for the room rate calculation?

To carry out a correct room rate calculation in the hotel industry, you need the following data and key figures:

Room occupancy

Own costs

Desired profit

Average Daily Rate (ADR)

Price floor

## How do you calculate the room rate?

The basis for calculating your best room rate is the necessary average room rate.

The different price differentiations in the hotel industry are then based on the different categories, room size, fluctuations in demand or seasonal demand.

## How do hoteliers calculate their room rates?

Unfortunately, very few hoteliers can answer this question precisely. Because most of the time they don’t really know themselves. All too often, decisions on pricing are based on gut feeling and intuition rather than on data and facts. But anyone who wants to make a data-based statement about how much an overnight stay in a room is really worth should take a closer look at their figures.

###### COST CALCULATION

These figures include all costs, especially fixed costs. Together with the variable costs, these make up the total costs.

###### PROFIT DETERMINATION

With the sum of all costs, you can see how much turnover must be generated at least to cover all costs. However, the goal should be profit!

## How to calculate the room rate

To calculate your room rate, simply follow these steps:

#### 1) Calculation ADR

The Average Daily Rate (ADR) is the average hotel room rate achieved in one day. For this you need your total achieved turnover. You sold a total of 8 rooms at a price of €95 (€760) through all your OTAs on 22.11.2019. In addition, you had 15 bookings via your website worth €85 (€1275). Your total daily turnover was 760 € + 1275 € = 2035 €. Now divide the total turnover by the number of bookings 8 + 15 = 23: 2035 € / 23 bookings = 88,48 €. Thus, the average rate ADR was 88.48 €.

#### 2) Calculation MaR

When calculating the room rate, you must ensure that your room rate is above the hurdle rate, or minimal acceptable rate (MaR). You calculate the hurdle rate as follows:

Fixed costs: 1.900.000 €

Variable costs: 1.250.000 €

Number of rooms: 150 rooms

Average occupancy: 70 %, thus 38,325 overnight stays sold per year.

Now calculate the fixed and variable costs per room:

1,900,000 € / 38,325 occupied rooms = 49.57 € fixed costs per room

1.250.000 € / 38.325 occupied rooms = 32,61 € variable costs per room

PUG = fixed costs per room + variable costs per room

PUG = 49,57 € + 32,61 € = 82.18 €

#### 3) Comparison ADR to MaR

In our example the ADR of 22 November 2019 was €88.48. The MaR is € 82.18 and the room rate is therefore € 6.29 above the hurdle rate. Your own hurdle rate or floor price is important to know in order to cover all costs. However, the value alone is not decisive. The LTV (lifetime value) should be taken into account. It indicates what a customer brings in revenue over his entire lifetime. A regular customer comes several times and therefore the first booking can also be below the hurdle rate.