How to save on business travel costs using hotel rack rates

Comparing hotel rates is essential for keeping business travel plans within budget, and understanding hospitality industry terms like ‘rack rate’ helps give a starting point for price negotiations.

In this blog, we’ll explain the meaning of rack rates as well as how they’re determined and displayed, so that your business can explore all pricing options and avoid overpaying on hotels for business travel.

What is a rack rate? 

This term goes back to a time before computers, when hotels would display price cards on a metal or wooden rack positioned in the reception area. At check-in, guests could refer to the hotel rack rate to know what price to pay. 

Today, a rack rate is the standard, highest possible price for a hotel room before any discounts or special offers have been applied. Business travellers will rarely pay a rack rate due to the prevalence of discounts as a sales tool. Still, it’s useful as a benchmark figure, and understanding how rack rates work is important for finance leaders, travel managers, and any other stakeholders involved with travel expense management. 

Is it important for businesses to know a hotel’s rack rate?

Also known as the published rate, a hotel rack rate is publicly listed as the jumping-off point for promotions, discounts, and corporate rates. 

If you’re booking accommodation directly from the hotel, understanding this benchmark figure can help you assess potential savings more accurately. Finding out the rack rate offers the following potential benefits for businesses:

• Negotiation tool: The rack rate is the starting point for negotiating better rates with hotels. If your company has frequent travel needs, you’ll often be able to negotiate lower rates and save. 
• Cost savings: Many hotels offer business-friendly discounts, but you won’t know how much you’re saving unless you compare the discounted price to the original published rack rate.
• Transparent pricing: Bookers can see what the hotel’s standard rate is, making it easier to compare deals across different channels. This helps you make a more informed decision. 

However, rack rates are mainly beneficial when booking directly with a hotel, and are an increasingly outdated mode of comparison. One thing to keep in mind are the differences in consumer protection laws around the world. 

For example, in the UK businesses providing accommodation must comply with the Digital Markets, Competition and Consumers Act 2024 (DMCCA) as well as the Provision of Services Regulations 2009. These state that hotels must display price information in a way that’s not misleading to consumers, with prices inclusive of compulsory service charges and VAT.

For online booking platforms, hotel rack rates are rarely, if ever shown, as government rules around reference pricing mean that they can’t present a price as a discount unless it provides savings on a ‘like for like’ basis. For transparency, platforms like Booking.com for Business instead show the most competitive prices rather than rack rates, so you have a widespread comparison to choose from.

Understanding the different types of hotel rates

Rack rates are just one facet of hotel pricing, and it’s important for companies to understand how it all works to negotiate the best prices. 

• Commissionable vs non-commissionable: Commissionable hotel rates are discounted rates negotiated by a travel management company on behalf of its corporate clients, with a percentage paid to the agency. Non-commissionable, or net rates, are discounted without the commission fee and tend to be 5-10% lower as a result.
• Fixed vs dynamic: Fixed rates are often negotiated for high-volume travel in top business destinations. They offer a fixed, static rate for a contracted length of time (typically one year) which is usually 15-20% lower than the rack rate. By contrast, dynamic hotel rates fluctuate according to market demand, so businesses will get better deals when demand is low.

What is the difference between corporate hotel rates vs rack rates?

While hotel rack rates are the highest possible price a traveller will pay, corporate rates are the price after negotiation. Corporate hotel rates can be 20-30% lower than the rack rate, reflecting the steady revenue that frequent business travel brings to a hotel. Business hotel rates may also come with additional negotiated perks including late check-out, complimentary breakfast and flexible booking policies. 

What is the difference between BAR rate and rack rate?

Another type of rate you might see listed is the BAR, or Best Available Rate. While rack rates are fixed, the daily BAR is dynamic, set by fluid factors like occupancy rates, seasonal demand, local events, and competitor pricing. It reflects the lowest available rate each day, before discounts.

How do hotels set their rack rates?

Rack rates are an integral part of hotel revenue management, and hotel finance teams will use vast quantities of data as part of their pricing strategies, many employing AI-powered systems for better forecasting and analysis. 

To set rack rates, hotels will analyse historical data while looking carefully at competitor pricing and market demand. As you might expect, rack rates in major business destinations like New York City, Tokyo, London, and Paris will have the highest rack rates. 

A basic sample formula that hotels use to set their rates is:

Rack Rate = Cost per room + (cost per room x profit margin)

• The cost per room should include all business costs, including cleaning, maintenance, staff wages, insurance, and others. 
• The profit margin would be determined by the amount of profit the hotel needs to make, calculated as a percentage. 

Factors influencing hotel rack rates

Here are a few of the factors that weigh into a hotel’s pricing strategy when setting rack rates:

• Hotel location
• Hotel type and star rating
• Brand reputation
• Available room types
• Room sizes 
• Hotel services and amenities

How to find out a hotel’s rack rate

Before you can use it as a comparison tool, you’ll need to know where to find published rack rates. To get started, look at the hotel’s official website or other promotional materials, then find the highest published price before discounts. If you’re planning to negotiate a corporate discount, it’s best to contact the hotel directly and ask for their current rack rates.

How to negotiate better rates for business travel

Knowing the listed rack rate gives you a foundation for comparing business hotel rates. If your company has an active travel programme involving high volumes of hotel stays, you may be able to leverage this and negotiate higher discounts. 

For SMEs with lower travel volumes, using a travel platform like Booking.com for Business provides access to competitive pricing and loyalty programmes, ensuring you’re getting better rates. Remember, hotels would rather sell rooms at a price below their rack rate than leave those rooms unoccupied.

Here are a few tips to help you take advantage of corporate hotel rates, whatever your business size. 

• Shop around to find the best rates: Check business hotel rates from multiple providers and chains, considering alternative options like B&Bs and serviced apartments that might offer higher discounts. 
• Consider extending your stay: Many hotels offer lower prices for stays longer than five nights. Rather than flying business travellers back and forth on shorter trips, could you plan longer itineraries that allow you to take advantage of extended stay discounts?
• Sign up for hotel loyalty programmes: Most global hotels and booking platforms like Booking.com for Business offer loyalty programmes that reward business travellers with free amenities and discounted rates.
• Go exclusive: For SMEs that don’t yet have high travel volumes, you can sometimes negotiate better rates, particularly with smaller hotels, with a contract pledging exclusive loyalty. Commit to booking all travel through this hotel in exchange for a discount.
• Use a travel management platform: Platforms like Booking.com for Business have established relationships with suppliers and large networks of providers, which, teamed with high travel volumes, provide the widest range of options for cost-effective comparison.
• Understand your travel budget: You’ll be in a better position to negotiate rates with a clearly defined travel budget. What are your historic spending trends? What is your forecasted travel spend for the coming fiscal year? Performing audits and gathering data will help you approach hotels with the numbers to back up your offer. 

How Booking.com for Business can help you save on business hotels

Negotiating special rates with each hotel is a time-consuming process, and smaller businesses may not have the high volume of travellers to warrant significant discounts. 

Booking.com for Business can leverage its high travel volumes to give SMEs access to corporate rates along with added perks like flexible cancellation policies. You’ll be able to choose from over 3 million properties worldwide, available at up to 20% off the published price when you join our Genius loyalty programme. 

With a choice of different accommodation types, from business hotels to serviced apartments, you and your team can find the best place to stay at the right price.

Negotiating business hotel rates: the bottom line

Industry terms like rack rate are primarily used in hospitality revenue management, but they’re sometimes useful for corporate travel planning. Online booking solutions take all the guesswork out of comparing business hotel rates, but learning more about what a rack rate is and how it’s determined aids with data-led price comparisons. 

Through a combination of seasonal promotions, corporate discounts and hotel loyalty programmes, you can book business hotel rooms well below the published rack rate.