In hotel pricing, the rack rate is the standard maximum rate posted for a room type before any discounts or negotiated rates are applied. Although the majority of guests book at rates below the rack rate through OTAs, corporate agreements, or promotional offers, the rack rate remains a foundational element of a hotel's pricing architecture. It establishes the upper boundary for all other rate categories and plays a role in revenue management, contracts, and financial reporting.
The rack rate is the full, undiscounted price of a hotel room, historically displayed on a rate card or "rack" behind the front desk. It represents the highest price a hotel will charge for a particular room type on any given night. The rack rate is typically set during the annual budgeting process and varies by room category, season, and market conditions. It serves as the starting point from which all discounted rates, including corporate rates, AAA rates, government rates, and OTA rates, are derived.
Hotels set rack rates by analyzing several factors, including competitive positioning within their comp set, historical demand patterns, operating costs, and desired profit margins. Revenue managers review STR data, local market conditions, and upcoming demand generators such as conventions, holidays, and events. The rack rate must be high enough to preserve margin during peak periods but credible enough to justify to walk-in guests. Most hotels review and adjust rack rates annually, though some properties with advanced revenue management systems update them more frequently based on real-time market dynamics.
The rack rate sits at the top of a hotel's rate hierarchy. Below it are negotiated corporate rates (typically 10-25% off rack), government and military rates, AAA and AARP discounts, OTA rates, wholesale rates for tour operators, and promotional or flash sale rates. The Best Available Rate (BAR) is the lowest unrestricted rate offered to the public on any given night and fluctuates based on demand, while the rack rate remains fixed for a given period. Understanding this hierarchy helps revenue managers maintain rate integrity and avoid rate erosion across distribution channels.
Rack rate anchors a hotel's entire pricing strategy. Rate parity agreements with OTAs reference the rack rate or BAR to ensure consistent pricing across channels. Corporate rate negotiations use the rack rate as the starting point for discount calculations. During periods of extremely high demand, hotels may sell rooms closer to or at rack rate, maximizing revenue. Conversely, during low-demand periods, the gap between rack rate and actual selling rates widens. Tracking the average selling rate as a percentage of rack rate over time helps revenue managers assess pricing effectiveness and identify opportunities to reduce unnecessary discounting.
A: Rack rate is the maximum published rate for a room type, remaining relatively fixed over a season. BAR (Best Available Rate) is the lowest unrestricted rate available to the public on a given night, fluctuating daily based on demand, occupancy forecasts, and competitive pricing. BAR is always at or below the rack rate.
A: Rarely. Rack rate serves as the ceiling price and reference point for all discounted rates. Most guests book through OTAs, corporate programs, or promotional offers at rates well below rack. Walk-in guests during sold-out periods or guests without any discount eligibility are the most likely to pay rack rate, but this represents a small fraction of total bookings.
A: Hotels set rack rates as a reference point for rate parity agreements with OTAs, corporate rate negotiations, franchise and brand standards, and financial reporting. The rack rate also appears in government and regulatory filings in some jurisdictions. It provides the anchor for the entire rate structure and ensures consistency across distribution channels.
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