Rack Rates, BAR, Discounts, and More: A Guide to Hotel Prices

Wondering about the maze of hotel rates—from the government to AAA, consortia, and industry rates—and how they are calculated? This article breaks down all types of hotel rates: base, discounted, negotiated, and others.

The guide provides insights to help you seamlessly navigate hotel pricing, negotiate contracts, or manage bookings.

Rack rate and BAR: the foundation of hotel pricing

A rack rate and best available rate (BAR) are the bedrocks of revenue management in hospitality—they shape guests' first impressions, with all other pricing structures built around them.

Today, these terms are often used interchangeably: In professional discussions and articles, BAR is sometimes referred to as "rack rate". However, we'll maintain a traditional approach and describe them separately, preserving the original meanings.

What is a rack rate?

A rack rate, sometimes called a walk-in rate, is an officially published standard nightly rate for a specific room type with no discounts applied. It’s typically the highest price a guest is charged for a stay for this room type, with separate rack rates for low and high seasons.

This price can be found in brochures and promotional materials. The same amount will be quoted to a customer who simply walks in off the street and asks, “How much?”

However, in reality, the guest will pay this amount only under the most unfortunate of circumstances: Their flight has been canceled, it is nighttime, there is only one room left in the hotel, and all the other hotels are full because of an event going on in the city. If the situation is not that dramatic, the client will get one or another discount or simply book the same hotel via online travel agencies (OTAs), where the offer will likely be more attractive.

The term “rack rate” originated from the days when hotels displayed their room prices on metal or wooden racks at the reception desk. While this practice has long disappeared, in some countries, such as the UK and Italy, a law still obliges hoteliers not to charge more than the public price.

Historically, the mandatory publishing of the highest possible price aimed to protect guests from being overcharged by dishonest porters. In today's online booking and card payments world, the rule is outdated, to put it mildly. Nevertheless, the law is the law, and that’s why you can see the rack rates written on the backs of room doors in some localities.

Although the rack rate almost never reflects the actual price of a room, it has practical value as a point of reference for discounts, promotions, and contract negotiations. In addition, it provides a way to compare hotel categories at a glance. Luxury and budget hotels distinguish themselves through their rack rates.

How to calculate a rack rate?

The most straightforward approach to calculating a rack rate is to add the per-room-per-day spending and the desired profit. However, some hoteliers also consider the average occupancy, so the calculation can look like this.

What does this (illustrative and simplified) formula show? An approximate amount is obtained by dividing the sum of total annual spending and a targeted yearly profit by 365 days and by the expected number of occupied rooms per night.

Here’s an illustration of a calculation for an imaginary Desert Rose Hotel with a four-star rating on the Spanish coast.

Annual expenditure breakdown:

• Construction and amortization: $100,000
• Operational costs including salaries, utilities & supplies, marketing, and others: $1,400,000
• Taxes and debt interest: $300,000

Total annual costs: $100,000 + $1,400,000 + $300,000 = $1,800,000

Target profit: 20% of Total Annual Costs = $360,000

Expected number of occupied rooms per day: average occupancy rate (75 percent) * total number of rooms (100) = 75.

Now, we apply the formula.

Rack rate​: (1,800,000 + 360,000) / (365 * 75) ≈ $79.00

But, again, this equation is only a guideline. Additional factors come into play.

Reputation and brand positioning. A five-star resort will never set prices that compete with budget accommodations, as this would undermine its brand identity.

Location. Just one example: Properties in Las Vegas within 0.72 miles of the Strip (part of the Boulevard South, the heart of the city's entertainment district) have a premium of 70 percent compared to hotels located beyond 2.25 miles.

Room size. Size is often considered while evaluating the rate for a particular room type. Let’s take two rooms with the same amenities: one is 16 square meters, and the other is 20. Guests can be charged more for the bigger one.

Competitive landscape. If nearby properties lower their rates due to low occupancy, a hotel may reduce its prices to stay competitive, or keep its rate stable while offering perks like complimentary breakfast or late checkout to justify the cost.

A rack rate nowadays is often replaced by the best available rate.

What is BAR?

The best available rate (BAR), also called the best flexible rate, is the lowest publicly available rate for a specific room type and date at a given time. It’s used as a baseline price to apply various pricing modifications depending on discounts, dates, demand, etc.

Like a rack rate, it doesn’t include any additional services, such as breakfast. Nor does it impose any requirements—e.g., corporate affiliation or full prepayment. It also has no rescheduling or cancellation penalties, provided the booking changes adhere to the hotel's general policy (for instance, you must pay the equivalent of one night's stay if you cancel less than 24 hours before your scheduled check-in time).

In addition to leveraging BAR, hotels sometimes provide a Best Rate Guarantee (BRG), promising guests the lowest available rate when booking directly. If a client comes across a better price elsewhere for the same room type, dates, and booking conditions, the hotel reviews the claim and adjusts the booking to match that rate. The lucky low-rate catcher can also be offered additional perks.

It’s worth noting that the hospitality industry’s rate parity practice (common in the US, though restricted in the EU) dictates maintaining the same price for the same room type across all public booking channels, including the hotel's website, OTAs, and global distribution systems (GDSs). Considering this, the prices on the hotel website and most booking platforms will usually be the same.

However, some smaller OTAs tend to undercut prices to gain a competitive advantage, which creates a nuisance for hotels. By offering BRG, accommodation owners not only increase guest confidence and encourage direct bookings, but also get help finding rate-parity violators.

How to calculate BAR?

BAR can be calculated the same way as the rack rate, but on top of the basic formula, you should take into account various market conditions—such as current or expected occupancy rates, demand, seasonality, booking channel, competitors' behavior, and local events.

Say a traveler reserves a room at the Desert Rose Hotel in March for a stay in June at $100 per night. However, in April, a major travel magazine features the hotel as a "Top Summer Getaway," leading to a surge in bookings. By May, the same room may cost $130 per night.

Contrary to its name, BAR is not literally the lowest rate for a chosen room/day—as with a rack rate, various discounts can be applied to it.  

Discounted rates

Accommodation providers leverage a range of perks and discounts to tempt potential guests.

Package rates

These bundled rates include additional services or amenities like breakfast, spa access, parking, or event tickets. The total price is usually lower than booking each component separately.

Bed-and-breakfast (B&B) rate. Most hotels with in-house restaurants offer this rate. It’s especially convenient for business travelers and families who prefer not to search for a place to eat breakfast off premises.

All-inclusive rate. Another common package rate covers not just accommodation and meals but also drinks and often entertainment, activities, and airport transfers. This model simplifies guests' budgeting while maximizing on-property spending. All-inclusive rates are popular in resorts and vacation destinations.

For instance, Hilton All-Inclusive Resort and Vacation Hotels (10+ properties in South Europe and Central America) offer a rate that includes all drinks and meals, on-site entertainment, fitness facilities, non-motorized aquatic sports, daily activities, free Wi-Fi, and all service fees and gratuities.

Other bundles can be, for example, a wellness or event package.

Promotional rates

Promotional rates are special discounted prices that are time-sensitive or offered for a limited period to help hotels boost occupancy or secure revenue. They may come with restrictions, such as nonrefundable policies or minimum stay requirements, balancing guest incentives with revenue optimization.

Advance purchase/Early bird rate. A discounted rate for booking weeks or months (typically 30-120 days) beforehand is usually non-refundable. This condition solves one of the critical problems in hotel revenue management: People tend to cancel early reservations for various reasons. A nonrefundable rate shifts financial responsibility to travelers, and the hotel is guaranteed revenue.

However, the staff should be prepared for guests' dissatisfaction in the event of a cancellation, as many people simply don’t notice the terms in the fine print when booking.

Here, you can see the offer from Resident Hotels (a British collection of city-center hotels). Terms and conditions include a non-refundable rate and the hotel's right to cancel the reservation due to force majeure.

Length of stay (LOS) rate. It offers discounts based on the number of nights a guest books. Hotels encourage longer stays by reducing the average nightly rate once a minimum number of nights is met (e.g., “stay 3 nights, save 15 percent”). These rates help increase occupancy, reduce turnover costs, and stabilize revenue, especially during slower periods. They may come with conditions such as nonrefundable booking or limited date flexibility.

Last-minute rate. A special rate for bookings made shortly before arrival helps boost revenue and fill unsold rooms. However, last-minute deals should be selective and limited. They can backfire if guests notice a pattern and delay booking to secure a lower price.

Flash sale. A temporary, steeply discounted rate is available for a very short period, offering potential guests a can’t-miss opportunity.

Here, you can see a flash sale announcement on the website of one of the largest world hotel groups, Wyndham Hotels&Resorts, in September 2024. The offer was valid for 10 days, from September 6 to September 16.

Qualified rates

This rate type applies to specific guest categories. Hotels rarely provide public information regarding the size of discounts, but most often, they do not exceed 10 percent of BAR and are based on room availability.

Member/loyalty rate. This rate is available to guests who join a hotel’s loyalty program or membership club. Perks may include late checkout, free parking, or free Wi-Fi.

A good example is Marriott International's loyalty program Marriott Bonvoy, offering members benefits such as discounted rates, free Wi-Fi, and the ability to earn points redeemable for free nights in over 9,000 hotels worldwide. The higher levels, besides other perks, enjoy free room upgrades, personal assistance, and flexible check-in/out.

Group rate. This special offer applies to a block of rooms booked together, typically for conferences, weddings, or business events. Discounts are based on the volume of rooms reserved. To learn more, read our dedicated article on corporate group bookings.

Government rate. A rate for federal and/or state government employees traveling for official business requires valid government identification and may be subject to eligibility rules. Hotels often set this rate at or above the official per diem rates—daily allowance for expenses like lodging and meals during business trips recommended or dictated by government bodies.

The US federal government per diem rates are established by the US General Service Administration. In California, the range is $131 (Tahoe City) to $273 (Santa Monica) for lodging remuneration. Meals and incidental expense rates in the same state add $68-92 to the daily allowance. For comparison, the European Commission establishes per diem rates at $330 for an employee’s trip to the United States (but $440 for NYC), $177 for Macao, $350 for Denmark, and $477 for Japan.

Military rate. This is a discounted rate for active-duty military personnel traveling for official business. Proof of military service is typically required at check-in. Some properties also offer a special leisure rate for active-duty and veterans, and sometimes for military families.

For example, Choice Hotels offers special limited-time Gold Elite status and exclusive rates to active-duty military members, veterans, and military spouses. IHG Hotels&Resorts also welcomes active and veteran military members with discounts on BAR starting at 5 percent.

AAA rate. Members of the American Automobile Association (AAA) can get special discounts of up to 10 percent from partner hotel brands, including Marriott, Hilton, Hyatt, and Choice. A 16-digit AAA member ID must be presented to qualify.

This rate type is valid only for the US. Still, major hotel chains worldwide may offer discounts for automobile association members regardless of country, especially if the local association is a member of an international association (e.g., Federation Internationale de l'Automobile, or FIA).

AARP rate. Members of the American Association of Retired Persons (AARP) can expect discounted rates (5–12 percent off BAR) at many major hotel and motel chains. Membership cards must be presented to qualify.

Employee/Industry rate. Hotels usually offer discounts not only to their employees but to others as well. Special programs, like Hotel Employee Rates, connect accommodation providers worldwide, slashing prices for hospitality workers at any participating property as long as their employer is a program member. Markdowns range from 40-50 percent to as high as 80 percent in some programs, depending on the hotel's star rating.

This is similar to airline agreements: Pilots can fly free on partner airlines in a folding seat in the cockpit.

To summarize the section on discounted rates: It’s important to balance discounts with economic viability. One useful concept here is the lose-it rate (or walk-away rate) — the lowest price a hotel is willing to accept before deciding not to sell a room at all. This threshold reflects the point at which a booking still covers at least the marginal costs of servicing the room. If prices fall below it, the hotel may choose to leave the room empty rather than incur additional expenses or undermine its overall pricing strategy.

Day use rates

Hotels take every opportunity to maximize revenue, such as renting out conference rooms for official events or banquet halls for weddings and anniversaries. In recent years, renting out rooms during the day has become increasingly popular.

Day-use rates are for short daytime stays without overnight sleeping. For instance, countryside hotels can offer this rate for those who want to spend a day in nature or near a pool. Also, some airport hotels offer a reduced day rate for corporate customers.

Some booking platforms, like Dayuse and Dayrooms, have made day rates their specialty. They partner with major hotel brands and advertise prices up to 75 percent lower than overnight stays.

Daily Delegate Rate (DDR). It’s a packaged rate commonly used for meetings and conferences, which doesn’t include hotel rooms. It bundles essential event services into a single per-person, per-day price, typically including meeting room hire, basic AV equipment, Wi-Fi, refreshments (tea/coffee breaks), and lunch. DDR simplifies budgeting for corporate clients.

Opaque rates

Opaque rates are significantly reduced rates at hotels whose identities are revealed only after booking. Travelers choose based on location, star rating, and amenities. Usually, opaque rates are non-refundable and non-changeable.

Such hidden deals can be found on specialized travel platforms like Priceline and Hotwire. They source rooms from bed banks or partner directly with hotels that provide exclusive discounts on distressed inventory—rooms that haven’t been sold and might otherwise remain empty. This way, they fill the property without breaking rate parity.

B2B or contract rates

To maximize inventory sales and revenue, hotels leverage multiple distribution channels, including OTAs, traditional travel agents, travel management companies (TMCs), destination management companies (DMCs), and tour operators.

Special rates are used when partnering with these platforms and organizations.

Net rate

A net rate, also known as a travel agent rate, is the pre-commission price hotels offer to resellers. It’s a discounted rate that allows agencies to mark up the price before selling rooms to travelers as standalone rooms or packaged deals.

Net rates are usually pre-negotiated, fixed, and not subject to changes. They are valid only for travel agencies that are registered merchants of record and can accept customer payments. If resellers operate under an agency model and can’t mark up prices, they sell inventory to travelers at the standard rate (BAR) and then get a commission for each booking.

Wholesaler rates

Wholesaler rates are deeply discounted prices that hotels offer to wholesalers, also known as bed banks. Negotiated for bulk orders, these rates are typically lower than net ones. Even after a bed bank marks them up and distributes them throughout various booking channels, the prices may remain lower than the published ones. So travel resellers partnering with bed banks (including OTAs, tour operators, travel aggregator platforms, and even airlines) still have room to achieve good margins and stay competitive.

Wholesalers often go beyond selling hotel rooms—they bundle accommodations with additional services like flights, transfers, meals, car rentals, and tours.

Corporate rates

Corporate rates are set through contracts with organizations that frequently book rooms for their employees at a particular hotel or hotel chain, ensuring consistent revenue for the supplier. Besides bargain prices, the contract may offer favorable conditions like flexible rebooking and cancellation since business travel plans often change at short notice.

The final terms here largely depend on the booking volumes: The more an organization buys from a particular service provider, the better the negotiated rates are. Large companies can account for 20-30 percent discounts off rack rates for their corporate travel programs.

Consortia/TMC rates

Unlike corporate rates set for a particular company, consortia rates are negotiated by large travel management companies (TMCs) and groups of businesses (host agencies, travel advisors, OTAs, smaller TMCs, etc) united in consortia to obtain better conditions. Some examples are ABC Global Services, CCRA, and THOR. Consortia/TMC rates are available on GDSs, but only affiliated agents can view and book them.

Hotels join consortium programs to boost their visibility and generate additional sales, especially among corporate customers who book their business trips exclusively via GDSs. Yet, accommodation providers must meet certain requirements to participate, including:

• a 10 percent commission for agents;
• a 10 percent minimum discount on the lowest published rate;
• last room availability guarantee; and
• rate parity among programs.

Also, hotels must factor in expenses on GDS connections—such as listing fees, transaction fees, advertising payments, etc.

Static vs dynamic rates

All prices discussed so far can be divided into two big groups: static and dynamic. A rack rate and all the cheaper deals derived from it are static. But if you apply discounts to BAR, you’re on the dynamic side.

With the rise of online distribution and price transparency, static hotel pricing has become economically ineffective. In the early 2000s, Marriott was among the first hotel companies to adopt dynamic pricing for direct-to-consumer sales, and other major brands followed suit. In the B2B sector, Hilton Hotels Corp. and InterContinental were the first to replace fixed consortia rates in 2004  with more flexible pricing.

The hotel dynamic pricing approach allows suppliers to capture the highest possible value at any point in time. The goal is to find an equilibrium price where supply meets demand, ensuring that both the service provider and the customer perceive the rate as fair at a given moment and under certain circumstances.

For instance, family suites and rooms with a view surge in value during holidays, while single rooms are more popular on weekdays. Unexpected spikes occur due to weather disruptions or airport delays, creating last-minute booking opportunities. And don’t forget peak seasons: In Sanya (China), rates increase 160 percent during the Chinese New Year compared to the off-season.

There are two main dynamic pricing strategies: BAR-based and open pricing. Both approaches consider market conditions such as demand, seasonality, and special events, but they differ in flexibility, frequency of change, and complexity.

BAR-based strategy

As we said, BAR is a flexible rate adjusted to market conditions. Theoretically, it can be changed daily and react to the slightest variations in demand, but such agility is hard to achieve without a modern revenue management system and other technologies in place.

Since many hotels still set their prices manually, they leverage only a limited number of BARs, choosing among three or four base rates.

Say a standard double in our imaginary Desert Rose Hotel on the Spanish coast might have three BARs for the high season:

• BAR 1 ($120) for weekdays
• BAR 2 ($170) for weekends and holidays
• BAR 3 ($230) for special events (festivals, concerts)

There can be more BAR tiers, and, in addition, hoteliers would apply predefined modifiers to each—for example, a $50 surcharge for an ocean-view room, a 20 percent corporate discount, and a 15 percent discount for Agoda bookings. Potentially, coefficients can be created to account for dozens of different circumstances and conditions.

So, the goal is partly achieved—rates vary with demand and help balance income. However, hoteliers are still restricted to a set number of BAR tiers and fixed modifiers that are not inherently dynamic. A more modern approach—open pricing—takes the concept a step further.

Open pricing

Open pricing strategy allows hotels to adjust the price of each room, package, or service separately, and discounts can also vary widely, say from 5 percent to 80 percent, depending on demand and willingness to pay. If guests are not prepared to book at $75 per night, why not offer $70 or $65? And if demand is at a standstill, selling suites at $50 per night might be better than leaving them empty.

This approach also allows for personalized pricing. For example, a business traveler might qualify for a corporate rate, but offering an extra discount could strengthen loyalty if it's his third stay.

Such flexibility maximizes occupancy and captures additional revenue whenever possible. On the other hand, implementing dynamic pricing at this level of flexibility and granularity can be extremely challenging. The technology behind it leverages advanced data analytics and machine learning algorithms to process vast amounts of information, including historical booking patterns, competitor pricing, and external events that may influence demand.