Setting room rates can be tricky. You want attractive deals for guests, but you also need to cover your costs.
Your minimum selling price = your break-even rate
This is the lowest rate you can charge without losing money.
Think of it like this:
- Highest RACK rate= your pricingceiling
- Minimum selling price= your pricingfloor
- Your floor should cover all costs of hosting a guest, including:
- Laundry and linen
- Electricity and TV services
- Food and amenities
- Staff costs (cleaners, chefs, gardeners, etc.)
Knowing your "floor" protects your own pocket
Without a clear understanding of your floor amount, you run the very real risk of offering special deals that result in a loss. If you drop your prices too low without realising it, you might actually end up paying guests to come and stay at your property!
Knowing this bottom-line figure gives you the confidence to know exactly how much you can afford to offer as a discount while keeping your business safe.
How to calculate it
Use this formula:
Minimum Selling Price = Total Property Costs / Estimated Room Nights Sold
Example
Monthly property costs:R70 000
Estimated room nights sold:82
70000 / 82= 853.66
Your minimum selling price isabout R850 per night.
How to calculate your maximum safe discount
If your highest RACK rate isR1 200, and your floor isR850:
Difference =R350
(350/ 1200) × 100 = 29.17%
Your maximum safe discount isabout 29% (roughly 30%).
Always know your floor price before running specials. It helps you stay competitivewithout sacrificing profit.