Revenue Management
Rate Floor
The minimum rate below which a booking destroys profit — set by CPOR plus the leaks.
Academic definition
A rate floor is the minimum rate below which a hotel will not sell, set to ensure that each booking covers its relevant costs and contributes positively rather than eroding profit. A simple floor covers the variable cost of servicing an occupied room, the Cost Per Occupied Room; a more rigorous floor adds the distribution and acquisition costs attached to the channel through which the booking arrives. Rate floors are used to discipline discounting, particularly in low-demand periods when the temptation to fill rooms at any rate is strongest, and to prevent automated or competitive pricing from driving rates below a profitable level. The floor is not static: it varies by channel, since a booking carrying high commission needs a higher gross rate to clear the same net contribution. A well-set floor distinguishes business worth taking from volume that costs more to serve than it returns.
Worked example
With CPOR at ₹840 and an OTA commission of 18%, a hotel's channel-specific rate floor works out near ₹1,025 just to break even on that booking — far above the ₹840 a CPOR-only floor would suggest.
The ProfitPAR™ lens
The rate floor is the most under-used number in the building, because most hotels never calculate it properly. A floor that covers only CPOR is dangerously low — it ignores the commission and discount that ride along with the booking. The real floor is channel-specific: an OTA booking with 18% commission needs a meaningfully higher gross rate than a direct booking to clear the same retained profit. ProfitPAR™ makes the floor explicit and dynamic, computing it from CPOR plus the live leaks for each channel, so the system refuses business that fills a room while emptying the margin. Below the true floor, every booking is a guest you are paying to host.
A floor that only covers CPOR forgets that the commission still has to be paid.
Measure what each room actually keeps.
ProfitPAR is offered as a private revenue practice, by invitation. Tell us about your hotel to begin.
Request an InvitationWorked examples use illustrative figures in Indian Rupee (₹) with lakh/crore conventions. They are composite and representative, not drawn from any single property. ProfitPAR™ is a trademark of Sibasish Misra.