Floor and ceiling rates are a staple of most revenue management systems but how they are used can vary greatly. At Rate Yield our pricing recommendation algorithm doesn’t look at the floor and ceiling price. Instead, they are used as last resort safety nets. In this article, I’d like to explain why we do it this way.
Back in the day, we had our low season and high season rate grid. I believe that this is where the Floor and Ceiling prices originated. Assume it is your low-demand period, what do you want to price at? Now assume it is the busiest day of the year, what do you want to price at? Today, with an RMS, we can use these two pricepoints to say, any other day of the year, measure demand against none and highest and price somewhere between these two numbers. I am sure that makes a lot of sense to a lot of people.
But… at Rate Yield we decided to ask the question: how do you know what someone would be willing to pay on your busiest day of the year? And if you don’t know, why should you limit your ceiling rate to what your bias tells you?
This approach has been the root of the success for one of our clients, a seasonal property in Quebec. While they have been using Rate Yield for 6 years now, they consistently have seen growth in ADR beyond what they would have set for themselves if they had set a ceiling. For example, in July of 2025 the hotel saw ADR growth over 10% year on year. In the last 2 years, revenue growth for the property was 31%, and with less than 6 months of operation and a very limited demand period, it is not shocking that this growth is ADR driven.
Additionally, because our strategy configuration does not require hotels to aim for 100% occupancy, fluctuations in demand should not necessarily drive the rate towards the floor or ceiling. Instead, at Rate Yield, we focus on staying competitive in a dynamic market and having a pricing strategy that speaks to your hotel’s objectives and philosophy.
So when you set your floor and ceiling rates in Rate Yield, be sure to set your floor price as “X + $1” where X is the price you would lose your job for selling a room at that rate. And the ceiling rate is optional.
