Your Rate Floor: What a Room Actually Costs You
Your rate floor is the lowest rate worth accepting: cost per occupied room, plus the commission on that booking, plus a margin. Here is the arithmetic.
Your rate floor is the lowest rate you should accept on a given night, and it is built from cost per occupied room (CPOR) — the costs that appear because the room sold — plus the commission on that particular booking, plus a margin you decide. It is not your break-even. It is not your average nightly cost including the mortgage. And it is not one number: your floor on an OTA is higher than your floor on a direct booking, because the commission comes off the top. This post shows the calculation with real arithmetic.
Why nobody answers "how low can I go?"
Ask this in a forum and you get "it depends" or "never go below your BAR." Neither is an answer. The reason is that the honest answer requires numbers from your P&L, and nobody wants to walk a stranger through their cost accounts.
But the structure of the calculation is the same in every hotel. You only need to know which costs belong in it.
The only costs that count are the ones the sale caused
Cost per occupied room (CPOR) is the incremental cost of selling one more room night. The test is simple: if that room had stayed empty tonight, would you still have paid this cost?
If the answer is yes, it is a fixed cost and it does not belong in CPOR.
| Counts in CPOR | Does not count |
|---|---|
| Housekeeping labor for that clean | Salaried GM and front-desk wages |
| Linen and laundry | Mortgage, rent, or lease |
| Amenities, toiletries, coffee, water | Property insurance and taxes |
| In-room electricity, water, heating | Base utilities for the building |
| Guest supplies and consumables | Marketing retainers and subscriptions |
| Credit card processing fee | PMS and channel manager fees |
| OTA commission on that booking | Depreciation and capital costs |
The borderline case is housekeeping. If your housekeepers are salaried and would be paid whether or not the room sold, that hour is fixed. If they are paid per room or per hour on a variable roster, it is variable. Most independents sit somewhere between — split it honestly rather than picking the flattering answer.
Work out your CPOR from one real month
Take a month with normal occupancy. Add up the variable costs above. Divide by rooms sold.
A 40-room property, one month:
| Variable cost line | Monthly total |
|---|---|
| Housekeeping labor (variable portion) | $9,400 |
| Linen and laundry | $2,100 |
| Amenities and guest supplies | $1,600 |
| In-room utilities (metered estimate) | $1,900 |
| Card processing fees | $1,200 |
| Total variable cost | $16,200 |
| Rooms sold | 720 |
| CPOR | $22.50 |
Note what is not in that table: commission. Commission varies per booking depending on the channel, so it belongs in the channel calculation below rather than in your base CPOR.
Lighthouse publishes CPOR estimates by segment — budget $25–45, midscale $40–65, upscale $65–100, luxury $100–150+. Those are estimates from a vendor, not audited figures, and they include commission assumptions that may not match yours. Use them to check whether your $22.50 looks plausible. If your number comes out at $6, you have left something out.
Your floor is not your CPOR
At $22.50 CPOR, selling a room at $23 makes you fifty cents. That fifty cents does not pay the mortgage, the insurance, the front desk, or the roof.
The money that goes toward fixed costs is contribution margin — rate minus variable cost. At $120 with $22.50 CPOR, your contribution is $97.50 per room night. At $60, it is $37.50. You need almost three rooms at $60 to match the fixed-cost contribution of two rooms at $120.
Your floor is the point where the contribution stops being worth the wear, the clean, the check-in, and the risk of anchoring your market low. Most operators set it as a deliberate number well above CPOR — often two to three times it — rather than as a break-even.
Your floor changes by channel
Once commission enters, the same published rate produces different net revenue.
| Channel | Published rate | Commission | Net to you | Less CPOR $22.50 | Contribution |
|---|---|---|---|---|---|
| Direct (card fee only, in CPOR) | $120.00 | $0 | $120.00 | −$22.50 | $97.50 |
| OTA at 15% | $120.00 | $18.00 | $102.00 | −$22.50 | $79.50 |
| OTA at 18% | $120.00 | $21.60 | $98.40 | −$22.50 | $75.90 |
| OTA at 25% | $120.00 | $30.00 | $90.00 | −$22.50 | $67.50 |
Commission for independent hotels typically runs 15–30%, against 10–15% for large brands (figures reported by Cloudbeds and Preno). That spread is why a rate that feels fine on your own site can feel thin on an OTA.
Two honest caveats. First, that OTA commission is not purely a cost — Cornell's Billboard Effect study (Anderson, Cornell Hospitality Report Vol. 9 No. 16, 2009) found that listing on Expedia raised non-OTA reservations, with the single independent hotel in the study seeing a 26% rise. Some of the commission is buying you demand you would not otherwise see. Second, going below your floor on one channel while holding it on another is how parity problems start.
Your CPOR worksheet
Fill this in with one real month of your own data.
| Line | Your figure | Notes |
|---|---|---|
| Variable housekeeping labor | Only the portion that scales with rooms sold | |
| Linen and laundry | Include outsourced laundry invoices | |
| Amenities and guest supplies | Toiletries, coffee, water, paper | |
| In-room utilities | Estimate: total utilities × share attributable to occupied rooms | |
| Card processing fees | Merchant statement, not gross bookings | |
| Other variable costs | Breakfast cost per occupied room, if included | |
| A. Total variable cost | Sum of the above | |
| B. Rooms sold that month | Exclude complimentary rooms (STR excludes them from rooms sold) | |
| C. CPOR = A ÷ B | Your incremental cost per room night | |
| D. Your margin decision | The contribution you require, in dollars | |
| E. Direct floor = C + D | ||
| F. OTA floor = E ÷ (1 − commission) | At 18%: divide by 0.82 |
Line F matters. If your direct floor is $95 and your OTA commission is 18%, your OTA floor is $95 ÷ 0.82 = $115.85 — not $95.
What the evidence says about discounting toward the floor
Two things are worth knowing before you use your floor as a target rather than as a limit.
Cornell researchers analyzed 67,008 hotel observations from 2001 to 2007 (Enz, Canina & Lomanno, Competitive Hotel Pricing in Uncertain Times, Cornell Hospitality Report Vol. 9 No. 10, 2009). Hotels priced 20–30% below their comp set ran occupancy 15.2% higher and RevPAR 12.2% lower. For independent hotels specifically, that RevPAR gap was −16.31%. The authors state plainly that this shows correlation, not causation.
The second is flow-through — how much of an extra revenue dollar survives to profit. HotStats measured Americas flow-through at 20% year-to-date August 2025 (reported via HOTELSMag): for every additional dollar of revenue, only 20 cents translated into profit.
Why rate dollars beat occupancy dollars — the arithmetic
You will hear that rate-driven revenue flows through better than occupancy-driven revenue. That is not a study finding — it is arithmetic, and it follows directly from CPOR.
Take a 40-room hotel at 60% occupancy (24 rooms) and $120 ADR. Room revenue is $2,880. CPOR is $22.50.
| Route to +$240 revenue | How | Extra variable cost | Extra profit |
|---|---|---|---|
| Raise rate $10 on rooms already sold | 24 × $10 | $0 — no new rooms to clean | $240 |
| Sell 2 more rooms at $120 | 2 × $120 | 2 × $22.50 = $45 | $195 |
Same revenue. Different profit, because the second route triggered two more cleans, two more sets of linen, two more amenity packs. Add commission on those two rooms and the gap widens further.
That is the whole mechanism. Rate increases carry no incremental cost; occupancy increases carry CPOR every time. Nobody needs a study for it — the named inputs are your own CPOR and your own commission rate.
The mistakes that make the floor useless
Putting fixed costs in CPOR. Dividing your mortgage by rooms sold gives you a number that rises when you are empty and falls when you are full. That is backwards and it will scare you into discounting at exactly the wrong time.
Forgetting commission until after you set the rate. The floor has to be set net of the channel, or your cheapest OTA bookings will quietly clear below cost.
Treating the floor as a target. A floor is a limit you rarely touch. If you are selling at it regularly, the problem is demand or positioning, not price.
Using a vendor's segment average as your number. Lighthouse's ranges are useful as a sanity check. They are not your P&L.
Ignoring complimentary rooms. STR excludes comps from rooms sold and from ADR. If you leave them in your denominator, your CPOR comes out artificially low.
The bottom line
Add up one month of costs that only exist because rooms sold. Divide by rooms sold — that is your CPOR. Add the contribution margin you require to get your direct floor. Divide that by (1 − commission) to get your floor on each OTA. Then treat those numbers as limits, not targets, because the Cornell data says discounting toward them buys occupancy at the cost of RevPAR.
The hard part is not calculating the floor once. It is making sure no rate, on any date, on any channel, ever drops below it while you are busy running the hotel. Our dynamic pricing engine takes min and max guardrails you set yourself and holds every generated rate inside them — so the floor you worked out stays a floor.