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Travel & Tourism Industry Glossary  :  Rack Rate

The price at which a tour or activity is sold to the general public.  This is also known as the retail rate or gross rate.

The rack rate derives its name from the racks of brochures that operators placed in popular tourist locations such as hotels and tourist offices.  For operators, the rack rate is the equivalent of the MSRP (manufacturers suggested retail price) for goods and represents the highest gross margin for the business.  Discounts and commissions are generally based on the rack rate and, as such, the rate takes into account the possibility of these costs.  Promotions or discounts are generally based on the rack rate of the tour or activity.

Modern tour operator software products allow for yield management capabilities which effectively negate the need for a rack rate.  Yield managed pricing means that the operator can adjust pricing based on demand and supply during different times of the season.  In these cases, the rack rate may become the "Starting From" price.

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