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Expert Insight: What does a good business travel rate cap look like?


blue piggy bank with helmet on its head depicting business travel rate cap blog

Ah, it's that time of the year again - the hotel RFP season is approaching, and you know what that means! Time to crunch the numbers and figure out your rate cap policy. But don't worry; we’re here to lend a hand!


But first, what does a good rate cap look like? It might appear simple, but it’s not a one size fits all approach. We don’t just wake, think of a number and decide: “this year, customers’ rate caps should be ‘x’”. At Agiito, we understand that each customer is unique, and there are plenty of factors to consider.


Align business objectives with your rate cap strategy.

When setting up your rate cap, it’s important to think about what your business objectives are for the year, what rate cap should be applied to help you achieve this, and does your policy align with what you’re trying to achieve? It's like finding the perfect match for your business goals - the yin to your yang! The approach can vary depending on the objective but let’s start with the basics and explore some of the top priorities and the impacts they have:

  • Prioritising savings: If savings are your key objective, consider the quality / star rating of the hotel, it’s location (city centre vs. outskirts), any public transport nearby and the purpose of travel.

  • Prioritising sustainability: You might be wondering why this would have an impact on the rate cap. Choosing a hotel that is more sustainable right now may come with additional costs until sustainable practices become more of the norm.

There’s more to rate caps than you think.

In the main, your rate cap should support your savings agenda, and the choice of hotels that you have on your programme should align with the rate caps you set. For example, we’d recommend that the highest preferred rate is the rate cap to ensure that you drive compliance to your programme and control your costs.


As we mentioned above, rate caps are rarely one size fits all. That doesn’t just count for the rate cap value, there’s different mechanisms and strategies you can take, like deciding the type of rate cap you want to put in place. One that’s enforced, one with greater flexibility or a little bit of both.

  • Hard rate caps: This strict approach means bookings cannot be made above policy.

  • Soft rate caps: This flexible approach allows you to book above the policy, but travellers will need to explain their choice. This is more of a guidance cap and can enable travellers and bookers to see what the average rate should be in a location.

  • A little bit of both: This might involve a soft rate cap with a % tolerance, with the need for approval.

Flexibility can also be considered by location, like adding a rate cap to an entire continent, individual countries or even a specific town or village out in the middle of nowhere.


What rate cap would suit you best?

  • Hard rate cap

  • Soft rate cap

  • A little bit of both

Exceptions.

A rate cap can often be a broad brush, but you can start to think about different areas of your business that require some exceptions to the main policy rule. For instance, one area of your business might have different needs to another. Here are a few common examples:

  • VIPs that shouldn’t be challenged.

  • A department that has specific needs or behaviours (e.g. Sales/ Marketing / Engineers that need to book last minute or have a meeting at a set hotel / venue.)

  • Apprenticeships, new starters or trainees that may need to stay in pre-authorised hotels.

But how are these individuals or groups identified? Often, this can this be managed through your HR Feed, so keeping it updated and relevant can help to improve compliance. You can talk through these scenarios with your travel management company and ensure that it can be managed and delivered.


In a nutshell, building a good rate cap is like custom tailoring - it won't fit everyone perfectly, but it'll suit most business requirements. Remember the 80/20 rule – focus on your location spending, where the greatest savings will be achieved or where you might need to tighten or loosen controls.


Now for our parting rate cap tips.

You might have a hotel programme in place but how strong is it? We’ve seen an increase in last room availability (LRA) rates at a much higher premium and customers don’t always accept these rates on their programme. Since the pandemic some hotels aren’t offering LRA at all. Think about applying a tolerance to your rate cap of 10%.


How about non-preferred locations? One of the ways we look at this is to set a rate cap for specific regions using 12 months of your data. We’d analyse average rates achieved and combine this information with any forecasting indexation.


So, there you have it, rate caps made easy! Let's set sail into the hotel RFP season with confidence.

 

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