The “rack rate” is usually understood as the published rate for an unreserved hotel room, before any discounts or promotions; someone just walks in off the street and asks “how much?”We all know that prices are set by demand, not by cost-plus. If I sella widget, it doesn’t matter how much I spent to build it. The only relevant number is what someone is willing to pay for it.The rack rate is simply a reasonable starting point - how much do I need to collect if I add up all my costs and divide by all my rooms, over a full year.Costs include construction (amortized over useful life), operations (with salaries, benefits, utilities, supplies, outside services….), taxes (income, real estate, sales and other luxury fees), interest on my debt, marketing (so much of travel and hospitality is perception rather than reality), profit margin (which must be high considering the risks). Retail is fickle, and hotel rentals are highly seasonal.That average cost over all rooms must allow not just for size (in square feet), but desirability, view, height and all the other features and attributes which travelers care about. Is it too close to the elevator? Too far?!THEN we have a plausible average to begin negotiating with this particular traveler, on this particular night, given the specific situation of season, weather, and location. The rack rate.