If you're an event planner (or a hotel room consolidator or reseller), when you're dealing with hotels (and potentially other vendors), you'll likely hear the terms "net rate" and "net-net rate." Both are critical terms you need to understand to negotiate the most favorable contracts.
Here's what "net rate" and "net-net rate" mean in the context of event planning and event management.
The Meaning of 'Net Rate'
Simply put, a "net rate" is the rate that the event organizer (or hotel room reseller) pays for services without any commission included. The net rate formula is most frequently applied to housing costs for guest rooms at hotels or resorts for meetings and events and includes food and beverage and catering costs.
For example, a hotel's rack room rate is $200 per night. The hotel offers a 10 percent commission to travel agents, which means that a room at rack rate booked through a travel agent would net that agent $20.
However, a hotel room consolidator (or reseller) books a block of hotel rooms for $160 per room at a net rate (i.e., a rate without any commission included). If the person resells those rooms for $200 per room, the person will net $40 per room which is twice the profit. But, this assumes you (as the reseller) sells all of the rooms, which, of course, you can't necessarily guarantee, so it's risky.
Be aware that the hotel room reseller needs to take taxes into account. In the situations that involve a commission, the hotel tacks on any tax applicable to the price, and still pays a commission $20. In the net rate example, if the reseller offers customers a flat rate that includes tax, then any hotel or sales tax will come out of the reseller's profit. The importance of considering the tax, therefore, cannot be over-stressed.
Of course, the concept of net rate applies to event managers no matter what niche industry they work in. For example, if you're organizing an event for a client, you can purchase a block of rooms at a net rate for the client and then resell those rooms. All you have to do is use the examples above to figure out your profit.
Most event planners who contract directly with a hotel and/or another venue request a net rate for their program.
What Does 'Net-Net Rate' Mean?
A "net-net rate" is the cost of a meeting or event excluding all elements that are considered commissionable to a third party and/or other markup fees. Typically, corporate and association event planners will calculate their costs, so they know ahead of time the cost excluding those additional fees.
Here are two more examples that will help clarify net rate versus net-net rate:
- By working directly with the hotel conference services manager to schedule a two-day conference at a hotel, the association planner contracted a net rate to reduce the cost of the program by 12 percent.
- When calculating the overall cost for the conference, the event planner did not rely on any third party suppliers to source related services and was able to calculate a net-net rate for the program.