What is a Minimum Acceptable Rate (MAR)?
Minimum Acceptable Rate (MAR) is the minimum rate of return that a project must generate in order to be considered worthy of investment. The MAR is typically determined by comparing the rate of return against the risk associated with the investment opportunity. Thus, it can be calculated by dividing the cost of producing a certain amount of product by the selling price of that product.
MAR = Cost of producing the product / Selling price of the product
MAR is most often used by companies when they are determining what rate of interest they will offer on a loan. Furthermore, if a product fails to meet MAR, it will be rejected, so this metric is essential to newer businesses.
MAR in the Hospitality Industry
In the hospitality industry, MAR is the lowest rate a hotel can charge for an unsold room that still makes it worth their while to keep the room open.
MAR is an essential concept because it helps hotels decide how many rooms they need to keep open to meet their business goals. When a hotel has too many unsold rooms, it loses money and cannot pay its employees or cover its expenses. On the other hand, if a hotel does not have enough unsold rooms, then it will not be able to grow as quickly as it wants to.
The MAR is determined by several things, including:
- How much revenue each room generates per night;
- How much it costs to maintain each room (including utilities);
- Whether or not there are any discounts available for that particular type of room at that particular time (e.g., senior discount).
Why is MAR Important for Hotels?
MAR is a very important concept for hotels. In order to understand why MAR is so important, one needs to understand how hotel room rates are determined.
MAR is the minimum rate that a hotel can charge without losing money on a given booking. If a hotel charges less than MAR, it will lose money on that booking. Conversely, if it charges more than MAR, it will make money on that booking.
The importance of MAR comes from the fact that hotels often have very high fixed costs in terms of maintenance and labor. In order to stay in business, hotels need to charge enough in order to cover these fixed costs. However, if they charge too much, then they will not have any customers! The sweet spot for hotel pricing is between the minimum amount a customer will pay for a room and the maximum amount that customer would be willing to pay for the said room.
MAR is used as a benchmark for performance, and it helps determine whether a hotel is meeting its goals. If the MAR is too low, then it may indicate that the hotel is losing money on stays or not attracting enough guests to be profitable. If the MAR is too high, then it may indicate that there are too many rooms available in the area and competition for guests could be difficult.
