METHOD OFPRICING A ROOM

How to calculate and set a room rate

RD 23

ROOM PRICE THE ROOM RATE MUST COVER COSTSMUST GENERATE CASH FLOWMUST BE ATTRACTIVE & COMPETITIVE FOR THE GUEST

RD 23

THE PRICE WILL VARY ON...According to:The product and serviceThe market segmentationThe seasonThe rooms locationCompetition pressuresEconomic fluctuations

RD 23

FLOOR AND CEILING The maximum price (ceiling) will be suppressed by a competitions price strategyThe minimum (floor) will be governed by the fixed costs that must be covered.

RD 23

CALCULATION METHODS

The Rule of Thumb methodThe HUBBART method

RD 23

THE RULE OF THUMB METHOD1/1000th of the total cost of construction (and equipment) of the propertyAssumes an average occupancy of 65%Therefore, for every 1000,- invested, one calculates 1,- average room price, per room.

Example ......

RD 23

Rule of Thumb - Example10000000,- was the amount invested in a 100 hotel-room, ...

10000000= 100,- A.R.R. MIN.100 x 1000( Minimum Average Room Rate)

RD 23

HUBBART METHODA bottom line approachLinked with the break even pointNeeds a revenue forecastNeeds an expenditure forecast

RD 23

HUBBART FORMULAEstimated Operating Costs (EOC)Return on Investment (ROI) or Return on Capital (ROC)Income from other sources (IOS)Number of Rooms sold (RMS)

Will give you the minimum price

RD 23

HUBBART FORMULA Cont ...The result is the Break-even point (min)Return on investment is considered as a costRevenue is determined in advanceNot calculated from the SalesCalculated from what is needed to be earned as revenue to cover costs.Additional revenue to forecast = profit

RD 23

THE HUBBART FORMULA

E.O.C. + R.O.I. - I.O.S. = A.R.R. R.M.S.

(Minimum Average Room Rate)

RD 23