METHOD OF PRICING A ROOM

How to calculate and set a room rate

ROOM PRICE THE ROOM RATE MUST COVER COSTS MUST GENERATE CASH FLOW MUST BE ATTRACTIVE & COMPETITIVE FOR THE GUEST

THE PRICE WILL VARY ON... According to: The product and service The market segmentation The season The rooms location Competition pressures Economic fluctuations

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

CALCULATION METHODS The Rule of Thumb method The HUBBART method

Rule of Thumb - Example 10000000,- was the amount invested in a 100 hotel-room, ...
10000000 = 100,- A.R.R. MIN. 100 x 1000 ( Minimum Average Room Rate)

HUBBART METHOD A bottom line approach Linked with the break even point Needs a revenue forecast Needs an expenditure forecast

HUBBART FORMULA Estimated 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

HUBBART FORMULA Cont ... The result is the Break-even point (min) Return on investment is considered as a cost Revenue is determined in advance Not calculated from the Sales Calculated from what is needed to be earned as revenue to cover costs. Additional revenue to forecast = profit

THE HUBBART FORMULA

E.O.C. + R.O.I. - I.O.S. = A.R.R. R.M.S. (Minimum Average Room Rate)