Room Rate Structure

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CHAPTER 7 ROOM RATE STRUCTURE • The combination of all the rates offered at a hotel is called the rate structure. • Hotel room rates are both quantifiable and qualifiable. • Average Daily Rate (ADR) – average of all rates sold at a hotel on a given night. It is not the highest nor is it the lowest. It is used to determine a starting point in establishing a hotel’s rate structure. Hotel Room Rate Qualifiable – large amounts of discretion are allowed in which rates are implemented & when. Quantifiable – they can be measured and structured to meet certain criteria. - Hotel rooms will vary in cost for the same basic product. THE HUBBART FORMULA Roy Hubbart developed a method to calculate a hotel room rate based on the costs incurred in operating the hotel and a reasonable return on investment for the investors. The Hubbart Formula incorporates three schedules. I looks at specific financial calculations, II looks at the rates per occupied room, and III incorporates square footage into the analysis. The Hubbart Formula – Schedule I • Traditional room cost is considered. • Return on Investment is factored in to give owners/investors a fair rate of return. • Operating expenses, taxes/insurance, and depreciation are included to determine the room cost. The Hubbart Formula – Schedule II • The figure reached at the end of Schedule I is used to determine the average daily rate the hotel would need to charge to meet its obligations (operating costs and owner ROI). • Schedule II incorporates opportunity cost. • Schedule II also assumes an average occupancy percentage. The Hubbart Formula – Schedule III • Schedule III makes an assumption that larger rooms are more expensive to maintain. • A square footage calculation is made of the area of all

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