METHOD OF PRICING A ROOM

How to calculate and set a room rate

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ROOM PRICE

THE ROOM RATE

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

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THE PRICE WILL VARY ON...

According to: The product and service The market segmentation The season The rooms location Competition pressures Economic fluctuations
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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.

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CALCULATION METHODS
The Rule of Thumb method
The HUBBART method

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THE RULE OF THUMB METHOD

1/1000th of the total cost of construction

(and equipment) of the property Assumes an average occupancy of 65% Therefore, for every 1000,- invested, one calculates 1,- average room price, per room. Example ......
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Rule of Thumb - Example

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

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

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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
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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

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THE HUBBART FORMULA

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

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