METHOD OF

PRICING A ROOM

How to calculate and set a

room rate
RD 23 1
ROOM PRICE
✪ THE ROOM RATE
❖MUST COVER COSTS
❖MUST GENERATE CASH FLOW
❖MUST BE ATTRACTIVE &
COMPETITIVE FOR THE GUEST

RD 23 2
THE PRICE WILL VARY ON...
According to:
✪ The product and service
✪ The market segmentation
✪ The season
✪ The room’s location
✪ Competition pressures
✪ Economic fluctuations
RD 23 3
FLOOR AND CEILING
✪ The maximum price (ceiling) will be
suppressed by a competition’s price
strategy
✪ The minimum (floor) will be governed
by the fixed costs that must be covered.

RD 23 4
CALCULATION METHODS

✪ The «Rule of Thumb» method

✪ The HUBBART method

RD 23 5
 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 1’000,- invested, one
calculates 1,- average room price, per room.

Example ......
RD 23 6
Rule of Thumb - Example

10’000’000,- was the amount

invested in a 100 hotel-room, ...

10’000’000 = 100,- A.R.R. MIN.

100 x 1’000 ( 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

RD 23 8
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

RD 23 9
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
RD 23 10
THE HUBBART FORMULA

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

R.M.S.

(Minimum Average Room Rate)

RD 23 11