Front Office Budgeting

The most important long-term planning function

FOM is responsible for:

1. Forecasting Rooms Revenue

 Use historical trend data

2. Estimating Expenses
 Vary directly with rooms revenue
 Payroll, laundry & supplies
 Forecasting Rooms Revenue
Forecasted Annual Rooms Revenue =

Rooms Occupancy Average

Available Percentage Daily Rate

Rooms Available = Total Rooms X 365 Days

 Forecasting Rooms Revenue
Example
100 Room Hotel
100 x 365 days = 36,500 Rooms Available

75% Occupancy Percentage

.75

$50 Average Daily Rate

36,500 x .75 x $50 = $1,368,750

 Room Forecasting
Ten-Day Forecast
 Done by FOM and Reservations Manager

House Count
 Expected number of guests in the hotel
 Divided into group and non-group

Three-Day Forecast
 Updated with current information
 Identifies changes in staffing needs
 Forecasting Room Availability
The most important short-term planning function
Hotel Occupancy History
 The past few months and last year at this time

Reservation Trends
 How far in advance are reservations being made?

Scheduled Events
 City-wide conventions; sporting events, etc.

Group Profiles
 Pickup history
 Forecasting Data
No-shows
 Expected guests who did not arrive.

Walk-ins
 Guests without reservations.

Overstays
 Guests who stay beyond their departure date.

Understays
 Guests who check out before departure date.
 Percentage Of No-shows
Number of Room No-Shows
Number of Room Reservations

Purpose:
 Helps front office managers decide

when (and if) to sell rooms to walk-in.

 Percentage Of Walk-ins
Number of Room Walk-Ins
Total Number of Room Arrivals

Purpose:
 Helps front office managers know

how many walk-ins to expect.

 Percentage Of Overstays

Number of Overstay Rooms

Number of Expected Check-Outs

Purpose:
 Alerts front office managers to potential

problems when rooms have been reserved

for arriving guests.
 Percentage Of Understays

Number of Understay Rooms

Number of Expected Check-Outs

Purpose:
 Alerts front office manager to

additional room availability.

 20% of hotels charge understay guests

 Rooms Availability Formula
Total number of guestrooms
- Out of order rooms
- Stayovers
- Reservations
+ Reservations x no-show percentage
+ Understays
- Overstays

Number of Rooms Available for Sale

Rooms Availability Formula
Example
150 Guestrooms
- 5 Out of Order
- 45 Stayovers
- 50 Reservations
+ 10% No-show
+ 5 Understays
- 20 Overstays

40 Rooms Available for Sale

 Establishing Room Rates
Marketing Positioning Statement
 Room rates reflect service expectations to the
hotel’s target markets.

1. Market Condition Approach

2. Rule-of-thumb Approach

3. Hubbart Formula Approach

 1. Market Condition Approach
 Common sense approach.

 Often used, but has many problems.

 Base room rates on your competitions’ rates.

 Doesn’t take into account new properties and construction

costs.

 Allows the local market to determine the rate

 2. Rule-of-thumb Approach
 Sets the minimum average room rate at $1 for each
$1,000 of construction & furnishing costs per room.

 Assumes 70 % occupancy

 $125,000 in construction and furnishings

- $125 room rate

 Doesn’t take inflation into account

 Doesn’t include other hotel services

 2. Rule-of-thumb Approach
Average per-room cost for hotel development:
Segment Per-room cost
 Budget/Economy $52,800
 Midscale w/o $85,600
 Midscale with F&B $103,100
 Full Service $165,900
 Luxury/Resorts $516,300
 3. Hubbart Formula Approach
“Bottom-up”approach
 Begin with desired profit based upon expected Return on Investment (ROI)

 Calculate pretax profits, fixed charge, management fees, & operating expenses

 Estimate other departmental income

 Determine the required rooms department income

 Add expenses to get rooms department revenue

 3. Hubbart Formula Approach
Average Room Rate =
Rooms Department Revenue
Expected Number of Rooms Sold

 Sets a “Target” Average Price

 Lets you determine if your target is too high
 You may have to finance the difference
 Evaluating
Front Office Operations
Occupancy Percentage
 The most commonly used operating ratio

Average Daily Rate (ADR)

 Average of all room types and rates

Revenue per Available Room (RevPAR)

 Measures revenue capabilities of hotel
 Occupancy Percentage
Number of Rooms Occupied
Number of Rooms Available

What does rooms occupied include?

 Rooms sold + comp rooms

What does rooms available include?

 Use the rooms availability formula

2001= 59.20%
 Occupancy Percentage Example
Number of Rooms Occupied
Number of Rooms Available

 Sold 95 rooms with 5 comps

 150 room hotel with 25 out of order

95 + 5 = 100 = 80%
150 - 25 = 125
 Daily Occupancy Rates
67.7 68.3 66.5 70.1
65.3
70 62.4
60
47.8
50
40
30
20
10
0
Sun Mon Tues Weds Thurs Fri Sat
 Average Daily Rate (ADR)

Rooms Revenue
Number of Rooms Sold

 Number of Rooms Sold includes comps

2001 = $83.48
 Average Daily Rate Example
Rooms Revenue
Number of Rooms Sold

 $10,000 Rooms Revenue

 Sold 95 rooms with 5 comps

$10,000 $10,000 = $100

95 + 5 = 100
 Revenue per Available Room
(RevPAR)
Actual Rooms Revenue
Number of Available Rooms

or:

Occupancy Percentage x ADR

2001 = $49.36
 RevPar Example
Actual Rooms Revenue
Number of Available Rooms

 $10,000 Rooms Revenue

 150 room hotel with 25 out of order

$10,000 $10,000 = $80

150 - 25 125
 Revenue per Available Room
Example
Occupancy Percentage x ADR

80% x $100 = $80

RevPAR Limitations:
* Does not include Revenue & Costs from F&B and other outlets

 Is RevPAR higher or lower than ADR ?

 When will they be equal?
 RevPAR Index
Hotel RevPAR
Competitive Set RevPAR

 You decide what hotel’s make up your competitive

set of hotels that you compare yourself too.

 Get your Comp Set RevPAR figures from the STAR

Report or the HRM (HotelRevMax) Report
 RevPAR Index - Example
Hotel RevPAR
Competitive Set RevPAR

 Your Hotel’s RevPAR is $58; Comp Set is $60

 $58/$60 = .966 x 100% = 96.6%

Below 100% = Under Performing Hotel

100% = Fair Share
Above 100% = Over Performing Hotel
 RevPAR Index
Missed Revenue Example
 If your Hotel’s RevPAR is $58 and your Comp Set’s is
$60, you are losing $2 per room in potential revenue

 Calculate your potential lost revenue per month

RevPAR Difference x Number of Rooms x Days in Month
Ex.
Missed Revenue for 150 room hotel in December
$2 x 150 x 31 = $9,300
 RevPAR Index
 You need to select a realistic Comp Set of hotels

 Comparing a luxury hotel to economy hotels inflates your RevPAR Index

but doesn’t help your revenues

 A consistent increase in RevPAR Index is your goal

 Ideally, you want a RevPAR Index above 100% and a positive

percentage change from month to month