ROOM PRICING

 Must be large enough to cover

costs and a fair return on invested
capital

 Must be reasonable enough to

attract and retain the clientele to
whom the operation is being
marketed.

There is little sense in charging a rate

less than that, which is needed to
meet the first objective; there is little
chance of getting a rate more than
that limit established by the second.
Vallen JJ and Vallen
GK
ROOM RATE EXAMPLES

 RACK

 CORPORATE

 GROUP

 PROMOTIONAL

 INCENTIVE

 FAMILY

 PACKAGE PLAN

 COMPLIMENTARY
ESTABLISHING ROOM RATES
IN RELATION TO:

 COSTS
FIXED/CONSTRUCTION/
OPERATING COSTS

 INFLATION

 COMPETITION

PRICE IS MARKET POSITION

 3 APPROACHES

 MARKET CONDITION

 RULE OF THUMB

 HUBBART FORMULA
MARKET CONDITION PRICING

Management prices according

to the local market.

Hotel A Hotel B Hotel C

4 3 2
$60.00 rack $50.00 rack $40.00 rack
rate rate rate
The above hotels are your competitors. How
would you position yourself on rack rate price?

What additional information would you

require?
RULE OF THUMB APPROACH

Sets the rate at $1 for each

$1000 of construction and
furnishings, assuming 70%
occupancy.

EXAMPLE

Average construction
cost of room =$75000

Therefore @ $1:$1000 =$75

Work out the average room
rates for the following
construction costs:

a) $80,000 per room

b) $100,000 per room

c) $140,000 per room

PROBLEMS WITH R.O.T.

 IGNORES INFLATION

 IGNORES OTHER
FACILITIES

 IGNORES OCCUPANCY
 HUBBART FORMULA
1. Calculate desired profit
2. Calculate pre-tax profits
3. Calculate fixed charges and
management fees
4. Calculate undistributed
operating expenses
5. Estimate non-room operated
department profit / loss
6. Calculate required rooms
department income
7. Determine rooms
department revenue
8. Calculate average room rate
 USING THE HUBBART
FORMULA
 To set target rather than actual
room prices

 Reliant on management
estimates

 Used in comparison to
competitors’ prices

 May require early years’

financing to remain
competitive