University Institute of Tourism & Hospitality

Management
Bachelor of Science (Hotel and Hospitality Management)
Subject Name- Front Office Operations
Subject Code: HHT-153
Prepared by: Ms. Rachna Pokhriyal

ROOM TARIFF DISCOVER . LEARN . EMPOWER

 ROOM TARIFF
Course Outcome
CO Title Level
CO1 Student will understand the room Remember
tariff methodology.

CO2 Student will be able to outline the Understand

bases of charging

CO3 Student will be able to understand Understand

the knowledge of Hubbart formula
and Rule of Thumb Approach

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https://hmhub.me/tariff-structure-basis-of-charging/
•Room Tariff Fixation

• Space for visual (size 24)

ROOM TARIFF
FIXATION

Cost –based Pricing

Market-based Pricing
Room tariff card
Hubbart Formula,
Different types of tariff (Rack
Rate, Discount Rate, Family Rate,
Group & Airline Rate etc)

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 ROOM TARIFF
UNIT 1

Means rate, when applied to room of a hotel

it means room rate.

Daily rate charged for the usage of room

Room rent on tariff cards,

Which provide information about the room

rate

For different types of room available in the

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hotel. https://hmhub.me/tariff-structure-basis-of-charging/
 ROOM TARIFF

Combination of all the rates offered called “Rate Structure.

The price of goods & services of a hotel should cover

 the cost of production ,overheads & profit

 So that the hotel business remains sustainable and profitable.

The Published tariff of the hotel is known as Tariff Card.

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 BASIS OF CHARGING ROOM RATES

Rooms are charged on the following basis:

• The 24 hours basis: Room is charged for the stay of 24 hours.

Guest arrives at 9 am today, the room charges will cover until 9 am tomorrow.

 No concession will be given if the guest leaves few hours .

 His/her hotel day begins at 9 am every subsequent day.

There is not any fixed time for check-in and check-out.

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https://www.alamy.com/hotel-room-tariff-image3728341.html
 BASIS OF CHARGING ROOM RATES

The 12:00 noon:

Mostly 12:00 noon as a check-in and check-out time

Method is advantageous that a room can be sold twice in a same day.

 For example, Mr. A arrives at 12:00 noon and checks out early.

After few hours, Mr. Y arrives and is provided the same room,

 He is also charged for whole day

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 BASIS OF CHARGING ROOM RATES

Night Basis
• The charge is fixed, according to the nights spent in the hotel.
• If a guest stays from 10 am until 6 am the next day,
• the guest in charged for one night or a day.
Day rate
• Only on day basis and the guest does not stay for the night.
• Hence guest can stay between 6.00 am and 6.00 pm.
• Day rates are generally published on the tariff card.
• Ex: Airport hotels offer this service.

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 BASIS OF CHARGING ROOM RATES

Night Basis
• The charge is fixed, according to the nights spent in the hotel.
• If a guest stays from 10 am until 6 am the next day,
• the guest in charged for one night or a day.
Day rate
• Only on day basis and the guest does not stay for the night.
• Hence guest can stay between 6.00 am and 6.00 pm.
• Day rates are generally published on the tariff card.
• Ex: Airport hotels offer this service.

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 ROOM TARIFF FIXATION

MARKET BASED PRICING/ MARKET CONDITION APPROACH-

AS PER COMPETITION
RATE CUTTING
MARKET TOLERANCE
GUEST REQUIREMENTS
LOCATION
TARGET MARKET
LEVEL OF SERVICES
INCLUSIVE AND NON INCLUSIVE RATE

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 ROOM TARIFF FIXATION

COST BASED PRICE/COST BASED APPROACH

RULE OF THUMB APPROACH

HUBBART FORMULA

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 MARKET BASED PRICING/ MARKET CONDITION
APPROACH

This is the common sense approach.

Looks at the comparable hotels in the local market/ geographical market

And sees what they are charging for the similar product.

These hotels are called the comparative sets.

Competition for a hotel based on location, property rating,

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 ROOM TARIFF FIXATION

• Type, brand identification and other factors.

• The property which are of same standard.
• Hotel can charge only what the market will accept

1. COMPETITION
• Rate must be competitive with other hotels having same standards
• Providing almost similar services and facilities
• Situated in the same vicinity of the city.

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 ROOM TARIFF FIXATION

2. RATE CUTTING-Lowering of rates to increase occupancy level,

 During off season also at a time of the year or day of the week
when you need business

3. LOCATION- The rates for the hotel room & services

 will be depend upon the location of the hotel.
If the hotel is situated in a posh locality
where all the shopping malls and other facilities,

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 ROOM TARIFF FIXATION

• Hotels in a city centre or business centre (eg. Nariman Point,Mumbai),

• Near places of tourist interest (eg. Taj Mahal Agra)
• or on scenic locales (eg. beaches of Goa).

https://www.tripadvisor.in/Hotel_Review-g304554-d302179-Reviews-The_Taj_Mahal_Palace_Mumbai- 15
Mumbai_Maharashtra.html
 ROOM TARIFF FIXATION

LEVEL OF SERVICE
The level of services offered by a hotel determines the room rent to a large extent.
Hotels offering services such as a spa, gymnasium, banquet halls
Specialty restaurants will charge a higher room rent
In comparison with other hotel. Staffs are more personalized
•

https://www.stgregoryhotelwdc.com/gallery/ 16
http://www.bangkok.com/pattaya/hotel-selection-pattaya/facilities.htm
 ROOM TARIFF FIXATION

TARGET MARKET
Finds the disposable income of their target segment
Then Selects their hotel room rate
Budget or limited-service hotels quotes lower price
To attract guest with less disposable income.

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https://insights.ehotelier.com/insights/2019/07/22/room-pricing-strategies-how-to-sell-more-rooms-at-the-right-rate/
 ROOM TARIFF FIXATION

SEASONALITY
Fluctuation in the market demand for product & services,
 Based upon the natural change in weather.
 Price is directly influenced by the season(Eg Goa, Shimla)

https://www.cleartrip.com/hotels/info/wildflower-hall-41437 18
https://stockmarket360.in/2018/09/27/itc-acquires-park-hyatt-goa-resort-spa-renamed-itc-grand-goa/
 ROOM TARIFF FIXATION

MARKET TOLERANCE
Checking competing hotels best available rates for a room.
 These rates can be found out by hotels
 By calling up the competing hotels without disclosing their identity.

GUEST REQUIREMENTS
 Various amenities to provide to the guest
 Such as air conditioning ,Swimming pool,
Tennis court equipment, conferences halls,
Special aspect of Continental & Indian cuisine.
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 ROOM TARIFF FIXATION

OTHERS ARE:
• CUSTOMER PROFILE
• ROOM LOCATION
• PUBLICITY
• STANDARD OF SERVICE

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 DRAWBACKS OF MARKET CODITION APPROACH

It does not considers the value of the property.

Being a new and perhaps having newer amenities,

The value of the property to the guest can be greater.

 Allows the competition to determine the rates

And this could significantly affect the profitability of the hotel.

For the new property the construction cost is going to be higher

Than those of competitors, therefore the hotel cannot be profitable.

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 DRAWBACKS OF MARKET CODITION APPROACH

It does not take into consideration the value of the property.

Being a new and perhaps having newer amenities,

The value of the property to the guest can be greater.

 Allows the competition to determine the rates

And this could significantly affect the profitability of the hotel.

For the new property the construction cost is going to be higher

Than those of competitors, therefore the hotel

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 COST BASED PRICING/COST BASED APPROACH

• RULE OF THUMB APPROACH

• HUBBART FORMULA

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 COST BASED PRICING/COST BASED APPROACH

RULE OF THUMB APPROACH

Room rate shall be Rs. 1 for each Rs. 1,000 of construction
• and furnishing cost per room assuming a 70% occupancy.

Ex- Average construction and furnishings cost of hotel room Rs. 10,00,000.
• Using , the 1 rupee per 1,000 approach results in an average selling price of rupees
1,000 per room.
• Singles, doubles, suites and other types of rooms would be priced differently, but
the minimum average rate would be rupees 1,000

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 DRAWBACKS OF RULE OF THUMB APPROACH

Considers only the cost incurred in constructing the room.

Does not consider factors such as inflation, competition and fixed expenses.

Fails to consider the contribution of other facilities and services

The ROI(return on Investment) is not considered.

• (If the money invested in constructing and furnishing the hotel room

• had been invested in the market for the duration of one year,

• it would have generated income for the investor).

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 DRAWBACKS OF RULE OF THUMB APPROACH

Does not consider the deprecation of fixed assets or the elevation of land costs.

Establishing a hotel requires a large sum,

• The owner of the hotel has to pay the debt and interest

• on the sum received irrespective of the volume of business

• generated by the hotel.

This factor is not considered in this approach.

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 DRAWBACKS OF RULE OF THUMB APPROACH

Considers the average occupancy to be 70%,

• hotel expecting a lower occupancy

• should set a higher rate to attain the same revenue

The hotel may incur unexpected and unavoidable expenses,

• the provision for which is not made in this approach.

Fails to consider the contribution of other facilities and services

• for the profitability of the hotel while setting the price of a room.
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 COST BASED PRICING/COST BASED APPROACH

Hubbart Formula Approach

Old tradition way of determining the room rent of a hotel.
 Developed by ROY HUBBART in America in the 1940’s
It considers the operating costs,
• desired profit, and expected number of rooms sold.
This approach starts with desired profit, adds income taxes,
• than adds fixed charges and management fee,
• followed by operating over head expenses
• and direct operating expenses.
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 COST BASED PRICING/COST BASED APPROACH

Explanation:
Hotel- XYZ
Total Rooms- 300
Average room occupancy-75%(225 room per day)
Owner Capital-Rs.15,00,00,000/-
Loan Raised by owner-Rs. 10,00,000/-
Total Investment-Rs.25,00,00,000/-
Fair Market Return-12% (Rs.3,00,00,000/-)

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 COST BASED PRICING/COST BASED APPROACH

• Step 1:Calculation of total investment

Owner’s Capital + Loan
15,00,00,000+10,00,00,000= 25,00,00,000
Calculation of Return On Investment
ROI – (Return on Investment)
In this case it is 12 %.
Fair ROI will be –
= Total Investment X Return Percentage

= 25,00,00,000 X 12 = 3,00,00,000
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100
 COST BASED PRICING/COST BASED APPROACH

Step 2:
Calculation of Total Expenses
Operating Expense + Taxes & Insurance + Interest Paid on Loans + Depreciation
on the Book Value
1,23,30,000 + 21,70,000 + 2,20,000 + 2,80,000 = 1,50,00,000
1) Operating expense:
Room Division (HK & FO) = 45,00,000
 Telephone Expense = 75,000
 Administrative Expense = 25,00,000
(Salaries of senior executives, Audit fees, legal fees, Rent & Accounting fees)
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 COST BASED PRICING/COST BASED APPROACH

 Pay Roll and other expenses = 35,00,000

 Advertisement & Promotion = 15,00,000
 Power & Fuel = 1,85,000
 Repair & Maintenance = 70,000
• Total operating expense= 1,23,30,000/-
2) Taxes & Insurance
Real Estate & Property Tax= 45,000/-
Management Fee = 75,000
Corporate Taxes = 12,50,000
Insurance of Building & Other Assets = 8,00,000
• TOTAL TAXES & INSURANCE PAID = 21,70,000 32
 COST BASED PRICING/COST BASED APPROACH

3) INTEREST PAID ON LOANS

To Financial Institution = 1,45,000
To Others = 75,000
Total interest paid= 2,20,000/-
4) DEPRECIATION AT BOOK VALUE =

Building = 1,85,000/-
Furniture ,Fixture & Equipment – 95,000/-
Total Depreciation =2,80,000/-

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 COST BASED PRICING/COST BASED APPROACH

Step 3:Calculation of Gross Operating Revenue

Total Expenses + ROI (Return on Investment)
1,50,00,000 + 3,00,00,000 = 4,50,00,000

Step 4:Gross Operating Revenue – Revenue Generated from other Sources

4,50,00,000 – 3,85,000 = 4,46,15,000

1) REVENUE GENERATED FROM OTHER SOURCES =

Food & Beverage Outlets = 2,45,000
From Lease of Premises = 75,000
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 COST BASED PRICING/COST BASED APPROACH

From Lease of Premises = 75,000

Income from ancillary services = 65,000
(Laundry, Confectionary Shop, Beauty Salon, Florist )
TOTAL REVENUE GENERATED FROM OTHER SOURCES = 3,85,000

Step 5
CALCULATION OF TOTAL NUMBERS OF ROOMS AVAILABLE DURING
THE YEAR
Total Number of Rooms In The Hotel X Number of Days In Year
300 X 365 = 1,09,500 (Rooms)
Average Occupancy is 75% 35
 COST BASED PRICING/COST BASED APPROACH

Total Number of Rooms Available After Making The Provision For Vacancy =

Total Number Of Rooms In The Year X Occupancy Percentage

1,09,500 X 75 = 82,125 (Rooms)

100

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 COST BASED PRICING/COST BASED APPROACH

Step 6:
CALCULATION OF AVERAGE DAILY RATE
REVENUE TO BE GENERATED BY ROOM SALES TO COVER COST & FAIR ROI
TOTAL NUMBER OF ROOMS AVAILABLE AFTER MAKING PROVISION FOR
VACANCY
4,46,15,000 = 543.26 (Per Room)
82,125 (Rooms)

Thus the average daily rate of Hotel XYZ will be Rs 543

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 ADVANTAGE OF HUBBART FORMULA

It provides an adequate return to the hotel's owner.

 Covers the hotel's fixed cost.

 Considered the hotels operating cost

 Accounts for all the hotel's non -room income –

• consider the contribution of other facilities and services

• (F& B Services, Laundry, Health & recreational services)

• for the profitability of the hotel while setting the room rate
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https://cdn.goconqr.com/uploads/node/image/95357952/desktop_7335e4b9-ad56-474d-8b6b-7610e8ff321d.png
 ADVANTAGE OF HUBBART FORMULA

The ROI is considered.

It also consider the loan amount and taxes and insurance

• which is paid by the investor-

• Establishing a hotel requires a large sum,

• which is generated through borrowing from family,

• friends, financial institutions,

• Public through the sale of shares and debentures.

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 ASSESSMENT

Define Tariff

Explain Hubbart Formula

Explain Rule of thumb Approach

Define Tariff Card

Elaborate Tariff Methodology

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 APPLICATIONS

Enhanced emphasis of the course will be to make the students industry ready to
contribute in the growing demand of the hospitality industry at national and international
level.

It will make the students competent to understand basic concepts of tariff fixation and
apply the knowledge at global platform.

It will enhance the skill level of the students and shall make them preferred choice for
getting employment in industry and research labs.

It will prepare the students to apply the knowledge of tariff methodology and respond to
the needs and possibilities of societal transformation.
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 REFERENCES

Hotel Front Office Operations & Management by Jatashankar Tewari

Front Office Management & Operations by Sudhir Andrews

Professional Hotel Front Office Management by Bhakta

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 REFERENCES

https://hmhub.me/tariff-structure-basis-of-charging/

http://hotelmanagement234.blogspot.com/p/hotel.html

http://59.90.94.166/1Yr/home/403Hotel/paper3/unit4.pdf

http://management-anoverview.blogspot.com/2010/02/hotel-tariff-plans.html

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 THANK YOU

For queries
Email: rachnae7668@cumail.in