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 House Count Three-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 Walk-ins Overstays Understays 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 Hotel & Motel; Jan. 12, 2004

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

Number of Rooms Occupied Number of Rooms Available 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 = 150 - 25 = 125 80%

Daily Occupancy Rates

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 = 95 + 5 = 100 $100

Revenue per Available Room (RevPAR) Actual Rooms Revenue Number of Available Rooms or: Occupancy Percentage x ADR 2001 = $49.36

Number of Available Rooms 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 = 150 - 25 125 $80

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?

Competitive Set RevPAR 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

Competitive Set RevPAR 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