Front Office BudgetingFront 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 Forecasting Rooms RevenueRevenue

Forecasted Annual Rooms Revenue =

Rooms Occupancy AverageAvailable Percentage Daily Rate

Rooms Available = Total Rooms X 365 Days

Forecasting Rooms Revenue Forecasting Rooms Revenue ExampleExample

100 Room Hotel100 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 ForecastingRoom 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 Forecasting Room AvailabilityAvailability

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 DataForecasting DataNo-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-Percentage Of No-showsshows

Number of Room No-ShowsNumber of Room Reservations

Purpose: Helps front office managers decide

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

Percentage Of Walk-Percentage Of Walk-insins

Number of Room Walk-Ins Total Number of Room Arrivals

Purpose: Helps front office managers know

how many walk-ins to expect.

Percentage Of Percentage Of OverstaysOverstays

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 Percentage Of UnderstaysUnderstays

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 FormulaRooms 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 Rooms Availability Formula ExampleFormula 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 Establishing Room RatesRates

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 1. Market Condition ApproachApproach

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 Approach2. 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 Approach2. 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 3. Hubbart Formula ApproachApproach

“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 3. Hubbart Formula ApproachApproach

Average Room Rate =

Rooms Department RevenueExpected 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 Evaluating Front Office OperationsFront 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 PercentageOccupancy PercentageNumber 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 Occupancy Percentage ExampleExample

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 RatesDaily Occupancy Rates

47.8

62.467.7 68.3 65.3 66.5 70.1

0

10

20

30

40

50

60

70

Sun Mon Tues Weds Thurs Fri Sat

Average Daily Rate (ADR)Average Daily Rate (ADR)

Rooms Revenue Number of Rooms Sold

Number of Rooms Sold includes comps

2001 = $83.48

Average Daily Rate ExampleAverage 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 Revenue per Available Room (RevPAR)(RevPAR)

Actual Rooms RevenueNumber of Available Rooms

or:

Occupancy Percentage x ADR

2001 = $49.36

RevPar ExampleRevPar Example

Actual Rooms RevenueNumber 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 RoomRevenue per Available RoomExampleExample

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 IndexRevPAR Index

Hotel RevPARCompetitive 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 - ExampleRevPAR Index - ExampleHotel 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 RevPAR Index Missed Revenue ExampleMissed 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 IndexRevPAR 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