1. Summary Slide Room Rate Structure Hubbart Formula
Hubbart Formula–Schedule I
Diagram–Hubbart Formula–Schedule I
Hubbart Formula–Schedule II
Diagram–Hubbart Formula–Schedule II
Hubbart Formula–Schedule III
Diagram–Hubbart Formula–Schedule III
Other Rate Calculation Methods
Room Rate Designations
Diagram–Weekday vs. Weekend
Rate Averages
Exercise
Figure 7-1

2. Room Rate Structure
The combination of all the rates offered at a hotel is called the rate structure.
Hotel room rates are both quantifiable and qualifiable.
Average Daily Rate (ADR) is a term used in different ways. In this analysis, it is used to determine a starting point in establishing a hotel’s rate structure.
Figure 7-2

3. The Hubbart Formula
Roy Hubbart developed a method to calculate a hotel room rate based on the costs incurred in operating the hotel and a reasonable return on investment for the investors
The Hubbart Formula incorporates three schedules. I looks at specific financial calculations, II looks at the rates per occupied room, and III incorporates square footage into the analysis.
Figure 7-3

4. Hubbart Formula– Schedule I
Traditional room cost is considered
In addition, Return on Investment is factored in to give owners/investors a fair rate of return.
What hotel trend precipitated the need to incorporate ROI? That is, what changed in the industry and what other industries became involved?
Figure 7-4

5. Figure 7-5

6. Hubbart Formula– Schedule II
The figure reached at the end of Schedule I is used to determine the average daily rate the hotel would need to charge to meet its obligations (operating costs and owner ROI).
Schedule II incorporates opportunity cost.
Schedule II also assumes an average occupancy percentage.
How can using the 70% occupancy figure sometimes cause problems?
Figure 7-6

7. Figure 7-7

8. Hubbart Formula– Schedule III
Schedule III makes an assumption that larger rooms are more expensive to maintain.
A square footage calculation is made of the area of all the guestrooms in a hotel.
What are some of the drawbacks of using a strict square footage calculation?
Figure 7-8

9. Figure 7-9

10. Other Rate Calculation Methods
Cost Rate Formula
Market Tolerance
Shop Around
What ways could a hotel determine its rate structure?
Why are anti-trust concerns so important?
Figure 7-10

11. Room Rate Designations
Term used to specify the rate threshold within the overall structure. It simply “ranks” all the rates within the rate structure.
Rack Rate
Corporate Rate
Volume Account Rate
What is a target rate?
Figure 7-11

12. Room Rate Designations
Additional rate designations include:
Government Rate
Seasonal Rate
Weekday/weekend Rate
Membership Rate
Industry Rate
Walk-in Rate
Premium Rate
Advance Purchase Rate
Package Rate
Per person and Group rates
Figure 7-12

13. Weekday vs. Weekend
Figure 7-13

14. Rate Averages
Used to determine the average revenue figure of specific rates.The most commonly used figure is ADR. Others include:
Gross Average Rate
Net Average Rate
Group Average Rate
Transient Average Rate
Market Segment Averages
Room Specific Averages
Figure 7-14

15. Rate Structure Internet Exercise
Using the Web sites and hotels you identified in the Internet exercise of Chapter 3, compare the different rates available for a given day.
Why would a hotel identify several rates within its rate structure this way?
Do the needs of guests differ greatly?
What are the benefits/drawbacks of offering only one rate per day?
Figure 7-15