Hotel setup, Room Pricing assistance

Hello Hospitality Professionals. I’m looking to Open a new Hotel and I need guides on setting the room prices, I will appreciate if I can get templates or formats to work with…
thank you.

Hi @Phcarter21aul_Carter,

I suggest you go through below articles about defining your room rate, types of rates used in the hotel and some basic front desk formulas.

Thank you Tin1982. what are the things to consider when pricing the room. what needs to be added or summed up to derive the room selling price…

@Phcarter21aul_Carter I think you should be using the ‘Hubert Formula’ for deriving the room rate for your hotel guest rooms.

Hubbart Formula Approach

It is a bottom-up approach to pricing rooms. This approach considers operating costs, desired profits, and expected number of rooms sold to determine the average rate per room. It is considered a bottom-up approach because its initial item – net income (profit) – appears at the bottom of the income statement.

The second item – income taxes – is the second item from the bottom of the income statement, and so on. The Hubbart Formula approach involves the following eight steps:

  1. Calculate the hotel’s desired profit by multiplying the desired rate of return (ROI) by the owner’s investment.

  2. Calculate pretax profits by dividing desired profit (Step 1) by 1 minus the hotel’s tax rate.

3.Calculate fixed charges and management fees. This calculation includes estimated depreciation, interest expense, property taxes, insurance, building mortgage, land, rent and management fees.

4.Calculate undistributed operating expenses. This calculation includes estimating expenses for the following categories – administrative and general, information technology, human resources, transportation, marketing, property operation and maintenance, and energy costs.

5.Estimate non-room operated department income or loss, that is, food and beverage department income or loss, telecommunications department income or loss and so on.

6.Calculate the required rooms department income. The sum of pretax profits (Step 2), fixed charges and management fees (Step 3), undistributed operating expenses (Step 4), and other operated department income (Step 5) equals the required rooms department income.

7.Determine the rooms department revenue. The required rooms department income (Step 6), plus rooms department direct expenses of payroll and related expenses, plus other direct operating expenses equals the required rooms department revenue.

8.Calculate the average room rate by dividing rooms department revenue by the expected number of rooms to be sold.

Good afternoon @Phcarter21aul_Carter ,
There are many things you will take into consideration when room pricing.

  • Type of Hotel you want to be. How do you want to be seen within your market?
  • When selected the above, you have to choose your competitive set, maximum of 10 properties with very similar standards and property characteristics as your hotel.
  • When you have selected your comp set, make a yearly rate shop or analysis of your comp set rates. By room type is more time consuming but should be good to do.
  • Question yourself where you would want to be within this comp set (leader or aggressive)
  • Analyze your product. What type of room types you have, service given, what is your strongest selling point when compared to the competitors.
  • Calculate what would be the cost of having a room occupied.
  • Create a demand year calendar per day, highlighting main events, bank holidays, weekends and any activity that might bring business to your area and therefore hotel. Prices should be slightly higher and may be more restrictive depending on the demand opportunity.
  • If you can manage to get occupancy statistics on a daily basis for your area of the similar hotel, it would be great to do a DOW analysis (to see if any patterns arise depending on Day of Week)
  • Create an average comp set rate and set your own rates.
  • Beare in mind that most of the channels (depending on were you are located and the market) will be dynamic, therefore you will be able to change rates at any moment and learn your market reaction (by studying your pick up pace) to your different rates and changes.
  • All channels are important, but your direct channel should be a top priority.

There are many other things to bear in mind, but I hope some of these pointers are helpful.

Wishing you the best of luck

D. Turner

1 Like