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 Available Occupancy Percentage Average 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
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
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 hotels target markets.

1.

Market Condition Approach

2.
3.

Rule-of-thumb Approach
Hubbart Formula Approach

1. Market Condition Approach

Common sense approach.

Often used, but has many problems. Base room rates on your competitions rates. Doesnt 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 Doesnt take inflation into account

Doesnt include other hotel services

2. Rule-of-thumb Approach
Average per-room cost for hotel development: Segment

Per-room cost $52,800 $85,600 $103,100 $165,900 $516,300

Budget/Economy Midscale w/o Midscale with F&B Full Service Luxury/Resorts

3. Hubbart Formula Approach

Bottom-upapproach

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

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
100 125 =

95 + 5 = 150 - 25 =

80%

Daily Occupancy Rates

67.7
70 60 50 40 30 20 10 0
Sun Mon Tues Weds Thurs Fri Sat

68.3

62.4 47.8

65.3

66.5

70.1

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

$10,000 100 =

$10,000 95 + 5 =

$100

Revenue per Available Room (RevPAR)

Actual Rooms Revenue Number of Available Rooms

or: Occupancy Percentage x ADR

2001 = $49.36

RevPar Example
Actual Rooms Revenue Number of Available Rooms

$10,000 Rooms Revenue 150 room hotel with 25 out of order $10,000 125 =

$10,000 150 - 25

$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?

RevPAR Index
Hotel RevPAR Competitive Set RevPAR

You decide what hotels 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 - Example

Hotel RevPAR Competitive Set RevPAR

Your Hotels 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 Hotels RevPAR is $58 and your Comp Sets 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 doesnt 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