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 Noshows
Number of Room No-Shows
Number of Room Reservations

Purpose:
Helps front office managers decide
when (and if) to sell rooms to walkin.

Percentage Of Walkins
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.

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.

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

Budget/Economy

$52,800

Midscale w/o $85,600

Midscale with F&B $103,100

Full Service

Luxury/Resorts

$165,900
$516,300

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

95 + 5 =
150 - 25 =

100
125

80%

Daily Occupancy Rates

68.3

Tues

Weds

62.4

70
60

67.7

65.3

66.5

70.1

47.8

50
40
30
20
10
0

Sun

Mon

Thurs

Fri

Sat

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
95 + 5 =

$10,000
100

$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
150 - 25

$10,000
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?

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 Hot

100% = Fair Share

Above 100% = Over Performing Hote

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