THM201: Front Office Management

Tariffs: Lesson Objectives

Understand the difference between Cost-based pricing and Market based pricing for room rates Understand and be able to calculate the 1:1,000 rule Understand and be able to calculate the Hubbart formula Describe the differential room rates Describe the seven Market-based pricing Possible exam questions

Introduction
There are two fundamental methods of approaching the problem of accommodation pricing: 1. Cost-based pricing 2. Market-based pricing

Cost-based pricing
The 1:1,000 rule, (Room Cost)
Cost of land + building + fixtures and fitting

Number of rooms

= Room Cost

Each calculation must be measured at regular intervals to be up to date and in accordance with inflation Not always accurate but generally a rough guide

Cost-based pricing
The Hubbart formula
Operating costs + required return income ex other departments = average Expected no. of room nights room rate (Refer to hand out Mike Allott)
1. 2. 3. 4. 5. 6. 7. Calculate total amount invested in the hotel Decide on the annual rate of return on this investment Estimate the overhead investments Combine 2 and 3 to find the required gross operating income Estimate the probable profits from all other sources Deduct 5 from 4 to find out how much profit you need to make from room letting Estimate the accommodation departments expenses for the next year (Wages, laundry etc.) 8. Add 6 and 7 to find out how much you need to make from rooms 9. Estimate the number of room nights you are likely to achieve per annum 10. Divide 8 by 9 to find out the average room rate you should charge

Cost-based pricing
Differential room rates:
Types of rooms (Double, Single, Twin etc.) Seasonal rates Weekly/weekend rates

Market-based pricing
Price taking or price followership Top-down pricing Rate cutting Prestige product pricing

Market-based pricing
Inclusive/non-inclusive rates
1. 2. 3. 4.

Fully inclusive Half board/Semi inclusive Bed and Breakfast Non-inclusive rate
Length of stay and meal characteristics Alternative eating facilities Spending power Taste

Guest characteristics

Market-based pricing
Hotel characteristics
Grade Size Length of stay Marketing considerations

Possible Exam Questions

Explain the difference between Costbased pricing and Market based pricing for room rates Describe and calculate 1:1,000 rule with the given information Describe and calculate the Hubbart formula Describe the differential room rates Describe the seven Market-based pricing