The document discusses different approaches to pricing hotel rooms, including the Hubbart formula approach. The Hubbart formula introduced in the 1940s suggests setting the average daily rate for a hotel room at $1 for every $1,000 spent on constructing and furnishing the room, assuming a 70% occupancy rate. For example, a 190-room hotel that cost $9.5 million to construct would price rooms at $50 per night under this approach. However, this approach does not account for inflation, other facilities/services, or the desired profit level and assumes a certain occupancy rate.
2. Hotel rooms have following abstracts:
1. Major Source Of Revenue
2. Highly Perishable
3. Differs As Per Establishment
4. Differs As Per Type
5. Once Build Can Be Sold Again And Again
3. Rack rate
Seasonal rate
Special event rate
Corporate rate
Government rate
Group rate
Package rate
4. A property management system (PMS) is a computer
system used to manage guest bookings, online
reservations, check-in/check-out, and guest purchases
of amenities offered by the hotel.
While pricing rooms, the hotel shall keep in mind that
rate should be between a minimum (determined by
cost structure) and a maximum (determined by
competition structure)
5. While establishing room rates, management shall be
careful about its
operating costs
inflationary factors, and
competition.
Generally, there are four popular approaches to pricing
rooms:
Cost Approach
Market Condition Approach
Thumb rule Approach
Hubbart formula Approach
6. Introduced In The 1940s
In This Approach, The Rate Of A Room Shall Be $ 1
For Each $ 1,000 Of Construction And Furnishing
Cost Per Room, Assuming A 70% Occupancy Rate.
Every $ 1000 Investment In A Hotel Property Should
Support $ 1 In Average Daily Rate (Adr)
It Is Most Effective Tool Use During The Sale And
Purchase Of Hotel Property
Easy To Calculate.
7. To illustrate suppose a 190-room hotel has costed
$ 9,500,000
of Construction and Furnishing Costs.
Therfeore, the cost per room is $ 50000
which would mean that the price per room shall be
$ 50.
8. This Approach, However, Fails To Take İnto
Consideration
The İnflation Term
The Contribution Of Other Facilities
Services Towards The Hotel’s Desired Profitablity
Assumes A Ceratin Level Of Occupancy Rate.
