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Tariff Decisions, Cost and Price

Tariff Decisions, Cost and Price. Chapter III. TARIFF DECISIONS , COST AND PRICE. INTRODUCTION :

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Tariff Decisions, Cost and Price

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  1. Tariff Decisions, Cost and Price Chapter III

  2. TARIFF DECISIONS , COST AND PRICE • INTRODUCTION : Hotel room rates are usually published by a hotel for use by individuals, travel trade, organizations, etc. This rates list includes prices of rooms classified into different categories based on room types, meal plans, reservation profile etc. This rates list is also called as a tariff card.

  3. Planning and evaluating Front Office Operations • TARIFF CARD • Charging of Room Rates : 1.Competition 2. Customers’ profile 3. Standards of service 4. Locality of hotel 5. Amenities provided 6. Room location

  4. BASIS OF CHARGING ROOM RATES • 12 Noon check in • Night Basis • 24-Hour Basis • Day-rate • On basis of meal plans: European Plan (E.P) Continental Plan (C.P) Bermuda Plan (B.P) Modified American Plan (M.A.P) American Plan (A.P) All-inclusive Plan (AIP)

  5. SPECIAL RATES • Rack Rate • Government Rate • Corporate Rate • Agent Rate • Package Rate • Weekend rate • Promotional package rate • Discounted Rate • Advanced Purchased Rate

  6. SPECIAL RATES • Group Rate • Crib rate • Extra bed rate • Crew rate • Seasonal rates • Membership rate • Advance Purchase Rate • Premium Rate • FIT Rate

  7. Heritage Institute of Hotel And Tourism

  8. Basis of charging room rates • Rule of thumb approach • Upside Down Method • Hubbart Formula

  9. Hubbart Formula Step-7 Step-6 Calculate the hotel’s required ADR Step-5 Forecast the No of rooms to be sold based on estimated occupancy Step-4 Determine the total Room Revenue required to meet the hotel’s goal & obligations Step-3 Calculate non Room income Step-2 Calculate all Operating Cost Step-1 Calculate all fixed expenses Calculate the Hotel’s target profits

  10. Thumb Rule Heritage Institute of Hotel And Tourism

  11. HUBBART FORMULA • Another approach to average room rate determination is the Hubbart Formula . To determine the average selling price per room , this approach consider operating costs , desired profits and expected number of rooms sold. • It is bottom up approach to pricing rooms because its initial item – net income (profit) which appears at the bottom of income statement. It involves 8 steps. • Given By Mr. Roy Hubbart in 1940.

  12. EIGHT STEPS OF HUBBART FORMULA STEP 1: Calculate hotel’s desired profit by multiplying the desired rate of return (ROI) by the owner’s investment. STEP 2: Calculate pretax profit by dividing desired profit (Step 1) by 1 Minus the hotel’s tax rate.

  13. EIGHT STEPS OF HUBBART FORMULA STEP 3: Calculate fixed charges and management fees includes depreciation, interest expense , property taxes, insurance etc. STEP 4: Calculate undistributed operating expenses includes administrative and general expenses , data processing, human resources, transportation , energy costs etc.

  14. EIGHT STEPS OF HUBBART FORMULA STEP 5: Estimate non room operated department income or loss , that is food and beverage department income or loss , telephone etc. STEP 6: Calculate required room’s department income .The sum of Pretax Profit ,Fixed charges, Undistributed operating expenses and the other . Less other operated department losses and income .

  15. EIGHT STEPS OF HUBBART FORMULA STEP 7: Determine the room department revenue . The required rooms department income (STEP 6), plus rooms department direct expenses of payroll and related expenses, plus other direct operating expenses. STEP 8: Calculate Average room rate by dividing rooms department income by the expected number of rooms to be sold.

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