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
hotel’s 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.


Doesn’t 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
 Doesn’t take inflation into account
 Doesn’t 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
$165,900

Luxury/Resorts
$516,300
3. Hubbart Formula Approach
“Bottom-up”approach

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 hotel’s 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 Hotel’s 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 Hotel’s RevPAR is $58 and your Comp Set’s 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 doesn’t 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