Pearson New International Edition International pcl tp indd 1

REVENUE MANAGEMENT
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can incorporate the best historical tactics into modern pricing methods, which are
increasingly dependent on and must be compatible with e-distribution.
Traditional Pricing Strategies In the past, hoteliers wanted to maximize their
profits and charge the highest rate possible for their rooms. They still do. The rate
cannot be so high, however, that it discourages guests from staying at the hotel.
Similarly, the rate cannot be so low that it prevents the hotel from being profitable.
Therefore, the room rate should not result from a mere guess about its appropriate-
ness; ideally, it should evolve from a rational examination of guest demand and a
hotel’s costs of operation. Mathematically, such a rate should be easy to compute with
specific and accurate assumptions.
Even the most current textbooks about hotel accounting or front office manage-
ment include a description of the Hubbart room rate formula. Known by hoteliers
worldwide, this formula for determining room rates was developed in the mid-1950s
by two national accounting firms (Horwath & Horwath and Harris Kerr Forster).
The model was named in honor of Roy Hubbart, a Chicago hotelier and a major
advocate of the formula’s approach.
Essentially, the formula seeks to determine what a hotel’s ADR should be to reach
the hotel owner’s financial goals. To compute the Hubbart formula, specific financial
and operational assumptions must be produced. These include dollar amounts for
property construction (or purchase), total cost of operations, number of rooms to be
sold, and the owner’s desired return on investment (ROI) on the hotel’s land, build-
ing, and FF&E (furniture, fixtures, and equipment).