Pearson New International Edition International pcl tp indd 1

REVENUE MANAGEMENT
276

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3. Calculate all operational costs. Include expenses directly associated with selling
and cleaning rooms and providing food services. Include all costs incurred to
operate the front office. Additional direct operating costs include housekeeping-
related expenses for labor, guestroom supplies, laundry, and cleaning the
hotel’s public spaces. (Note that the expenses required to operate a food and
beverage department are considered a direct expense of selling rooms.)
In addition to direct operating expenses, indirect operating expenses that
cannot readily be assigned to the front office, housekeeping, or the food and
beverage department must be computed. These will include a variety of costs
such as those for administrative and general tasks, data processing, human
resources, marketing, property operation and maintenance, franchise fees, and
energy costs. In this example, operating costs are:
4. Calculate non-rooms income. Hotels can make profits from a food and bever-
age department or from telephone toll charges as well as from other minor
sources unique to a specific hotel. If these sources generate a loss, the Hubbart
formula requires the amount of the loss to be entered into the formula. In this
example, the profit from non-rooms departments would be:
5. Determine the total room revenue required to meet the hotel’s goals and obligations.
Sum the owner’s desired ROI ($960,000), hotel’s fixed expense ($750,000 
$250,000), direct expenses ($2,000,000), and all indirect operating costs
($1,000,000). Then subtract the amount of non-room revenue anticipated by
the hotel ($125,000 
$25,000). If there was a loss from the non-rooms
departments, this loss would be added to the total room revenue required to
meet all of the hotel’s goals and obligations. In this example, total required
room revenue is $4,810,000:
$960,000
$1,000,000
$2,000,000
$1,000,000
$150,000
ROI
Fixed
Direct
Indirect
Non-rooms
expenses
expenses
expenses
revenue
6. Forecast the number of rooms to be sold based on estimated occupancy. Multiply the
number of rooms available by the projected occupancy rate. In this example:
7. Calculate the hotel’s required ADR. Divide the required room revenue (see
Step 5) by the number of rooms to be sold:
The seven steps required to compute the Hubbart formula are summarized in
Figure 4.
The Hubbart formula is useful because it requires the user to consider the
owner’s investment goals and the costs of operating the hotel before determining the
room rate. It has been criticized for relying on assumptions about the reasonableness
of an owner’s desired ROI (Step 1) and the need to know operating costs (Step 3)
that are affected by the quality of the hotel’s management. Another criticism is the
formula’s requirement that the room rate compensate for operating losses incurred
by other areas (e.g., from food and beverage operations). The formula’s primary
shortcoming, however, relates to the number of rooms forecasted to be sold (Step 6).
$4,810,000
,
43,800
=
$109.82
(200
rooms
*
365
days)
*
.60
=
43,800
rooms
$125,000
+
$25,000
=
$150,000
$2,000,000
+
$1,000,000
=
$3,000,000