PPT on Tariff structure

3.  Tariff means rate and when applied to rooms of a hotel it
means room rate.
 Hotel room rate fixation is a difficult task. They are both
qualifiable and quantifiable.
 The quantifiable aspect is that they can be measured and
structed to meet certain criteria.
 The qualifiable aspect is that large amount of discretion are
allowed in which rates are implemented.
 The combination of all the rates offered at a hotel is called
“Rate Structure.

4.  Competition
 Customer’s profile
 Standards of service
 Locality
 Various amenities
 Room location
 Publicity
 Price cuts for special business
 The Surroundings, cost of land & Building architecture,
Construction

5.  Rates must be competitive with other hotels
of the same standard and providing almost
similar services and facilities as provided by
other hotels situated in the same vicinity of
the city.

6.  The category of customers coming to the
hotel must also be considered.
 Their social status and financial status.
 Example. Paying capacity , should be kept in
mind.

7.  Standards of services provided by the hotel
are also important while fixing room tariff.
 The U.S.P. of hotel should be kept in mind
while deciding the room tariff.
 More the amenities, higher the standard, so
also higher the room rate.

8.  The locality in which the hotel is situated gains
prominence while fixing room rates.
 If the hotel is situated in a posh locality where all
the shopping malls and other facilities, approaches
to airports are worthy. room rate would be
comparably higher .
 The guest would not mind paying more if he get
amenities and facilities to his taste and likings.

9.  Various amenities the hotel is going to provide to the
guests such as air –conditioning in all the rooms ,
carpeting, swimming pool & tennis court equipment ,
conference halls , lobbies.
 Special aspects of continental and Indian cuisine ,
cutlery and crockery , modern equipments and
machinery.
 These things do count when factors of room – rates
are considered.

11.  The location of the room also matters a lot.
 Front rooms and rooms opening to better views
would cost more than dark rooms , corner rooms or
opening to indifferent chambers.

12.  The amount of publicity done by a hotel and
special budgets prescribed for hotel publicity
also matters in deciding the room rates.
 This type of expense has to be adjusted
somehow as it has no source of return but is
a must in popularizing the various services of
a hotel.

13.  Check-in and check-out basis
 Twenty-four hour basis
 On the basis of Competitor’s rate
 Night basis
 Day basis
 Inclusive and non inclusive rates
 Rule of thumb
 Upside down method
 Hubbart’s formula

14.  It is the most common way of fixation of tariff
 The hotel fixes a specific time usually 12.00 noon as
check-out time which means the guest charging
cycle begins from 12.00 noon and finishes at 12.00
noon on the next day.
 For a guest staying in a hotel after 12.00 noon ,
next day’s charge may be levied.
 Accounting keeping is simple in this system.

15.  In this system the charges of room starts
from the time when the guest checks in and
he has to pay for one day up to 24 hours from
the time of arrival.
 This system is good for small and budget
hotels only.

16.  In this system the guest is charged on the
basis of number of nights that he spend in the
hotel he irrespective of time of arrival.
 If he spends two nights he will be charged for
two nights with a minimum of one day
charges.

17.  Sometimes a guest may stay in the hotel for
few hours only and may not spend the night
in the hotel at all.
 In such cases where he stays only for six
hours maximum hotels may charge special
discounted rate and the rate is called “day
rate or day use rate”.

18.  Hotels also charge room rates on the basis of meals provided
or not provided along with room to the guest.
 European plan: where the tariff of room includes only the
room rate and for meals charged extra rate.
 Continental plan: where the room tariff includes room rate
and continental breakfast.
 American plan: where the room tariff includes room rates,
the English breakfast, lunch and dinner.
 Modified American plan : where the room tariff along with
room rates include English breakfast and one of the two
major meals either lunch or dinner.
 Bermuda plan: where the room tariff includes room rate and
American breakfast

19.  Another very traditional way of charging
room rate is rule of thumb.
 In this system “one Rupee” rate is fixed for
every Rs1000/- spent on room construction
cost.
 This is also called as ‘cost rate formula’.

20.  Hubbart Formula approach considers operating
costs, desired profits and expected number of rooms
sold. In other words, this approach starts with
desired profit, adds income taxes, then adds fixed
charges and management fee, followed by operating
overhead expenses and direct operating expenses. It
is consider a Bottom-up approach.
Copyright. Eugene Win CRDE 2009

21.  Total Operational cost or Expenditures +
ROI- Income received through food &
Beverage sales+ Rentals+ other
miscellaneous sales
 Divide the remaining amount by projected
number of rooms occupied.

22.  Step 1: We calculate The operational cost (expenditure)
i.e. the cost of land, interiors, furniture, fixtures, other
expenses to provide services to guests, licences, HLP
(Heat, Light, Power), Salaries etc.
 Step 2: R.O.I- Return on Investment: Whatever
investment is done on the hotel building and services,
the owners wants some profit in return, that’s why they
add some amount to operational cost so that they can
earn some profit.

23.  Step 3: Step 1 + Step 2 (we add Operational cost and
ROI).
 Step 4: We add income received through food and
beverage sales, Rentals (shops, salon, etc) and other
miscellaneous sales (telephone, laundry, etc.)
 Step 5: Step 3- Step 4
 Step 6: Divide the remaining amount (that is received
through step 5) by projected number of rooms
occupied.

24.  ARR (Average room rate) =
Total room revenue
Total no. of rooms sold/Occupied
 REV PAR (Revenue Per Available Room)=
Total room revenue
Total no. Of rooms available for sale

25.  Room tariff is a document published by the hotel for
use by the travel trade, organization and individual
guest.
 The list includes prices of rooms classified into
different categories , such as single room , double
room , twin room , suites , etc. and meal plans such
as American , European and Continental etc.

26.  Rack Rate
 Group
 Promotional
 Incentive
 Family
 Package
 Hotel website
 Airline
 Complimentary
 CVGR
 House Use
 BAR
 Adhoc Rate
 Travel Agent Rate

27. Any Questions??