CALCULATING ROOM RATES USING THE HUBBART FORMULA

1. Calculate desired profit:

DESIRED RATE OF RETURN X OWNER’S INVESTMENT

2. Calculate pre-tax profits:

DESIRED PROFIT
1 - HOTELS TAX RATE

3. Calculate fixed charges and management fees:

Estimated:
DEPRECIATION
+ INTEREST EXPENSE
+ PROPERTY TAXES
+ INSURANCE
+ AMORTIZATION
+ BUILDING MORTGAGE
+ LAND
+ RENT
+ MANAGEMENT FEES

4. Calculate undistributed operating expenses:

Estimated:
ADMINISTRATIVE AND GENERAL
+ DATA PROCESSING
+ HUMAN RESOURCES
+ TRANSPORTATION
+ MARKETING
+ PROPERTY OPERATION
+ MAINTENANCE
+ ENERGY COSTS

5. Estimate non-room operated department profit / loss :

FOOD & BEVERAGE

+ TELEPHONE...ETC.

6. Calculate required rooms department income:

STEP 2 + STEP 3 + STEP 4 + STEP 5

7. Determine rooms department revenue

STEP 6
+ ROOMS PAYROLL & RELATED EXPENSES
+ OTHER ROOMS DIRECT OPERATING EXPENSES

8. Calculate average room rate

STEP 7
EXPECTED ROOMS SOLD