IHM, KOLKATA

ROOM TARIFF
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SCOPE
Room Rate-Basis of charging
Tariff -Different types of tariffs
and End of Day
Rack Rate
Room Rate-Discounted Rates
for Corporates, Airlines, Groups
& Travel Agents
Rate Fixation- Cost Base and
Market Base
January 20

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ROOM RATE
Room rate is the daily rate charged for using
hotel room and services.
Basis of charging differs from hotel to hotel
Hotel displays the room rate/rent on tariff
cards
The price/rate should cover the cost of
production, overheads and profit to make
the business sustainable and profitable
The price band attracts a particular
segment of clients
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Room tariff must

generate optimum
revenue for the
hotel and provide a
return on their
investment

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 ROOM TARIFF- Factors
5
COST-
Total cost incurred in providing services and product.
Cost can be divided into fixed cost, material cost and labor cost.
Higher the investment higher would be the Room Rate
LEVEL OF SERVICE-
Better services like- Spa, Gym, Banquet Speciality Restaurants
etc. higher the services higher will be the room rate
As star classification is based on level of service – 5star hotel
will have better services than 4star or below
Level of service is directly related to labor cost as hotel prefers
to give personalized services
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ROOM TARIFF- Factors
COMPETITION-
Between similar hotels with
similar standards and services,
facilitates and location play an
important role in determining rack
rate
Increase in demand increase in
price and increase in supply
decrease in price
Higher the competition lower the
room rate. January 20
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 ROOM TARIFF- Factors
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TARGET MARKET-
While selecting room rate one must find out the
disposable income of their target segment.
Disposable income= Monthly Income - Household
Expenses - Savings
Budget or limited service hotel quote lower price
whereas upmarket hotels quote higher price for its
products to attract respective category of guest.

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ROOM TARIFF- Factors
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LOCATION-
City Centre/ Business Hotels
Hotels near Tourist Destination
Hotels near Scenic Beauty Penthouse suIt
(Rooms overlooking Ocean/ Ocean view
Pool/ garden or Mountain).
Cost of land in such location is
also very high.
Room with better view would
also lead to higher charges
January 20
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 ROOM TARIFF- End of the Day
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Once the room tariff is decided every hotel has to decide

a time slot when financial transaction will be closed for
the day referred as “end of day”
An accounting procedure undertaken at the end of the
day ensures that all business transaction form
current day have been correctly processed.
Hotel sells space(Room) and time(24hrs). Different
hotel follow different standards for measuring time
value and money value for one day.

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 ROOM TARIFF- End of the Day
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Fixed check-in/Check-out 24 Hours basis system-
Most hotels follow fixed check- No fixed timing
in and out time to mark end of Room assigned for 24 hrs.
the day. Generally its 12noon form check-in time
Advantage- a room can be Generally followed in transit
sold twice a day. Normally hotel.
adopted by commercial hotels.
No extra hours allowed.
Hotel may allow up to 2hrs. of
relaxation time.

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 ROOM TARIFF- Factors-End of the Day
12

Number of nights-
Room rent charges on the
basis of number of nights
spent in hotel room.
If no nights spent then
half day is charged.
Outdated system.

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RACK RATE
Its a full published room rate which does not contain
any discount.
Does not include any taxes or surcharge. The tariff
card should mention ‘taxes applicable’. For e.g. Rs.
5000++ (++ means exclusive of taxes or taxes extra)
Placed near rate board near room rack on the wall
hence the name Rack Rate.
It's the maximum amount a hotel can charge for a
room.
May be called as standard rate, official rate or legal
rate
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 Room Rack- It is an array of metal
14 file pockets designed to hold room
rack slips (registration records) that
display guest and room status
information

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Types of room rate
Discounted Package
Rate- Promotional Complimentary
(during off
(offered to co. or ( special rates season more (a polite expression
agents giving less than the than one of praise-a hotel
large or regular standard rates product is gives free stay and
bookings and off offered to combined to food to VIP and CIP
season special groups sell as a guests)
discounts are at events) package at a
also offered ) lower price)

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 CORPORATE RATE
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Is to attract corporate

market segment. Like
TATA, BIRLA etc.
To attract Sales and
marketing executives
who now a days travel all
over the country/world.
Corporate rate is generally
10-20% lower than the
Rack Rate January 20

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 SEASONAL RATE
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Peak season–No discount

rather hotels charge higher
rate called as seasonal
rate
Lean season- hotels offer
discounted rate during low
demand period to attract
guests called as off
season rate
Shoulder season- the
period between peak and
lean season. Rates are
medium
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Advance Purchase Rate
Hotels offer heavy discount
on room rates when
bookings are done much
in advance,
Advance booking helps hotel
guarantees a certain amount
of revenue hence helps in
planning in revenue
management strategy.
When rooms are booked up-
to 40-50% discounts
reduced or removed.

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Week Day/ Weekend Rate
Demands for rooms in a hotel
may be more on certain days of
week.
Business hotels will be full
during week days whereas
leisure hotels will see more
bookings on weekends.
Hotels analyse the demands
for room over a period and fix
higher rates during higher
demand and vice versa
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 Day and Half Day Rate  Group Rate
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When the guest books a Hotel usually takes group

room only for the day (min. reservations. A group
5hrs) and doesn’t stay the rate(discounted) is
night, a day rate may be offered to them as they
charged to guest. give bulk business.
At time Transit Guest may Group rate depends on
book a for few hours only( number of pax and
less than 5hrs) half day rate frequency of their visit.
may be charged to the guest Normally a group should
which might be on higher book 10-15 rooms to avail
than numerical half of rack the discount.
Rate. Certified Learning Facilitator January 20
 Tour Group Travel Agent Rate
21(series
group) wholesale rate
Tour operator may conduct a Travel agents sells/
tour to a destination twice a arranges travel for the
week so the tour operator client on behalf of hotel,
guarantees the hotel of airlines, car rentals, cruise
series of business every lines, railways etc.
month for a year. In return
They provide substantial
hotel offers a heavy
amount of business to
discount and blocks the
hotel against which hotel
room accordingly
may offer special discount
or commissions to the agent

January 20
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 Company Volume Guarantee Rate(CVGR)
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A Company volume guaranteed rate

(CVGR) letter is offered by the Hotel to
a company, to use the hotel services,
at a special discounted rate.
This discount is offered when
a company guarantees to give a
minimum number of bookings to
the hotel, per year
A frequent business customer might
also be offered a CP(Continental
Plan) over a standard rate
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AIRLINES/ CREW RATE
A special discounted rate is
offered to the airlines that
offers certain volume of
business throughout the year
on a continuous basis.
The discount can be 40- 60% on
best available rates.
Apart from discount on room
rate, F & B discount of 10-15%
is also given.
January 20
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 GOVERNMENT RATE MEMBERSHIP RATE
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Meant for government officials This is offered to guest who are
who receives TA for his members of influential
official trips organization, travel bloggers who
Hotel may offer discounted provide volume business to the
rate to match the TA. hotel.
Hotel may ask for proof of Rates are much lower than Rack
identity. rate and hotel may also include
discount on food and beverage.
Club Mahindra

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 INTODUCTORY RATE
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This rate is offered by the newly

launched property/hotel.
It’s a marketing strategy to
showcase ones presence in the
market
Hotel also uses this as a test
run- checking their food
quality, service quality ,
accommodation quality and
make amendments as
necessary.
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 COMPLIMENTARY RATE
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Guest is not charged any

room rent.
Generally offered to tour or
group leader.
This may be offered to local
dignitaries/VIP
Hotel may also give some
complimentary rooms with
marriage package or bulk
January 20

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 PACKAGE RATES
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A package rate is quoted

for a bouquet of product
or services
Rate is generally lower
than sum total of each
product in package.
Packages are made to
promote slow moving
products punched in
with hot selling products
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 PACKAGE RATE
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Meeting package –incudes Marriage package-includes
rooms for delegates, meeting necessary arrangement like
room, food n beverage, mandap, priest, hall/lawn,
transportation , audio visual accommodation, reception
equipment's and projector etc.
etc.
Meal package- combination Holiday package- may
of room rent and include transportation,
meals(combination of meals accommodation, meals,
may be offered) guide, sightseeing etc.

January 20
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 FOOD/
MEAL
PLANS

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MEAL PLANS

EP CP AP MAP B&B
(Room (Room rent (Room (Room Bed and
rent and rent and rent with breakfast
only) continental all breakfast (Room
Breakfast) meals) and one rent and
major American
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meal) breakfast)
January 20
 ROOM TARIFF FIXATION
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An accurate and competitive room rent is one of the

prerequisites for running a successful hospitality
business.
A hotel fixes the room tariff on the following two
bases-
Market based pricing
Cost-based pricing

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 MARKET BASED PRICING
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Based on the value of the product in the perception of the
customer.

Market based pricing

As per Market Inclusive/ non Guest

tolerance Rate cutting
competition inclusive rates requirements
Checking Lowering rates to
Based on On the basis of Varying tariff –
competing increase
competing meal plan – early check-in
hotel’s best occupancy level
hotel’s rate MAP/AP/ CP/EP on CP basis or
available specially during
late check-out
rate off season etc.
on MAP basis
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 COST BASED PRICING
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 It’s a technique that covers the basic cost of operation at a given
level of service, plus predetermined percentage of return on
investment.
 It involves the determination of all fixed and variable cost
associated with a hotel.
 Management adds a desired profit margin to each unit for e.g. 5-10%
 Requires hotel’s financial and accounting record to determine
prices.
 Market or any competition is not considered.
 Traditional pricing policy formula-
COST+FIXED PROFIT %age =SELLING PRICE
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 COST BASED PRICING TECHNIQUES
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Two widely used techniques are –

Cost Based
Pricing

Rule of
Hubbart
Thumb
Formula
Approach
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 Rule of thumb approach-
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Oldest method
According to this – room rent should be fixed at the rate of Rs 1
for each Rs 1000/ spent on construction and furnishing a room,
assuming the average occupancy of 70% for the year. For e.g. if
total expenditure is of 15,00,000/ the room rent will be 15,00/
Loop holes-
After 10years also rate would be same even though the cost of
operation would have increased.
It does not consider inflation, competition, fixed expenses etc.
It considered 70% occupancy level whereas a property may not
achieve that for many reasons
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 Loop hole cont.…
36 ROI (return on investment) is not considered. When money is
invested over a year it would have generated income for the
investor.
Depreciation cost for fixed asset and elevation of land
cost is not considered
If the owner has taken loan in any form he has to pay off
the debt irrespective of the volume of business generated is
not considered.
Business may incur some unexpected/unavoidable
expenses
Fails to consider the contribution/ profit made from
facilities offered to guests like laundry, food and beverage,
health and fitness etc. while setting pricing for room.
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 HUBBART FORMULA
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Scientific method of determining the room rent, developed by
Roy Hubbart in America in the 1940s
Step 1: Calculation of Total Investment
• Total Investment = Owner capital + loan(secured and unsecured)
• Calculate fair rate of ROI Return on investment(which is if the
money was invested in Open Market)
• ROI = Total investment x Return %
Step 2 : Calculating Total expenses :
Total expenses = Operating expenses(labour cost etc.) +
taxes and insurance + interest paid on loans +heating,
lighting + depreciation etc.

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 HUBBART FORMULA
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Step 3 : Calculating Gross Operating Revenue
• Gross Operating Revenue = Total Expenses(step2) + ROI(step1)
Step 4 : Revenue generated by room sales
• Revenue generated by room sales and ROI = Gross Operating
Revenue(step 3) -Revenue generated from other sources
Step 5 :Total Rooms available during year
• Total Rooms available during year = Total number of room in hotel x
number of days in year
• Total rooms available after making provision for vacancy:
Total rooms available in a year= Total room in year x occupancy %
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 HUBBART FORMULA
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Step 6: • Calculate Average Daily Rate
• Average Daily Rate : Revenue generated by room sales(step4) / total
number room available(step5)
• Total Room Area : (deduct 25%)= Total room area- Less adjustment
• Rate per square foot for year = Revenue generated by room
sales(step4) / Total Room Area(step 6)
• Rate per square foot per day: Rate per sq.ft for year / number of day in
year
Single room rent:
• Rate of single room = Area of single room x Rate per sq.ft per day
Double room Rate
• Double room Rate = Area of double room x Rate per sq.ft per day
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 Homework
40

 What is Tariff? Explain the various basis of charging the guest

in hotel with suitable example.
 What is Rack Rate? Explain different factors which affect the
room tariff.
 Enlist and explain any eight types of special rates offered by
hotels
 What do you understand by a meal plan? Explain different
meal plans offered by hotels.
 https://www.texalab.com/prepare.php?dept=111-
Hotel_Management_and_Catering_Technology&sub=290-
Front_Office&page=1

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