HFT1000 EXAM 2 STUDY GUIDE Key Terms Main Points Bolded the key main important information Not bolded plain supporting info which he often uses to make questions Italicized in parenthesis examples of concept being discussed TIP when studying I suggest always asking yourself to give an example on that certain concept b c he frequently uses the examples to form his test questions Italicized in a sentence simply for emphasis CHAPTER 13 MANAGING REVENUE EXPENSES REVENUE INCOME SOURCES IN THE HOTEL INDUSTRY The 2 main things making a profit is about increasing revenue lowering costs expenses Most of the everyday tasks completed by managers are done for the financial well being of the firm most hospitality managers increase shareholder value by achieving these 2 main things Many factors can affect hotel occupancy over which the hotel manager may have very little or no control These factors are often external forces such as seasonality demand for warm weather climates in winter places competition new businesses in the market Therefore a manager must carefully plan to overcome issues like these To aid in the strategic plan 3 tools for measuring revenue are used 1 Occupancy percentage a ratio relating the of rooms sold to the of rooms available Number of rooms sold Number of rooms available for sale 675 of rooms sold 1 000 of rooms available for sale 67 5 occupancy Determining an acceptable occupancy rate National averages Comparison of competitor s rates If working for an independent hotel w no franchise or chain affiliation w o any specific guidelines about expected occupancy they can find out percentages of comparable hotels in the area Use of daily audit report from past records Daily audit report includes occupancy ADR Hotel occupancy often fluctuates by days of the week business hotels usually have higher occupancy on weekends whereas resort hotels tend to be the opposite Therefore in this case day of the week is of little significance compared to the actual date Exception the only time you d compare the same date from year to year would be for holidays Christmas always on Dec 25 If hotel manager wants to know how well their hotel will do for December 15th of this year it would NOT be accurate to look at December 15th of last year b c they re on different days of the week So they should compare by days of the week if Dec 15 is on a Thursday this year they d compare it to the 3rd Thursday in December last year Goals of management Double occupancy price by number of guests in a hotel room Number of guests Number of rooms sold Number of rooms sold 1 000 guests 750 rooms sold 750 rooms sold 33 33 This means that 33 33 or 1 3 or 250 of the rooms occupied had double occupancy in turn 66 66 or 2 3 or 500 of the rooms had single occupancy Important this is another calculation a hotel manager should look at in reference to occupancy how many guests are in each room b c some hotels charge more for 2 guests in a room than for a single guest in a room Reason hotels may have additional expenses for HFT1000 EXAM 2 STUDY GUIDE Additional costs include Extra bed used linen laundry costs Extra time for housekeeping Additional continental breakfast consumed some hotels offer a free continental breakfast so an additional one consumed additional expense for each guest Additional utility expenses for additional guest in the room Additional happy hour consumption 2 Average daily rate ADR measurement of how well management is maximizing revenue income through double occupancy selling more expensive rooms Room revenue of rooms occupied 74 140 room revenue 674 rooms occupied 110 ADR This formula is necessary when rooms are sold for more than one rate often the case in most hotels A hotel can have high occupancy but low ADR both are important in calculating how well hotel is at selling rooms maximizing revenue So the ADR is simply the average price of rooms sold that night You want to maximize revenue by attempting to sell as many rooms as possible at the highest rate the market will allow If the most expensive rooms are 250 per night and the lowest priced are 100 per night the ADR is barely above 100 per night then room revenue is not being maximized This hotel may be selling mostly their least expensive rooms or not charging for double occupancy which is lost revenue for the hotel affects the hotel bottom line Rule of Thumb In almost all cases the Average Daily Rate cannot be less than the minimum published room rate or greater than the maximum published room rate 3 Yield Management occupancy percentage ADR combined attempts to control restrict occupancy as a means of maximizing revenue potential We can control occupancy by Holding out for a higher room rate Due to seasonality many hotels change their room rates 4 times a year Any potential guest who makes a reservation during different times of year will find that rates can sometimes vary significantly due to demand A hotel room in a resort area is likely to be quite different in January than July due to demand The greater the demand allows the hotel to charge higher room rates the lower demand means the hotel should lower their room rates accordingly to maximize revenue Adjusting rates according to changing conditions hotels that fail to adjust rates according to changing conditions will likely lose out in maximizing revenue therefore fail to increase income Goal of an effective hotel manager attain maximum revenue for the hotel Revenue concerns are crucial due to high failure rate may be even more crucial in restaurant industry than in hotel industry b c restaurant business failure rate is much higher than hotel industry s REVENUE IN THE RESTAURANT INDUSTRY Failure rate of independent restaurants Over 50 within the 1st year of operation 90 within the 3rd year of operation Prime costs major concern term restaurants use for the 2 largest expenses in the restaurant industry food and beverage expenses payroll If you cannot control your 2 largest expenses smaller expenses that you control efficiently will not likely matter Most restaurants fail financially b c they couldn t control their prime costs HFT1000 EXAM 2 STUDY GUIDE 1 Food Beverage costs incurred when food beverage is consumed for any reason Includes food beverage sold given away intentionally or accidentally wasted or stolen concerns exist regarding employees who serve food to customers purposely don t charge or accidentally undercharge forget to collect payment also food can be wasted by
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