101 check the following items before accepting the credit card as a method of payment: a) Expiration Date b) Invalid Credit Card: This can be checked either by on-line authorization systems, or comparing the card across some cancellation bulletins c) Credit card floor limit 4. Direct billing: Some guests (especially VIP) do not prefer to wait at checkout queues like other guests before departure. They, rather, prefer, only to sign their guest folios, go to their homes, later receive a certain invoice detailing their charges while they were staying at the hotel to be settled by payment to hotel bank accounts. In order to satisfy the needs of this category of guests, hotels created the direct billing process. To be eligible for a direct billing privilege, guests shall at pre-arrival stage or maximum at the arrival stage fill a hotel credit application form along with the provision of an imprint of a valid credit card. This very form is sent to the Front Office manager, or Rooms Division manager for approval. If not approved, guests are requested to pay with any of the other methods of payments. 5. Special Programs: Special programs are any form of vouchers, coupons, or any special incentive awards received from businesses, airline companies Issuing Room Keys With the issuing of room keys, the rooming process gets to an end. However, concerning room keys, front office clerks shall respect hotel's written policies governing guestroom key control. As an illustration, front desk agents shall only handle the room key to the guest without announcing and/or spelling out the room number. This is a vital requirement to protect and ensure guest safety and privacy. After guest is handed his/her room key, front office clerks shall offer bellboy assistance
102 Fulfilling Special Requests The Front Office department shall watch for any guest special requests and try promptly to satisfy them. This way creates a good and professional relationship with the guests and increases the probability that the hotel will receive these guests for another time in the future (i.e. repeat guests) Guests' requests are usually grouped under the following categories: a) Room type b) Bed type c) Location d) View e) Amenities Creative Options Some of the following innovations are nowadays commonly used while registering a guest: a) Eliminating the front desk structure (i.e. deskless environment) b) Having a hotel greeter register guests at a special lobby location c) Creating a unique & separate registration area for VIP guests d) Simplification of room process for corporate gatherings, tour , and convention groups e) Self registration (i.e. self check-in terminals)
103 CHECK-OUT AND SETTLEMENT Checkout and settlement describe the activities associated with the final stage of the guest cycle (i.e. departure). Check-out and Account Settlement The major activities, which are conducted at departure, include: 1. Resolving outstanding guest account balances 2. Updating room status information 3. Creating guest history records Departure Procedures At checkout, front office clerks shall: 1.Check for mails, messages, and faxes 2.Check for safe deposit box, or in-room safe keys 3. Post all outstanding charges 4. Verify account information 5. Inquire about additional recent charges 6. Present the guest folio for guest signature 7. Verify the method of payment 8. Process the account payment (i.e. zeroing out the account) 9. Update the room status Methods of settlement a) Full cash payment: the front office clerk shall destroy the guest’s credit card voucher b) Personal check payment: the front office clerk shall shift the credit from guest ledger to personal check account, which is a sub-account of the city ledger and the guest shall only sign a personal check voucher c) Credit card payment: the front office clerk shall shift the credit from guest ledger to credit card account, which is a sub-account of the city ledger and the guest shall only sign a credit card voucher d) Special program payment: the front office clerk shall shift the credit from guest ledger to special program account, which is a sub-account of the city ledger and the guest shall only sign a special program voucher
104 e) Direct billing payment: the guest shall sign only his/her folio, and depart. Later, he/she, upon receipt of hotel invoice, shall deposit a certain amount of money in the hotel bank account. f) Combined settlement method: In this case, depending on which combination, front office clerk shall proceed by preparing different kinds of vouchers! Sales minded cashiers As guests tends to depart from the hotel, the cashiers shall approach them in the following way: a) Provide them comment cards and encourage them to use these very cards b) Thank the guest for choosing the hotel and wish him/her a safe trip c) Ask the guest whether he/she is considering returning to the property on any return trip to the area. Cashiers might sometimes accept future reservations! Late check out Late check out refers to the situation where guests check out after the hotel's established check out time. Late check out shall not be considered as a guest right, rather a privilege which might be honored by the front office manager upon room availability whether free of charge or charged a late check out fee. Check Out Options There are a lot of innovative ways to check out apart from the traditional way. Below are two commonly used check out options (apply usually only to guests who have provided valid credit cards at registration): 1. Express check out: This is usually convenient for guests who decide to check out very early in the morning. In fact, at night, bellboys (for example) shall slip the guest folio under the expected departed guestroom. When the guest wakes up, he/she shall sign the gust folio, and the credit card voucher, leave the room, give back the room key to the bellboy, and departs. 2. Self check out: Guests might check out using self check out terminals situated at public areas or in their rooms if in-room check out systems are integrated with front office main frame. Unpaid Account Balances
105 Unpaid account balances occur because of the following reasons, most of which are because hotels do not operate fully-automated systems: a) A guest has fully / partially settled his/her account with a method of payment other than cash b) A departing guest honestly forgetting to settle his/her account c) Late charges (being one of the most important reasons) d) Skippers In order to minimize late charges, front office clerks shall: a) Post transactional vouchers as soon as they arrive at the front desk b) Survey front office equipment, voucher and folio racks for non-posted charges before the front office clerk checks a guest out c) Ask departing guests whether they have incurred any charge purchase or placed long distance telephone calls, which do not appear on their final folio Account Collection All unpaid account balances shall be transferred to city ledger accounts, which might have the form of: a) Credit card billing b) Direct billing c) Travel agency accounts d) Bad check accounts e) Skipper accounts f) Disputed bills accounts g) Guaranteed reservation accounts h) Late charge accounts i) House accounts In order to receive all their city ledger accounts, hotels shall devise effective and efficient account receivables billing procedures. To do so, every property shall try to find answers to the following questions: a) When are outstanding accounts balances payable? b) How many days shall separate each two consecutive invoices? c) How to contact the departed guests whose accounts is not yet paid? After coming with answers to the above mentioned questions, hotels, then, shall depending on the amount of money to be collected, and the geographical distance
106 that separates the hotel from the guest billing address, opt for one of the following collection schedules: a) Aggressive (short cycle) collection schedule b) Lenient (long cycle) collection schedule Account aging Account aging refers to the method(s) of tracking past due accounts based on the dates the charges were incurred. To illustrate, credit card payment accounts usually have ages of maximum one month. However, some other non-guest accounts (ex. late charges, disputed bills, bad checks and skippers accounts) might have ages measured in months, and even years. Below, is the terminology associated with each account age: •Less than 30 days accounts ⇒ Current Accounts •More than 30 days accounts ⇒ Overdue Accounts •Older than 90 days accounts ⇒ Delinquent Accounts Front Office Records The major two front office records that are stored at departure are guest history records (which are stored alphabetically) and guest folios (stored numerically) 1. Guest history records: Guest history records are collections of personal & financial data about guests who have stayed at the hotel. Maintaining guest history records helps the hotel better understand its clientele and determine guest trends when they develop. Moreover, these very records might serve as a source of mailing list or to identify guest characteristics that are important to strategic marketing. In addition, they serve as to develop and place advertisements that appeal to the types of clientele the hotel attempts to attract. Finally guest history records points out the need for a new, supplementary, or enhanced services. Moreover, even though guest history records are stored in the front office department, they are handed to marketing department, whenever needed. In fact, marketing department might get use of guest history records as to create a program to reward frequent guests with a free stay after a certain number of visits, or as an indicator to watch out for future repeat guest reservations in order to increase the hotel’s repeat business market share.
107 Guests tend to remember the friendliness, convenience, and special services that distinguish one property from another. This is called competitive advantage. FRONT OFFICE ACCOUNTING Front Office Accounting There are two major types of accounts widely used in Front Office Accounting: a) Guest accounts describe all charges and payments of guests who are already registered at the hotel. b) Non-guest (house or city) accounts: describe all charges and payments of nonguests. To illustrate, a potential guest sending a certain deposit to guarantee a reservation is a non-guest. Moreover, charges and payments of guests who checkout with any method of payment other than cash, shall be opened a nonguest account. Lastly, visitors and employees with charge privileges shall be opened non-guest accounts. Folios: A folio is a statement of all transactions (i.e. debits & credits) affecting the balance of a single account. At Checkout, any guest folio should be balanced to 0 through full cash payment, credit card transfer, personal check transfer, special program transfer, and direct billing transfer. The correct way of maintaining folios starts with proper posting, which is the process of recording transactions on a folio (i.e. proper folio, proper location and proper amount) Under the manual, semi automated and fully automated systems, folios are called hand-written folios, machine-posted folios, and computer-based electronic folios respectively. Moreover, all folios shall have a unique serial number for internal control and storing purposes.
108 In the front office department, there are four common types of folios used: a) Guest folios: accounts assigned to individual persons or guestrooms b) Master Folios: accounts assigned to more than one person or guest room; usually reserved for guest groups c) Non-Guest (or semi-permanent) folios: accounts assigned to non-guest businesses or agencies with hotel charge purchase privileges d) Employee Folios: accounts assigned to employees with charge purchase privileges Apart from the above mentioned common folios, front office department get use of some other types of folios such as A-type, B-type, C-type, D-type, and E-type folios. Vouchers: Vouchers depict the details of the transaction information gathered at the source of transaction and is, hence, a supporting documents used only for internal control purposes. Below are some of the commonly used vouchers in the hospitality industry: a) Cash vouchers b) Credit card vouchers c) Charge vouchers d) Transfer vouchers e) Paid-out vouchers f) Correction vouchers g) Allowance vouchers Points of sale [i.e. POS]: A point of sale is the location at which goods or services are purchased; sometimes called a revenue center. Moreover, due to technology breakthrough, some nontraditional point of sales emerged such as in-room movie & in-room vending service systems. Since charges are usually incurred at remote points of sale, and guest and nonguest folios are maintained at the front office department, posting of different guest and non-guest charges shall be performed. An electronic transfer ensures this, under the fully automated system. Under manual and semi automated systems posting shall be done by a physical submission of different vouchers to the front office department. When posting charges, the following items shall be considered: a) Amount of the charge
109 b) Name of the point of sales outlet c) Room number & name of the guest d) Brief description of the charge e) Guest signature & employee identification Ledgers: The front office ledger is the collection of front office account folios, which usually include guest ledgers (i.e. charges and payments of all guests staying at the hotel). At any moment in time, the account receivable includes the addition of guest ledger and non-guest ledger (or city ledger) which refers to charges and payments of all non-guests. Creation and Maintenance of Guest Accounts: All guest folios shall be created during the pre-arrival or arrival stage of the guest cycle. Moreover, folios might be either placed in front desk folio tray [i.e. posting tray, folio well, or bucket] or stored as an electronic guest folios in fully automated systems. As far as walk-ins are concerned, all their guest folios are created at the arrival stage! Record keeping systems: a) Non- automated systems: Ensured through a series of columns listing individual debit and credit entries accumulated during the occupancy stage after which and establishment of an ending outstanding balance is needed. b) Semi-automated systems: Under this very system, all guest transactions should be printed sequentially on a machine-posted folio. Later, the front office clerk needs to come up with the folio outstanding balance. It is extremely important here to mention that, under this very system, each account’s previous balance shall be re-entered each time a transaction is posted to the folio. c) Fully-automated systems: All guest charges are automatically posted to an electronic folio Guest charge privileges: Potential guests who would like to have guest charge privileges shall present an imprint of an acceptable credit card or direct billing authorization at registration.
110 Failing to do so, guests would have to pay, in full, all their charges through cash, hence called Paid-in-Advance [PIA] guests and have, hence, have no post status. Credit monitoring: In order to monitor and control charge privileges, the front office clerk should check whether the total net purchases are less than the minimum of floor Limit (i.e.: credit card company's limit) and house limit (i.e. hotel's limit). At least, each day, lists of guests with high risk or high balance accounts shall be communicated to all point of sale outlets. This is vital since, failing to do so, will let point of sales outlets continue giving charge privileges to a point that eventually the credit card company refuses to pay the amount of money exceeding its limit. This will cause very serious financial losses to the hotel. Account maintenance: Whatsoever system hotels operate, maintenance of guest and non-guest accounts is ensured by the following formula: Net outstanding balance = Previous balance + Debits - Credits NOB = PB + DR - CR Tracking Transactions: Under the manual and semi-automated systems, tracking transactions is ensured through an intensive use of vouchers. On the other hand, Under fully automated systems, tracking transactions is ensured through on-line electronic transfer of transactional information from remote points of sale to the front office main frame terminal. In accounting, a transaction is an exchange of goods and services for cash or a promise to pay. Under this very assumption, "nothing happens until a transaction occurs". This means that front office clerks shall first of all have a transaction, its supporting documents (i.e. vouchers, invoices…) to be able later to debit or credit certain accounts. In hotels transactions might have the form of: a) Cash payment b) Charge purchase c) Account correction d) Account allowance e) Current transfer
111 f) Cash Advance Cash payment: In this very transaction, front office clerks shall post cash payment as a credit in the guest folio. Moreover, cash vouchers shall be used as a transaction-supporting document. Charge purchase: Charge purchases represent deferred payment transactions that increase the outstanding balance of a folio account. In this transaction type, front office clerks shall use charge vouchers as a transaction-supporting document. Account correction: Account correction is used to resolve a posting error in a folio detected at the day the error is made (i.e. before the closing of the business day). In this transaction, front office clerks shall use correction vouchers as a transaction-supporting document. Account allowance: Account allowances occur because of two reasons: a) Either as compensation of poor service, or as rebates for coupon discounts. That way, guest outstanding balance decreases. b) As to correct a posting error detected after the closing of the business day. For both reasons, front office clerks shall prepare an allowance voucher as a transaction supporting document. Internal Control: In the hotel industry, the main purpose of internal control is to track transaction documentation, verify account entries and account balances, and to identify vulnerabilities in the accounting system. The keyword to internal control is auditing, which is the process of verifying front office accounting records for accuracy and completeness. Below are some forms that are of extreme importance to internally control, one of the most vital assets in the hotel (i.e. cash): 1- Front office cash sheet:
112 The front office cash sheet lists each cash receipt or disbursement in order to reconcile cash on hand at the end of a cashier's shift with the documented transaction that occurred during the same shift. 2- Cash, house banks or petty cash: Petty cash is the amount of cash assigned to a cashier so that he/she can handle the various transactions that occur in a particular work shift. At the beginning of each shift, all cashiers must sign their cash banks and at the end of the shift, shall deposit all cash, checks, and other negotiable instruments in the general cashier's safe deposit box. Moreover, at the end of each shift, cashiers should watch out for cash discrepancies (i.e. any difference between front office cash sheet and the actual amounts in their cash drawers). Cash discrepancies might have the form of cash overages, shortages, or due backs Lastly, cashiers might come up with the net cash receipt, which is: Amount of all cash, checks, and other negotiable instruments in cashier’s drawer – amount of the initial cash bank + all paid outs 3- Audit control: Along with the fact that hotels might employ internal control auditors, at least once in a year, (especially for hotels traded in the stock market) to get use of external certified public accountants responsible for approving hotel's accounts. 4-Settlement of Accounts: One of the responsibilities of front office clerks is to settle guest accounts, which means the eventual collection of payment for outstanding account balances (i.e.: bringing account balances to 0]. This is usually ensured either by full cash payment, transfer to an approved credit card, personal check, special program, or direct billing account…
113 THE NIGHT AUDIT Functions of the Night Audit The major functions of the night audit is to: a) Verify posted entries to guest and non-guest accounts b) Balance all front office accounts c) Resolve room status and rate discrepancies d) Monitor guest credit limits e) Produce operational and managerial reports The role of the night audit The night audit requires attention to accounting detail, procedural controls, and guest credit restrictions. In this sense, the night auditor shall track room revenues, occupancy percentages, and other standard operating statistics. He/she shall, also, prepare a daily summary of cash, check, and credit card activities that occurred in the front office department on a daily basis. In night auditing, end of the business day is a vital time for the auditor. As far as the closing of business day is concerned, management shall determine the end of day, which is the time after which the night audit can prepare his/her daily Reports. This end of day is usually the time where the majority of outlets close or no more have frequent activity. The night auditor shall always compare the data conveyed in different folios against points of sales outlets daily reports, housekeeping room status report…This is called cross-referencing, and is a vital procedure in the internal control. After comparing, the night auditor should come up with the guest, non-guest, and departmental accounts. This total should match the daily POS totals (i.e. in balance). If not, then the auditor is said to be out-of-balance, and the night auditor shall substantially review all account statements, vouchers, support documents, and departmental source of documentation in order to bring the audit to balance. The night audit shall compare all credit limits of guests and non-guests accounts with credit card floor limits, hotel's house limit, guest's status and reputation. If high balance accounts (i.e. balances for which the guest or non-guest limits are very near to an established limit) are detected, the night auditor shall note and report this to management the following day.
114 Under the manual, a daily transcript and a supplementary transcript are used to track daily transactions of guest and non-guest accounts respectively. Hotels operating under semi-automated systems use D-Cards for the same purpose. II- Operating Modes: 1. Non-automated system: under this very system, 4 forms are widely used, which are: a) Daily and supplementary transcripts b) Guest and non-Guest folios c) Front office cash sheets d) Audit recapitulation sheets 2. Semi-automated system: • The audit of guest and non-guest accounts is ensured mostly through mechanical or electronic posting machines. The most important form obtained under this very system is the D Card. 3. Fully-automated system: • This very system is the best compared to manual and semi-automated systems. In fact, this system can be interfaced with point of sale terminals, call accounting systems, and other revenue centers for quick, accurate and automatic postings to electronic guest and non-guest account folios. This very fact enables the night auditor to concentrate more on auditing transactions and analyzing front office activities. The Night Audit Process The night audit process focuses on two areas: 1. Discovery and correction of front office accounting errors ensured through the cross-referencing process. 2. Creation of accounting and managerial reports including audit balance, average rate, occupancy percentage, usage of package plans and other marketing programs, and the number of group rooms and complementary rooms occupied. The main steps of the night audit process are: 1. Complete outstanding posting 2. Reconcile room status discrepancies
115 3. Verify room rates 4. Balance all departmental accounts 5. Verify no-show reservations 6. Post room rates and taxes 7. Prepare required reports 8. Prepare cash receipts for deposit 9. Clear or back up the system 10. Distribute reports Verifying the Night Audit Most of the errors encountered in the night audit process stem from the fact that the hotel is not operating under fully automated system. The widely occurring errors in the night audit process can have the form of: a) Pickup errors b) Transposition errors c) Missing folios
116 Front Office Management Establishing Room Rates-Pricing Front office manager shall assign to each room category a rack rate. In accordance, front office employees are expected to sell rooms at rack unless a guest qualifies for an alternative room rate (ex: corporate or commercial rate, group rate, promotional rate, incentive rate, family rate, day rate, package plan rate, complementary rate…). While pricing rooms, the hotel shall keep in mind that rate should be between a minimum (determined by cost structure) and a maximum (determined by competition structure) boundary as depicted below: Minimum (Hurdle Rate) < Room Rate < Maximum (Rack Rate) Cost Structure < Room Rate < Competition Structure While establishing room rates, management shall be careful about its operating costs, inflationary factors, and competition. Generally, there are three popular approaches to pricing rooms: 1. Cost Approach 2. Market condition approach 3. Rule-of-thumb approach 4. Hubbart formula approach 5. Other 1. Cost Approach: This Approach’s starting Point is on finding the Per Room occupied daily Direct and Indirect Expenses. Determining Rack Rate: The answer found above is the minimum price of Single and Double rooms as to have no loss or profit from our operations! This condition is refereed to as the Break-Even price! In order to find the rack rate (i.e. the maximum price potential guests can be charged), the hotel shall apply some of the above-mentioned methods:
117 a) Multiplier Method: Under this very method, hotels shall try to set a Multiplier, by which the Room Cost shall be multiplied, in order to come up with the hotel Room Rack Rate (for each room type): • Multiplier = 1 / (Desired Room Cost Percentage) • Desired Room Cost Percentage = (Forecasted Total Room Cost) / (Forecasted Total Room Revenue) b) Mark-up Method Under this very method, an addition (or add-on) to the Cost of a Product will be applied to come up with the Single and Double Rack Rates. • Later, the hotel might adjust this figure to a whole number and communicate it as its List Price (for guest and accounting convenience!) • The most important handicap of the Cost Approach pricing is that it does not take into consideration how much Customers are actually willing to pay for the Hotel Services, and how other Hotels are actually charging for their Hotels. 2. Market condition approach: Under this very approach, management shall look at comparable hotels in the geographical market, see what they are charging for the same product, and “charge only what the market will accept”. Some drawbacks of this approach are that it does not take into consideration the value of the property, and what a strong sales effort may accomplish. Last but not least, there is always subjectivity in coming up with sets of criteria against which hotel rooms can be compared and measured for similarity! 3. Rule of thumb approach: In this very approach, the rate of a room shall be $ 1 for each $ 1,000 of construction and furnishing cost per room, assuming a 70% occupancy rate. This approach, however, fails to take into consideration the inflation term, the contribution of other facilities and services towards the hotel’s desired profitablity, and assumes a ceratin level of occupancy rate.
118 4. Hubbart formula approach: This very approach considers operating costs, desired profits, and expected number of rooms sold (i.e. demand). The procedure of calculating a room rate is as follows: a) Calculate the hotel’s desired profit by multiplying the desired rate of return (ROI) by the owner’s investment. b) Calculate pre-tax profits by dividing the desired profit by 1 minus hotel’s tax rate. c) Calculate fixed charges and management fees. This calculation includes estimating depreciation, interest expense, preperty taxes, insurance, amortization, building mortgage, land, rent, and management fees. d) Calculate undistributed operating expenses. This includes estimating administrative and general expenses, data processing expenses, human resourecs expenses, transportation expenses, marketing expenses, property operation and maintenance expenses, and energy costs. e) Estimate non-room operating department income or loss, that is, F&B department income or loss, telephone department income or loss … f) Calculate the required room department income which is the sum of pre-tax profits, fıxed charges and management fees, undistributed operating expenses, and other operating department losses less other department incomes. g) Determine the rooms department revenue which is the required room department income, plus other room department direct expenses of payroll and related expenses, plus other direct operating expenses. h) Calculate the average room rate by dividing rooms department revenue by the expected number of rooms to be sold. • Doubles sold daily = double occupancy rate * total number of rooms * occupancy % • Singles sold daily = rooms sold daily – number of double rooms sold daily • Singles sold daily * x + doubles sold daily * (x + y) = (average room rate) * (total number of rooms sold daily) • Where: x = price of singles; y = price differential between singles and doubles; x + y = price of doubles.
119 Other Pricing Techniques: 1. Market-skimming Pricing: Setting a High Price for a new Product to skim maximum Revenues layer by layer from the Segments that are willing to pay the High Price 2. Market-penetration Pricing: Setting a Low Price for a New Product in order to attract a Large Number of Customers and a Large Market Share. 3. Optional Product Pricing: Pricing Optional or accessory Products that are being sold along with a Main Product. 4. Captive Product Pricing: Setting a Price for Products that must be used along with a Main Product (ex. Frills no more free of Charge but Charged a Price to Customers) 5. Product Bundle Pricing: Combining Several Products and Offering the Bundle at a Reduced Price (i.e. Packaging & Discounting) Discounting: In all Computations done so far, the Room Price that we have found is what is called the Room Rack Rate (i.e. The Maximum Rate a Hotel can charge a Guest). Yet, most often, only Walk-ins (i.e. Guests without a Reservation) are charged a Rack Rate, which would mean that a big proportion of guests actually pay a Discount on the Rack Rate. Discounting is a method used by Management to make their Products and Services attractive to Customers. This very method may differ according to seasonality, type of Customer, Market Segment, and Type of Product There is an important relation between Occupancy and Discount Percentage:
120 Equivalent Occupancy = (Current Occupancy) * ((Rack Rate - Marginal Cost) / (Rack Rate* (1-Discount Percentage) - Marginal Cost)) Forecasting Room Availability Forecasting room availability is forecasting the number of rooms available for sale on any future date. This type of forecasting helps manage the reservation process, guides the front office staff for an effective rooms management, and can be used as an occupancy forecast, which is, further, useful in attempting to schedule the necessary number of employees for an expected volume of business. In order to forecast room availability, the following data are needed: a) Number of expected room arrivals b) Number of expected room walk-ins c) Number of expected room stayovers d) Number of expected room no-shows e) Number of expected room understays f) Number of expected room check-outs g) Number of expected room overstays These above-mentioned data help the front office in conduct various daily operational ratios such as: a) No-shows percentage = (number of no-show rooms) / (number of rooms reserved) b) Walk-ins percentage = (number of walk-in rooms) / (total number of rooms arrivals) c) Overstays percentage = (number of overstay rooms) / (number of expected check-outs) d) Understays percentage = (number of understay rooms) / (number of expected check-outs) The forecasted number of rooms available for sale for any future date can be tracked using the following formula: Forecasted number of rooms available for sale = total number of guest rooms – number of out of order rooms - number of stayovers rooms – number of reserved rooms + number of no-show rooms + number of understay rooms – number of overstay rooms
121 Under non-automated and semi-automated systems, number of rooms available for sale forecasts are calculated upon demand and need and vary from three-day to ten-day forecasts. However, under fully automated systems, forecasts can be done at any moment for any future period of time. For, computers run forecasts on a room count considerations, hence eliminating tedious labor work and human error margins. Budgeting The Rooms Division manager shall forecast next period’s room revenue, and direct expenses. The Rooms Division Manager shall first forecast demand for rooms for the next period in question, and then might use historical averages, industry average… to estimate Room Revenue and Room Direct Expenses 1. Forecasting room revenue: In order to forecast room revenue, the front office manager might consult historical financial information such as past room revenue, past number of rooms sold, past average daily rate, and past occupancy rates. 2. Forecasting direct expenses: Due to the fact front office manager is responsible only for his/her department direct expenses (i.e. variable costs), the front office manager can, also, consult historical financial data depicting variable cost to room revenue ratios, in order to estimate department expenses. 3. Refining budget plans: Sometimes, if external uncontrollable factors change significantly, in an unexpected way, then the actual operating budgeted figures shall be revised. 1. Estimating Room Revenue: By using an appropriate forecasting method, the Rooms Division Manager can forecast demand measured in room nights. Later, the Rooms Division Manager shall multiply the total room nights by the Average Room Rate (ARR), either using hotel historical or industry averages, to come up with the estimated Room Revenue.
122 Later, according to hotel historical figures, the Rooms Division Manager shall estimate the room allowances figure and subtract it from the estimated total room revenue to come up with the net room revenue. 2. Estimating direct expenses: Direct Expenses (i.e. Variable Costs) in the Rooms Division Department can be divided into 4 categories: 1. Wage Expenses (Hourly Wage * Estimated Total Labor Hours needed) 2. Frills (i.e. Free of Charge Replenished Room Items) 3. Material (i.e. Cleaning Supplies, Utensils…) 4. Laundry & Linen Expenses (Cost of pressing, cleaning, pressing, storing…) The Rooms Division Manager might consider country averages, and or historical averages, along with current hotel / labor union collective bargaining contracts for the coming period, suppliers’ price increase intentions, the relative change of local currency against some major foreign currencies, to estimate department direct expenses. 3. Refining Budget Plans: If the actual operating figures and budgeted figures are distant from each other, then this suggests a refining or revision of our budget (i.e. revision of room demand, estimated room revenue, and rooms direct expenses) Reports, Ratios and Analysis in Front Office A successful front office manager shall continuously evaluate the results of department activities on a daily, monthly, quarterly, and yearly basis. While evaluating, the following items and tools shall be used: a) Daily operations report b) Occupancy ratios c) Rooms revenue analysis d) Hotel income statement e) Rooms division income statement or schedule f) Rooms division budgets report g) Operating ratios and ratio standards
123 1. Daily operations report: It is also known as the manager’s report, the daily report, and the daily revenue report. This very report contains a summary of the hotel’s financial activities during a 24-Hour period. Moreover, it serves as to reconcile cash, bank accounts, and revenue and accounts receivable, and as an important data that must be input to link front and back office computer functions. 2. Occupancy ratios: Occupancy ratios measure the success of the front office in selling the hotel’s primary product (i.e. guestrooms). Below are some common ratios used in the front office department: • Occupancy percentage = (number of rooms occupied) / (total number of rooms available for sale) • Multiple occupancy percentage = (number of rooms occupied by more than one guest) / (total number of rooms occupied) • Average guests per rooms sold = (total number of guests) / (total number of rooms sold) • Average daily rate = (total rooms revenue) / (total number of rooms sold) • Average rate per guest = (total rooms revenue) / (total number of guests) 3. Rooms revenue analysis: One main report to enhance control over room revenue is the room rate variance report, which is the one that lists those rooms that have been sold at rates other than their rack rates. Another form is the yield statistic, which is the ratio of the actual revenue to the total possible potential revenue if all rooms are sold at rack rates. Yield statistic = (actual room revenue) / (potential room revenue) 4. Hotel income statement: This very statement provides important financial information about the results of hotel operations for a given period of time 5. Rooms division income statement:
124 The rooms division income statement (sometimes called a schedule) shall be referenced on the hotel’s income statement. Moreover, the rooms division schedule shall be prepared by hotel’s accounting division not the hotel’s front office accounting staff. 6. Rooms division budget reports: These reports are monthly budget forms that compare actual revenue and expense figures against budgeted amounts depicted both in dollar values and percentage variances 7. Operating ratios: Operating ratios (ex. occupancy ratios, yield statistic…) assist managers in evaluating the success of front office operations. Moreover, for ratios to be meaningful they should be compared against proper standards such as prior period's, competitor's, and/or budgeted ratios. Operational Ratios: 1. Occupancy Ratios: Occupancy ratios measure the success of the front office in selling the hotel’s primary product (i.e. guestrooms). Below are some common ratios used in the front office department: Occupancy Ratios shall be computed on a daily basis by the Night Auditor, and communicated to related department managers the next day For any ratio to be significant, it should be compared to a certain benchmark, which might include: 1. Last Period’s Ratio 2. Budgeted or Planned Ratio 3. Competitors’ or Industry Average Ratio • Occupancy Percentage = (Number of Rooms Occupied) / (Total Number of Rooms Available For Sale) * 100 • Multiple Occupancy Percentage = (Number of Rooms Occupied by More Than One Guest) / (Total Number of Rooms Occupied) * 100 • Single Occupancy Percentage = (Number of Single Rooms Occupied) / (Total Number of Single Rooms Available For Sale) * 100
125 • Double Occupancy Percentage = (Number of Double Rooms Occupied) / (Total Number of Double Rooms Available for Sale) * 100 • Triple Occupancy Percentage = (Number of Triple Rooms Occupied) / (Total Number of Triple Rooms Available For Sale) * 100 2. Other Operational Statistics: • Average Guests Per Rooms Sold = (Total Number of Guests) / (Total Number of Rooms Sold) • Average Daily Rate = (Actual Room Revenue) / (Total Number of Rooms Sold) • Average Rate per Guest = Revenue Per Available Customer (RevPAC) = (Actual Room Revenue) / (Number of Guests) • Revenue Per Available Room (RevPAR) = (Actual Room Revenue) / (Number of Available Rooms) 3. Yield Statistic: Yield Statistics is an operational ratio that needs to be calculated on a daily basis by the Night Auditor and communicated to the Rooms Division Manager to show how successful the Rooms Division Department is selling its rooms at a rate very near the rack rate! Yield Statistic is one approach to come up to a solution to Yield Management, which is: “Maximize Room Revenue Subject to Space” • Yield Static can be computed in the following way: • Yield statistic = (Actual Room Revenue) / (Potential Room Revenue) Guest Supplies The expenses represent all guest needed during check in or check out in the front office counter, and concierge counter, item are below: • Key Card • Envelope Key card • Welcome Drink Voucher
126 • Breakfast Voucher • Registration Form • Reservation Form • Guest Folio • Official Receipt • Miscellaneous Charges Form • Check Out Envelope • Facsimile Sheet • Receiving Record Form • Luggage Tag • Room Rate Change • Safe Deposit Form • Valet Parking
127 Wake-up Calls – Daily Record Date: Room # Time AM PM Entered By Checked By
128 Transient Trends Analysis Report Month: Prepared By: SUN MON TUE WED THU FRI SAT TOTAL Number of Days Days Over % Total Room Revenue Total Room Occupancy Total Arrivals Total Departures Average Room Nights Average Room Rates Average Arrivals Average Departures Number of Days: Count the number of Sundays, Mondays, Tuesdays etc. for the month you are tracking. For example, if the month of may has four Sunday’s, place a 4 under SUN. Continue until you have recorded each weekday, then add the numbers in that row and place the total in the TOTAL column. The total should equal the number of days in the month. Days Over %. This row is used for tracking those days that exceed your total occupancy goal. This is the only row that includes group and transient business. For example, if your goal is 85% and you achieved it twice on Thursdays and once on Monday, put a 2 under THU and a 1 under MON. Total Room Revenue. Add up all the Transient Room Revenue from each Sunday and place that number under the SUN column. Do the same for the rest of the days, totalling across the TOTAL column. Total Rooms Occupied. Add up all the transient rooms occupied each Sunday, and place that number under the SUN column. Do the same for the rest of the days, totalling across to the TOTAL column.
129 Total Arrivals. Add up all the Transient Arrivals you had on each Sunday and then add together and place under SUN. Do the same for each weekday, totalling across the TOTAL column. Total Departures. Add up all the Transient Departures you had on each Sunday and then add together and place under SUN. Do the same for each weekday, totalling across the TOTAL column. Average Room Nights. Average room nights refers to the average number of transient rooms sold on any given weekday. Example: since there were 4 Sundays in the month and the total rooms occupied was 213, the 213 divided by 4 equals the Average Room Nights, or 53. Therefore, in this month, your hotel averaged 53 transient rooms on Sunday. Average Room Rate. Average room rate refers to the average rate of transient rooms on any given weekday. Example: Since the total revenue for Mondays was $18,972 & there were 526 rooms occupied, the average room rate equals $18,972 divided by 526 or $36.06. Average Arrivals. Average arrivals refers to the average number of arrivals on any given weekday. Example: Since the total number of arrivals for Tuesday was 200 and there were 4 Tuesdays in the month, the average arrivals equals 200 divided by 4 or 50. Average Departures. Average departures refers to the average number of departures on any given weekday. Example: Since the total number of departures on Wednesdays was 67 and there were 5 Wednesdays in the month, the average departures equals 67 divided by 5 or 13.
130 Three Month Forecast Month Prepared Prepared By Month #1: ____________________ Forecast: Actual Occupancy ____________________ ____________________ Rate ____________________ ____________________ Revpar ____________________ ____________________ Month #2: ____________________ Forecast: Actual Occupancy ____________________ ____________________ Rate ____________________ ____________________ Revpar ____________________ ____________________ Month #3: ____________________ Forecast: Actual Occupancy ____________________ ____________________ Rate ____________________ ____________________ Revpar ____________________ ____________________
131 The World of Rates Rack Rate: The highest rate you believe you can sell a given room for on your highest demand day. This can be done seasonally but in fact may be a year long rate. Example, the rate in many hotel directories would be shown as: January 1 to December 31st 2007, $69 to $159. This is a rate for internal use only. Walk-in Rate: This rate can be above BAR. A walk-in guest does not have perfect knowledge of what the market is charging. Example: BAR + 10%. In the winter, the walk-in rate may be below BAR. Best Available Rate: This becomes the “Internet Rate”. Transparency means that (BAR) Senior and Corporate rates disappear as these markets are now booking the “Best Available Rate” on the internet. BAR should be attached to the slowest selling room type of the day. This may vary by season or by day of the week. For example, in the winter, a smoking double may be your lowest demand room from Sunday to Thursday but will be your highest demand room on the weekend. We then build other rates from the room type that BAR has been attached. For example, an upgraded Club room can be BAR + $10. Package Rates: Rates where the value of the guest room is hidden by a package of goods and services. You should obtain a rate higher than BAR. Having at least two or three packages loaded is mandatory. (More than 3 packages is to many). Fenced Rates: Fenced rates are a reservations department sales tool which provides a series of options to the guest. The rate is unavailable to guests if they do not accept certain restrictions. For example: options may include a nonrefundable and non-cancelable reservations with advanced purchase. It may also be restricted by date. For example, weekend stay. Negotiated Rates: These are rates that are “hidden” from the general pubic AAA/CAA Rate: This is a “negotiated rate” that is available to the public (however, they have to be a member to obtain the discount. 10% off the rate attached to a given room type. This rate will show up on sites such as Expedia as your lowest rate. Remember, the card must be shown at check-in. Preferred Corporate: These are rates negotiated by our sales department. We should be trying for a rate that approximates BAR less 5%. Government: Submitted once a year by the month. Rate set within our competitive set to drive occupancy when we need it and to
132 reject the business when we don’t. Group Tour/FIT Rates negotiated by our sales department. The marketplace and our desire to fill guest rooms will drive the rate. It should be noted that Expedia and companies like them are now selling to this market for major markets as they have been able to negotiate better rates than the receptive. Consortia: Today, this rate represents Rack rate less 20%. However, this business model is rapidly changing. The consortia do not want to be seen as offering to their client’s rates that are higher than those being shown on the internet. As a result, they are asking (demanding) that their rate be a fluctuating rate of BAR less 10%. Merchant Rate: To gain preferred status with sites such as Expedia, you may be providing them with a discount of 25% from BAR. It is important you understand inventory requirements etc. This would include sites like Hotels.com, Travelocity etc. Opaque Sites: Priceline, Hotwire etc. These sites are designed to move excess inventory.
133 Revenue Management Revenue Management Definitions Actual • Actual revenue results (occupancy and average rate included) Ask for Rate • You sell this rate only after the caller asks for it Average Rate • Room Revenue ÷ Rooms Sold Average Length of Stay • Calculated average for all hotel guest stays Base • Fixed rate and contracted business such as government, preferred corporate, consortia etc. This is generally lower rated business a hotel would accept to help reach the goal of 100% occupancy. Blocking • Reserving a particular room type or room number for a guest Close-Outs • You can completely close your hotel to accepting reservations for any date(s) Closed to Arrivals • (CTA) A restrictor that stops guests from arriving at your hotel on a specified date Confidential Rate • You don’t tell the guest their rate. This usually involves tour rates or special package rates Definite • Group room contract that has been signed or • Rooms are guaranteed for arrival or until cut-off date Demand • The desire for a commodity together with the ability to pay for it Denial • Rejected business Duration Controls • Restrictors such as: time constraints; no one night arrival; or minimum length of stay Elasticity • a measure of sensitivity of demand for goods or services to changes in price or other marketing variables such as advertising Fenced Rates • Fenced rates are a reservations department sales tool which provides a series of options to the guest. Guests are not forced to accept these restrictions but their rate is determined by which (if any) fences they accept. Examples of fenced rate options include nonrefundable and non-cancelable reservations, advanced purchase reservations, and staying over a weekend. Forecast • Expected revenue results based on analysis, (occupancy and average rate included) Guarantees • You may require advance deposits, credit card deposits or credit card guarantees GSI • Guest Satisfaction Index Incremental Revenue • Revenue above and beyond what was originally budgeted Inventory • You can control what type of rooms and how many rooms you
134 make available to a particular market segment. Caution: Travellers are smart and many will call both your hotel and the CRS. If the traveller discovers that she can get the room she wants from your hotel but not the CRS, it damages your credibility IT Reservations • Individual traveller Revenue Management Definitions, continued Lead Time To Book • The time difference between the reservation booking date and the date of arrival Market Segment • Group of guests with similar traits and purchasing habits. For example, corporate, seniors, government, etc Minimum Length of Stay • (MLOS) A restrictor that allows you to accept reservations only from guests staying a minimum number of nights specified by you. No Show • Guests who have guaranteed reservations, do not cancel and do not arrive at the hotel on the reserved date of arrival Occupancy % • Rooms Sold ÷ Rooms Available Overbooking • Practice in revenue management where more reservations are taken than rooms available Pace • The speed at which rooms in a market segment are reserved (pick-up) Perishable Hotel Room • Can’t be put on the shelf and sold tomorrow Pick-up • Typically refers to group blocks. The number of reservations that are made and deducted from the group block Regrets • Reservation calls that do not result in a completed reservation and are logged Revenue Management • The practice of maximizing profits from the sale of perishable assets by controlling price and inventory and improving service RevManager • Management position responsible for maximizing hotel revenue and profits Revpar • Revenue per available room • room revenue ÷ available rooms • occupancy % x average rate ÷ 100 R. O. I. • Return on Investment Room Revenue • Rooms sold x average rate Sell Directed Rate • The rate you sell first to the caller Sell Through • This restriction allows you to put an exception on dates you have completely closed out. Any time you apply a Close-out to a date, a Sell Through (if you have set one) will automatically activate. The Sell Through feature consists of 2 numbers. The first is the number of rooms you want the CRS to sell through the closedout date and the second is the minimum number of nights you will accept.
135 Example: If you set your Sell Through at 10/5, it means that the CRS will sell 10 rooms through your close- out date for guests staying a minimum of 5 nights Stay Pattern • The days (or pattern) that guests typically follow when staying at a particular hotel. Usually varies by market segment Supply • The amount of a commodity available at a given price Tentative • Reservations that are not guaranteed, but holding space until final decision is made Revenue Management Definitions, continued Walk-in • Guest who arrives at the hotel desiring a room and does not have a reservation Wash • Difference between group block and what we expect they will actually pick up Yield Management • The practice of maximizing profits from the sale of perishable assets by controlling price and inventory and improving service
136 Revenue Management Daily Log Date Day Today’s Date Availability Restrictions Demand Level Initials Comments Actual Information Room Occupancy % _ Arrivals _____ A.D.R. _____ Departures _____ Walk-ins _____ No-Shows _____ Other _____ 4 PM/Cancellations _____ Yield % _____ RevPAR _____ Competition: Weather: Group Info: Comments: The top half of the Daily Control Sheet is to check for any rate, stay and room restrictions when taking the reservation. During the audit, use the bottom half of the Daily Control Sheet to record the important statistics after the days business is over.
137 Revenue Per Available Room(Rev PAR) What it is: Revenue per available room, or RevPAR for short, is a ratio commonly used to measure financial performance in the hospitality industry. The metric, which is a function of both room rates and occupancy, is one of the most important gauges of health among hotel operators. There are two ways to calculate RevPAR. The first formula is: Total Room Revenue in a Given Period, Net of Discounts, Sales Tax, and Meals --------------------------------------------- # of Available Rooms in Same Period Alternately, the same figure can be arrived by calculating the following: Average Daily Room Rate x Occupancy Rate How it Works/Example: Consider the following results from Company XYZ's latest quarter: Number of Rooms: 1000 Average Room Rate: $90 Average Occupancy Rate: 75% Total Room Revenue: ((1000 rooms x $90/room x 75% occupancy) x 90 nights in the quarter) $6,075,000 Using the first formula and the information above, we can calculate that Company XYZ's RevPAR was: ($6,075,000/90,000) = $67.50 Using the second formula, we can arrive at the same answer: $90 per night x 0.75 = $67.50 Therefore, we can conclude that Company XYZ generated approximately $67.50 in revenue per day from each of its hotel rooms.
138 Why it Matters: RevPAR is arguably the most important of all ratios used in the hotel industry. Because the measure incorporates both room rates and occupancy, it provides a convenient snapshot of a how well a company is filling its rooms, as well as how much it is able to charge. It should be noted that RevPAR, by definition, is calculated on a per-room basis. Therefore, one company can have a higher RevPAR than another, but still have lower total revenues if the second firm manages more rooms. For example: Company XYZ 1,000 rooms $90 per night 75% occupancy RevPAR = $67.50 Total Revenues = $6,075,000 Company ABC 10,000 rooms $90 per night 70% occupancy RevPAR = $63.00 Total Revenues = $56,700,000 Note that Company ABC has a lower occupancy (which is not surprising, considering it manages ten times as many rooms), and thus a lower RevPAR. However, its total revenues are still far greater than those of Company XYZ. Rising RevPAR is an indication that either occupancy is improving, or room rates are rising -- or some combination of both. Of the two, rising room rates have a much more dramatic impact on the bottom line than corresponding increases in occupancy. It is not uncommon to see both figures rise together, though, as higher occupancy is usually concurrent with a stronger pricing environment. RevPAR evaluates the strength of only one type of revenue-generating stream, and it is important to note that many hotels derive a substantial portion of their total revenues from restaurants, golf courses, spas, casinos, business conferences, and other amenities. Therefore, one must also consider these other revenue streams in addition to comparing RevPAR ratios among companies.
139 Daily Control Sheet Date Day Today’s Date Instructions GSR Initials Actual Information Room Occupancy _ Arrivals _____ A.D.R. _____ Departures _____ Walk-ins _____ No-Shows _____ Other _____ 4 PM/Cancellations _____ Competition: Weather: Comments: The top half of the Daily Control Sheet is to check for any rate, stay and room restrictions when taking the reservation. During the audit, use the bottom half of the Daily Control Sheet to record the important statistics after the days business is over.
140 Special Rates and Requests Authorization Please give the following group or person: Name Arrival Date Title Number of Nights Company Room Number Address Date Requested Complimentary Room Liquor/Beer (No. of Bottles) Special Rate: Wine/Cheese Flowers (Price) Fruit Basket Others Type Requested By Approved By Action By Yes No VIP VVIP
141 Competitive Rate Analysis Date Hotel Name Rack Corporate Senior Government Weekend Contract Promotional AAA/CAA
142 Courtesy Call Log Date: Room # News Paper Checkin Time Call Time Guest Name Clerk Code Comments/Problems/Responses 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Codes: Total # TC = Telephone Call NA = No Answer Contacted AH = After Hours CCB = Customer Call Back PC = Personal Contact Total No of Check-ins :
143 Ten Day Forecast Date Prepared By Day Date Arrivals Departures Stayovers Occupied Occ % 1 2 3 4 5 6 7 8 9 10 Group Name Arrive Depart Total Rooms
Rate Intelligence Report a Survey of Third Party Websites: 1/2 people. Date: Date Site: Sun Tue Fri Sat Sun Tue Fri Sat Sun Tue Fri Sat Sun Tue Expedia / / / / / / / / / / / / / / Travelocity / / / / / / / / / / / / / / Travelweb / / / / / / / / / / / / / / Orbitz / / / / / / / / / / / / / / Hotels.com / / / / / / / / / / / / / / Other / / / / / / / / / / / / / / Other / / / / / / / / / / / / / / Date
144 Date Site: Sun Tue Fri Sat Sun Tue Fri Sat Sun Tue Fri Sat Sun Tue Expedia / / / / / / / / / / / / / / Travelocity / / / / / / / / / / / / / / Travelweb / / / / / / / / / / / / / / Orbitz / / / / / / / / / / / / / / Hotels.com / / / / / / / / / / / / / / Other / / / / / / / / / / / / / / Other / / / / / / / / / / / / / / Information to be gathered Sunday, Tuesday and Thursday Nights or as often as required by the Front Office Manager One copy for the Front Office Manager. One copy for the General Manager.
Rate Intelligence Report b Survey of Guest Room Prices by Competitor: 1/2 people. Date: Date Hotel: Sun Tue Fri Sat Sun Tue Fri Sat Sun Tue Fri Sat Sun Tue Hotel 1 / / / / / / / / / / / / / / Hotel 2 / / / / / / / / / / / / / / Hotel 3 / / / / / / / / / / / / / / Hotel 4 / / / / / / / / / / / / / / Hotel 5 / / / / / / / / / / / / / / Hotel 6 / / / / / / / / / / / / / / Date
145 Hotel: Sun Tue Fri Sat Sun Tue Fri Sat Sun Tue Fri Sat Sun Tue Hotel 1 / / / / / / / / / / / / / / Hotel 2 / / / / / / / / / / / / / / Hotel 3 / / / / / / / / / / / / / / Hotel 4 / / / / / / / / / / / / / / Hotel 5 / / / / / / / / / / / / / / Hotel 6 / / / / / / / / / / / / / / Information to be gathered Sunday, Tuesday and Thursday Nights or as often as required by the Front Office Manager One copy for the Front Office Manager. One copy for the General Manager.
Rooms Division Department Budget January February March April May June July August September October November December Total Total Rooms Available Occupancy Rate Rooms Sold Average Room Rate
146 gTotal Income Rooms Other Income: Telephone Sales Spectravision Vending Machines Rental Revenue, Denny Meeting/Conferenc Fac Other Income Total Other Income Total Income January February March April May June July August September October November December Total Front Office Labour: Front Office Manager Asst. Front Office Mgr Guest Service Represent Night Audit Other Payroll Costs Total Front Office Payroll
Benefits Total Front Office Labour Housekeeping: Executive Housekeeper Asst. Housekeeper Laundry Night Room Attendant Houseman Total Fixed Hskpng Payroll Room Attendant Other Payroll Costs Total Variable Hsk. Payroll Total Housekeeping Payroll Benefits Total Housekeeping Labour January February March April May June July August September October November December Total Telephone Costs: BellMonthChargeService