Establishing Room Rates Part III

Non-Room Revenue

• Non-room revenue is important to the managers of both limited service and full-service hotels. It is common for limited service hotels to generate 5-20% of their total revenue from non-room sources. In full-service hotels, the non-rooms revenue generated may range from 20-50% of total revenue. Non-room revenue on a hotel’s income statement is attributed to one of the following categories:

·         Food

·         Beverage

·         Telecommunications

·         Garage and Parking

·         Golf Course

·         Golf Pro Shop

·         Guest Laundry

·         Health Center

·         Swimming Pool

·         Tennis

·         Tennis Pro Shop

·         Other Operated Departments

·         Rentals and Other Income

·         Not every hotel will create revenues in every non-room revenue area.

Food and Beverage Revenue

• Food and beverage revenues typically make up the largest portion of a hotel’s non-room revenue. The pricing of a hotel’s food and beverage products is not identical to that of a restaurant, and in many cases, it is not even similar. A restaurant manager wants to financially support the restaurant itself through sales. In a properly managed hotel food and beverage (F&B) department, the department head wants to financially support the hotel through sales.
• The philosophical and practical differences between the two approaches are immense. For example, in many hotels, complementary breakfast is served to all overnight guests. The food and beverage department in such a property may be reimbursed for the “cost” of providing the breakfast, but the actual “sales” value of the breakfast, including a profit, would not likely be transferred.
• The amount of profit generated by a traditional restaurant is relatively easy to calculate. All revenue is generated from the sale of food and/or beverage products in the restaurant and all expenses normally will be clearly identified in the accounting records of the establishment.
• The process of assigning revenues and expenses applicable to the F&B department in a hotel is more difficult. For example, a holiday weekend package plan that includes one night’s stay, dinner, and breakfast is sold to guests for one price. How should the revenue generated from the guests be split between room revenue and the F&B department?
• Consider applicable expenses also. How much, if any, of the salary paid to the hotel’s general manager, controller, and other staff specialists along with other expenses including utilities, landscaping, and marketing, should be allocated between departments (including F&B) within the hotel? It is, then, difficult to compare the profitability of a restaurant directly with that of its F&B counterpart in a lodging property.
• Hotel F&B face significant challenges to profitability. For example, traditional restaurants are open at the times when the majority of their guests want to be served, while a hotel restaurant will most likely remain open for three meal periods daily to serve hotel guests. As a result, payroll related costs in hotel F&B departments tend to be higher than their restaurant counterparts.
• Food service is often viewed as an amenity to attract guests and to provide food and beverage alternatives to increase the hotel’s revenues. The role of the F&B department is, appropriately, secondary to that of those departments that sell and service guest rooms. Experienced managerial accountants understand this and resist the temptation to aggressively and expensively seek to market the F&B operation to non-hotel guests living in the local area.
• In addition to the restaurants and lounges found in hotels, for those hotels with liquor licenses (many limited service hotels do not have them), income statements will be prepared that include revenue and expense detail one or more of the following categories:

·         Room Service

·         Banquets

·         Breakfast

·         Lunch

·         Dinner

·         Meeting room rental

·         Meeting room set-up and décor

·         Audio and Visual (A/V) equipment rental

·         Service Charges

• Service charges are properly reported as F&B income because, unlike a tip, a service charge is a mandatory addition to a guest’s food and beverage bill. Typical service charge rates in full service hotels range from 15-25 % of the guest’s total pre-tax food and beverage charges.
• The portion of the hotel’s mandatory service charge that is not returned to employees is often considered a direct contribution toward F&B profits.

Telecommunications Revenue

• In the not so distant past, in-room telephone toll charges contributed a significant amount of money to a hotel’s annual revenue. Today, however, the advent of cell telephones, and the reputation for excessive charges that has plagued hotels have lead to significant declines in this revenue source. Many hotel brands have had to reduce or even eliminate their local telephone charges.
• As a result, for most hoteliers, focus on the telephone department has shifted from a “pricing” concern to a “cost” accounting and management concern.
• When guests make telephone calls outside the hotel, it is in the best interest of the hotel to route those calls in a way that minimizes the hotel’s cost.
• When a call is made, the hotel will, depending on the distance and length of the call, add a charge to the guest’s folio to offset the cost of that call. The procedure for doing so involves programming the hotel’s call accounting system, to generate telephone toll charges based upon:

·         Time of day

·         Call length

·         Call distance (local or long distance)

·         Use or non-use of international service providers (carriers)

·         Note that these cost factors are the same factors that will ultimately affect the hotel’s own monthly telephone bill. As a result, all of these should indeed be considered when establishing appropriate in-room guest telephone charges.

·         An effective call accounting system, when interfaced (electronically connected) with the hotel’s property management system will post these charges directly to the guest’s folio and provide the documentation (call date, time and number that was called) required to justify the collection of these charges when the guest checks out.

Other Operated Departments Revenue

·         Most hoteliers will encounter and need to fully understand the following “other” revenue generating areas or departments:

·         Pay-per-view movies

·         Pay-per-play in-room games

·         In-room safes

·         Internet access charges

·         Miscellaneous other income