What is the Hubbart formula?
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The Hubbart Formula is a formula that can be used in hotel management. It is used to determine the proper average rate to set for rooms in a given hotel.
Hotel managers have to be very careful when setting prices. Unlike managers in many other businesses, they cannot manipulate supply. All they can do to make the optimal profit is to set prices in such a way that they fill as many rooms as possible every night while making the greatest amount of money. They do not want to set prices so high that people will not buy, but they do not want to set them too low because that would result in a loss of potential revenue.
The Hubbart Formula is used to help with setting prices. It can be expressed as a formula:
[(Operating expenses + Desired return on investment) – other income]/projected room nights = room rate.
The Hubbart Formula, then, takes into account how much income is needed from each room to get the level of return that is desired. It can therefore be used to help determine the average rate to charge for a night’s stay in a room in a given hotel.
Since the formula is already mentioned in the great answer above, I would just like to elaborate on the importance of pricing for a hotel manager and the profits for the hotel.
As hotels see a constant increase in competition, they are forced to try and compete with other big name hotels by either offering a better quality room, or lower prices. In order to be able to offer these lower prices, the Hubbart Formula is often used.
What this formula tells us, is that the price of an individual room will depend on the expenses associated with it (utilities expense, electricity expense, cable, etc.), the desired amount the hotel wants to earn on letting someone stay in the room, and other various income the hotel would hope to earn from it. After all that is taken into account, simply dividing it all by the number of nights the patron would like to stay, and that gives us the rate for the room for one night.
This formula is key for hotels to earn as much as they possibly can. Hotels need to compete and offer competitive pricing, but they also need to earn some money for themselves. This formula, although simple in form, is one way that helps these hotels reach their desired goal.
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