The Rooms Department lies at the center of most hotel operations, save those few operations like casinos, which have rooms to support other areas of business. Even then, rooms are an important aspect of the enterprise which needs to be tracked to determine how the department is contributing to the bottom line profitability of the business.
Rooms Revenue and Expenses
In order to properly track and benchmark revenues and expenses in the Rooms Department, these areas must be correctly defined. That way, everyone who looks at the financial information understands what is being included and reported on the financial statements and benchmarking analysis.
First, let's start by defining the various types of rooms revenues which can be divided up into the following segments: transient, group, contract and other rooms revenue. Transient rooms revenue is the sum of revenues for the rental of rooms to individuals or groups occupying less than 10 rooms per night. Transient rooms revenue can be further divided into the following categories for analysis: retail, discount, negotiated, wholesale and qualified. Group rooms revenue is the sum of revenues for the rental of rooms to groups occupying 10 or more rooms per night. Group rooms revenue can be further divided into the following categories: corporate, association/convention, government, tour/wholesalers and SMERF. The final type of rooms related revenue would be contract rooms revenue which includes revenues established by a contract with another entity for an extended period of over 30 days.
Transient Rooms Revenue Segments
Group Rooms Revenue Segments
The final piece of rooms revenue is called Other Rooms Revenue and includes revenue that would be associated with guestrooms, but does not include any revenue specifically derived from the sale of guestrooms. As defined in the USALI 11th edition, other rooms revenue would include revenue generated from the following: no-show revenue, day use revenue, early departure fees, late check-out fees, rental of rollaway beds and service charges.
Secondly, it is equally important to properly categorize and track expenses in the Rooms Department. If you only follow revenues, then you aren't getting the entire picture. Expenses are typically categorized into two primary areas: labor costs and departmental expenses. Labor costs would include items such as salaries and wages, employee benefits, payroll taxes and service charge distributions. Examples of rooms departmental expenses would be cleaning supplies, contract services, decorations, linen and training.
Many organizations are also tracking a third category of expenses, rooms cost of sales. When you think about it, Rooms is the only operating department in the USALI 11th edition without a separate cost of sales and there are definitely costs which can be attributed to the cost of the sale of rooms. Rooms Cost of Sales would include rooms distribution costs such as travel agency commissions, group travel agency commissions and reservation expenses. These individual expenses are recorded in the USALI, just as part of departmental expenses rather than as a cost of sales.
Rooms Metrics and the USALI
Now that we have everything categorized correctly and we are on the same page, we can take the analysis to the next level... benchmarking. The USALI provides detailed guidance on many operating metrics for the Rooms Department. These include revenue mix, average daily rate, room inventory, occupancy statistics, number of guests and various definitions of the items included in each of these calculations.
For example, the calculation for occupancy is done by dividing rooms sold by the number of available rooms. Well, rooms sold is pretty straightforward, but what would be included in available rooms? Rooms available would not include seasonally closed, extended closed or rooms set aside for permanent house use. The USALI then gets into even more detail by explaining what these categories mean:
Again, it is very important to have clear definitions of these items so that everyone is calculating their benchmarking ratios in the same manner. The USALI even takes these definitions to a second level when it comes to lodging properties with mixed-ownership units. If you have the book, you can check out this guidance at the bottom of page 198.
Rooms Operating Metrics
The following are some of the most utilized operating metrics such as occupancy and revenue per available room. These overall room’s metrics can be further analyzed by the various room segments to provide better analysis for benchmarking purposes and to determine how your property is capturing business from the various transient, group and contract segments.
Again, the key to benchmarking is for everyone to be on the same page, categorizing and calculating everything the same. This can be a difficult task due to the complexity of many establishments in the industry with multiple players in the mix such as ownership groups, management groups and brands. As noted, the USALI is an important tool for the lodging industry when it comes to benchmarking. This publication sets the standard which should be followed by accounting and finance professionals.