Rooms Department and Operating Metrics

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

• Retail: Retail Rooms Revenue includes rooms sold at seasonally priced rates which are available when the hotel has rooms to sell.
• Discount: Discount Rooms Revenue includes rooms sold to the general public at a rate lower than the retail rate. Discount revenue would include proceeds from packages, promotions and loyalty offers.
• Wholesale: Wholesale Rooms Revenue includes revenues earned by the sale of rooms as part of a room rate packaged with other travel such as car rental, event tickets or airfare.
• Negotiated: Negotiated Rooms Revenue includes rates which are typically negotiated by a specific group or corporation.
• Qualified: Qualified Rooms Revenue includes rooms sold to individuals who are part of a specific group such as AARP, AAA or employee rates.

Group Rooms Revenue Segments

• Corporate: Corporate Rooms Revenue includes the rental of rooms at negotiated rates to corporate clients.
• Association/Convention: Association/Convention Rooms Revenue includes the rental of a block of 10 or more rooms to trade, professional and other types of associations.
• Government: Government Rooms Revenue includes revenues from the rental of 10 or more rooms to government agencies.
• Tour/Wholesalers: Tour/Wholesalers Rooms Revenue includes revenues from the rental of rooms which are packaged together by tour operators or wholesalers.
• SMERF: SMERF (Social, Military, Educational, Religious, Fraternal) Rooms Revenue includes revenues from the rental of 10 or more rooms to social, military, educational, religious and fraternal organizations.

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:

• Seasonally Closed: “When all operations of a hotel are closed for a minimum of 30 consecutive days due to seasonal demand patterns, then the rooms for this period should be removed from the annual salable inventory. The hotel must be consistently closed year-to-year.”
• Extended Closed: “Those rooms removed from salable inventory for a period of six consecutive months or more. Examples include rooms that are damaged due to a hurricane, earthquake, or fire, where there is intent to return the rooms to salable inventory.”
• Permanent House Use: “Those rooms removed from salable inventory for a minimum of six consecutive months for use by a hotel employee (e.g., manager’s apartment)."

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.

• Occupancy % = Rooms Sold / Available Rooms
• ARR = Total Rooms Revenue / Rooms Occupied
• RevPAR = Total Rooms Revenue / Available Rooms
• Net RevPAR = (Total Rooms Revenue – Distribution Costs) / Available Rooms
• TRevPAR = Total Rooms Revenue / Available Rooms
• Rooms Profit % = Rooms Profit / Rooms Revenue

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.