*This is the average rate required to meet your profit and expense targets based on the projected occupancy.
How to Calculate Room Rates in Hotels
Setting the correct room rate is arguably the most critical decision in hotel revenue management. Price too high, and occupancy plummets; price too low, and you leave money on the table or fail to cover operating costs. While dynamic pricing fluctuates based on demand, hoteliers must first establish a "base rate" or "bottom price" that ensures the business remains profitable.
The Hubbart Formula
The calculator above uses the Hubbart Formula, a traditional bottom-up approach to pricing. Instead of looking at what competitors are charging (market-based pricing), the Hubbart Formula calculates what you need to charge to cover all costs and achieve a desired return on investment.
The Basic Equation:
(Operating Expenses + Taxes/Insurance + Desired Profit – Non-Room Revenue) / Projected Rooms Sold = Required Average Daily Rate (ADR)
Step-by-Step Calculation Logic
To calculate your room rate manually, follow these steps:
1. Calculate Total Expenses: Sum up all fixed costs (depreciation, interest, rent, insurance) and variable operating expenses (housekeeping wages, utilities, laundry, marketing).
2. Add Desired Profit: Determine the return on investment the owners require for the year. Add this to the total expenses.
3. Subtract Non-Room Revenue: If your hotel generates income from a restaurant, bar, conference rooms, or parking, subtract this estimated amount. The remaining figure is the revenue that must come from room sales.
4. Estimate Rooms Sold: Calculate the total available room nights (Number of Rooms × 365) and multiply by your expected occupancy rate (e.g., 70%). This gives you the projected number of units you will actually sell.
5. Determine the ADR: Divide the required room revenue by the projected rooms sold. The result is the Average Daily Rate you must average throughout the year to hit your financial targets.
Understanding ADR vs. RevPAR
While the calculation provides the required ADR (Average Daily Rate), it is also important to understand RevPAR (Revenue Per Available Room).
ADR: Shows the average price paid per room sold. It measures the quality of your revenue but ignores unsold rooms.
RevPAR: Calculated by multiplying ADR by the Occupancy Rate. This metric gives a better overall picture of performance because it accounts for room inventory that sat empty.
Why Use a Bottom-Up Approach?
Using a calculator based on the Hubbart Formula helps hoteliers understand their "breakeven point." While you may adjust prices daily based on seasonality or competitor rates, knowing the mathematical floor for your pricing prevents you from engaging in price wars that could make the business insolvent. It aligns your pricing strategy strictly with your financial obligations and profit goals.
function calculateRoomRate() {
// Get input values
var fixedCosts = parseFloat(document.getElementById('annualFixedCosts').value);
var opExpenses = parseFloat(document.getElementById('annualOperatingExpenses').value);
var profit = parseFloat(document.getElementById('desiredProfit').value);
var otherIncome = parseFloat(document.getElementById('otherIncome').value);
var rooms = parseFloat(document.getElementById('totalRooms').value);
var occupancy = parseFloat(document.getElementById('occupancyRate').value);
// Validation
if (isNaN(fixedCosts) || isNaN(opExpenses) || isNaN(profit) || isNaN(otherIncome) || isNaN(rooms) || isNaN(occupancy)) {
alert("Please fill in all fields with valid numbers.");
return;
}
if (rooms <= 0) {
alert("Total Number of Rooms must be greater than 0.");
return;
}
if (occupancy 100) {
alert("Occupancy Rate must be between 1 and 100.");
return;
}
// Logic Implementation (Hubbart Formula)
// 1. Calculate Total Required Revenue from all sources to meet goals
var totalCostsAndProfit = fixedCosts + opExpenses + profit;
// 2. Determine Required Room Revenue (Total Goal – Non-Room Revenue)
var requiredRoomRevenue = totalCostsAndProfit – otherIncome;
// 3. Calculate Total Annual Room Inventory
var daysInYear = 365;
var totalRoomNightsAvailable = rooms * daysInYear;
// 4. Calculate Projected Rooms Sold based on Occupancy
var projectedRoomsSold = totalRoomNightsAvailable * (occupancy / 100);
// 5. Calculate Required ADR
var requiredADR = requiredRoomRevenue / projectedRoomsSold;
// 6. Calculate RevPAR (Revenue Per Available Room)
// RevPAR = Total Room Revenue / Total Available Rooms
var revPAR = requiredRoomRevenue / totalRoomNightsAvailable;
// Display Results
document.getElementById('resTotalRevenue').innerHTML = '$' + requiredRoomRevenue.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resRoomsSold').innerHTML = Math.round(projectedRoomsSold).toLocaleString();
// Handle case where calculation might result in negative numbers if Other Income is huge
if (requiredADR < 0) {
document.getElementById('resADR').innerHTML = "$0.00 (Non-room revenue covers all costs)";
} else {
document.getElementById('resADR').innerHTML = '$' + requiredADR.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
}
if (revPAR < 0) {
document.getElementById('resRevPAR').innerHTML = "$0.00";
} else {
document.getElementById('resRevPAR').innerHTML = '$' + revPAR.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
}
// Show result area
document.getElementById('resultsArea').style.display = 'block';
}