Chapter 10 Income and Controlling Costs

Chapter 10 Income and Controlling Costs - Income and Income...

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Unformatted text preview: Income and Income and Controlling Costs Chapter 10 Making a Profit Making a Profit Increasing revenue Lowering costs Income Sources in the Hotel Income Sources in the Hotel Industry Occupancy percentage Double occupancy Average daily rate Yield management Occupancy Percentage Occupancy Percentage Ratio relating the number of rooms sold to the number of rooms available Number of rooms sold (670) / Number available (900) 670 / 900 = 74.44% occupancy rate Occupancy Rate Occupancy Rate Determining an acceptable rate: National averages Use of daily audit report from past records Goals of management Comparison of competitor’s rates Double Occupancy Double Occupancy Price by number of guests in a hotel room Additional costs include: Extra bed use Extra time for housekeeping Continental Breakfast Happy hour Double Occupancy Double Occupancy [# guests ­ # rooms sold] / # rooms sold [1000 (guests) – 750 (rooms sold)] / 750 (rooms sold) [1000 – 750] / 750 = 33.33% 1/3 or 33.33% of rooms had double occupancy Average Daily Rate (ADR) Average Daily Rate (ADR) Measurement of how well management is maximizing income through double occupancy and selling more expensive rooms Attempting to sell as many rooms as possible at the highest rate the market will allow Average Daily Rate Average Daily Rate Room income / # rooms occupied = ADR $74,140 (room revenue)/674 (rooms occupied)=$110 (ADR) The average price of rooms sold that night Rule of Thumb Rule of Thumb In almost all cases the Average Daily Rate cannot be less than the minimum accepted room rate or greater than the maximum accepted room rate Yield Management Yield Management Occupancy percentage and ADR combined: Attempts to restrict occupancy Holding out for a higher room rate Adjusting rates according to changing conditions Goal: Attain maximum income for the hotel Income in the Restaurant Industry Income in the Restaurant Industry Income concerns are crucial due to high failure rate 50% failure rate of restaurants within the first three years of operation “Prime costs” are major concern Prime Costs Prime Costs Two largest expenses in the restaurant industry Food and beverage Payroll Food and Beverage Costs Food and Beverage Costs Includes food/beverage: Sold Given away (intentionally or accidentally) Wasted Stolen Food and Beverage Costs Food and Beverage Costs Effectiveness can be measured by figuring “food cost percentage” Cost of food sold / food sales = food cost percentage $30,000 (cost of food sold)/$100,000 (food sales) = 30% (food cost) Maximizing Revenue Through Maximizing Revenue Through Selling Discounting Up­selling Top Down approach Discounting Discounting Reducing an item from the regular price Concern with the perishability factor Must be used prudently Up­selling Up­selling Technique to get the consumer to purchase more expensive items Reminder questions Up­grades “Super­sizing” Top Down Approach Top Down Approach Attempting to sell the most expensive item first Similar to up­selling Recommending more expensive items Cost Control in the Hotel Cost Control in the Hotel Industry Energy Management Labor costs Energy Management Energy Management Controlling: Heat Air conditioning Water usage Electric usage Gas usage Labor Costs Labor Costs Influenced by seasonality Adjustments in staffing should be made t o reflect the % of hotel occupancy Cost Control in Restaurant Industry Cost Control in Restaurant Industry Food cost control: Volume purchasing: concern with perishability and storage Portion control: concern with “as purchased” (AP) and “edible portion” (EP) Yield factor of sirloin= AP (50 lb) / EP (.72) = 69.44 lb To yield 50 lb of sirloin, must buy 70 (69.44) lb Key Management Positions Key Management Positions The majority of management and supervisory positions in the hotel and restaurant industry involve revenue and cost control ...
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