Room rate, which is the daily rate charged for the usage of a hotel room and services, is among a traveler's basic criteria for choosing a particular hotel for stay. The basis for charging room rate differs from hotel to hotel. Hotels display their room rent on tariff cards, which provide information about the room rate for different types of rooms available in the hotel.

The rate of a hotel room is decided by several factors, which are:

–        Cost

–        Level of Services

–        Competition

–        Target Market

–        Location

Basis of Charging of Room Rent depends on the following factors-

(I) Fixed Check Out Time Basis:

In this system a particular time of the day is fixed as check in/out time. It may be either 10.00 hrs or 12 noon. Mostly the hotels follow 1200 hours check in/out time. This is advantage to our hotels as it earns more revenue for the hotel.

It has a major disadvantage of losing its goodwill as the customers are not satisfied with the billing. For example suppose a guest checks in at 10.00 hrs of 17th.

November and checks out at 1400 hrs of 18th November and the check-out time is 12 Noon, then he will be charged for 3 days. Thus we see that even though he is staying for just one day and 4 hours but he is charged for 3 days.

(II) Twenty Four Hours Check out Time Basis:

In this system the guest is charged according to the time of arrival that means that one day is calculated from the time he arrives in hotel till the same time next day. This is advantageous to the guest but earns less revenue to the hotel, for example let us consider same example as given above through this system he will be charged only for 2 days.

(III) Night Basis:

In this system guest is charged according to the number of nights he spent in the hotel. This system is usually found in resort hotels. In order to calculate night basis charges the guest should have stayed for a minimum period of nights. For example suppose a guest checks in 10.00 hrs on 17th November and checks out at 14.00 hrs on 25th Nov. then he will be charged for 8 nights.

(IV) Day Rate Or Day Used Rate Basis: It is another form evolved from night basis and room rent in charged for maximum 6 hours including in the stay which is never overnight. The guest are charged room rent on day basis irrespective of the check in and checkout time.

Types of meals plans

The room tariff of a hotel may be based on the choice meal plans offered to guests. Depending on the needs of their target audience, hotels offer a variety of meal plans, they are:

Meal Plans:

(a) European Plan (E.P.):

This plan includes only the room rent and anything that is taken from restaurant or the room service is charged to the guest.

(b) Continental Plan (C.P.):

This plan includes continental breakfast along with the room rent. Anything extra that is taken is charged to the guest.

(c) Bermuda Plan (B.P.):

This plan includes American breakfast along with the room rent.

(d) Modified American plan (m.a.p.):

This plan includes room rent along with breakfast and one of the major meals i.e. Lunch or Dinner. The guest has to specify his preference at the time of arrival.

(e) American plan (a.p.):

This plan contains room rent and all the major meals i.e. breakfast, lunch and dinner. It is also known as all inclusive plan and in French it is known as En. Pension.

European plan

In this case only the lodging i.e. bed is offered. Thus the charges are made for lodging only. The client is free to take or not to take teas, breakfast, and meals in the hotel. He has a choice of eating at any other good restaurant. The guest is booked to pay for lodging only and is charged separately for all other things or services he enjoys or consumes. This system is generally followed by youth hostels or hotels which are situated in metropolitan cities. European plan hotels fix the prices of rooms separately so that guest may either have their meals in the hotel dining at its regular prices or go to the other restaurant. In India most of the hotels are being run on European Plan. Almost all the public sector hotels are run on this basis.

Continental plan

In the case of continental plan bed and breakfast are included in the charges. Thus bed is offered along with breakfast and the client is, however, free to take his meal and tea as he likes. Thus the guest tariff includes lodging and breakfast and for other he is separately billed.

American plan

Hotel where American plan is prevalent, board lodging is provided in the charge. The tariff fixed includes board and lodging. It is an all inclusive full board tariff. Accommodation and three meals daily are included in the price of the room. It includes bed, breakfast and two principal meals and evening tea. It does not include 'EMT nor coffee after lunch, or dinner. The needs are usually 'table d' hotel'. It is also known as 'full pension '.

This means that guest’s day ends about 24 hours after his arrival that is; the guest arriving between lunch and dinner is entitled to retain his room until the next afternoon and to have dinner the first night and breakfast and lunch the following day for the fixed rate.

Modified American plan

The tourists mostly prefer this plan, as it is comparatively flexible. It is offered in most of the good hotels and is normally by arrangement. It includes hotel accommodation, breakfast and either lunch or dinner in the price of the room. Thus, in this type of accommodation bed and breakfast and along with it one principal meal, lunch or dinner, at the discretion of the client is also included. It generally includes continental breakfast (q.v.) and either 'table d' hotel' (q.v.) lunch or dinner in the room rates. It is also known as ' demi-pension '.

Meal Plan	Other Name	Inclusions	Preferred by
European Plan	Room only Plan	Room only	Business Hotels, Transit Hotels, Motels
Continental Plan	Bed & Breakfast Plan	Room + Continental Breakfast	Business Hotels
Bermuda Plan	Bed & Break fast Plan	Room + American Breakfast	Hotels with lot of sight seeing around such as historical/heritage destinations
American Plan	Full Board / En Pension	Room + Continental Breakfast+ Lunch+ Dinner	Resorts
Modified American Plan	Half Board/ Demi-Pension	Room + Continental Breakfast+ Lunch/ Dinner	Resorts

Room Rate Designation

A hotel generally designates a standard rate for each category of rooms offered to guests. Apart from the standard rates, hotels also offer discounted rates to attract additional business from multiple market segments. Hotels may have various room rate designations as:

•          Rack Rate: The standard rate of a particular type of room before any discount is called rack rate.

•          Corporate Rate: This is a promotional rate to attract the corporate market segment.

•          Seasonal Rate: Destinations like hill stations, beaches, etc. receive heavy tourist traffic  during particular  period(s) of the year; the rest of the year is a lean period in terms of tourism. During peak season, hotels do not offer any discount; rather they may charge a higher room rate, known as the seasonal rate.

•          Advance Purchase Rate: Though popular in the airlines industry, the advance purchase rate is a relatively new concept in the hospitality industry. It entails heavy discounts on room rates when room bookings are done in advance.

•          Week day/Week-end Rate : Hotels analyze their demand levels over a period of time and fix a higher rate during high demand periods and a lower room rate during low demand periods.

•                          Day/Half day Rate: The day rate, charged from guests not staying overnight at a hotel, is lower than the rack rate.

•                          Group Rate: As a large group (more than 15 persons) provides bulk business to a hotel, hotels offer discounted rates to groups. The group rate depends upon the number of persons in the group and the frequency of their visits.

•                          Tour group/ Wholesale Rate: These are heavily discounted rates for wholesalers who operate a series of tours for groups arriving and departing together

•                          Travel Agent Rate: Travel agents sell travel products like hotel rooms, airlines bookings, etc. on a commission basis to the end users (guests). They provide a substantial volume of business to hotels, hence hotels offer them special  discounts and commissions.

•          Volume Guarantee Rate: Hotels may offer a special rate (lower than the rack rate) in order to attract high volume of business from special market segments.

•          Airline / Crew Rate: It is a special discounted rate for the crew of one or more airlines that offer certain volume of business throughout the year on a consistent and continuous basis.

•          Government Rate: When government officials travel for official work, they are given a travel allowance to cover their hotel, meals, and other out-of-pocket expenses. Based on their designation, this amount is fixed and given in advance.

•          Educational Rate: Educational rates are special rates offered by hotels to students and educationists who have a limited travel budget.

•          Membership Rate: Membership rates are offered to guests who are members of influential organizations that provide volumes of business to hotels.

•          Introductory Rate: The introductory rate is offered by a hotel on the opening of a new property in town. It is a part of a new hotel’s marketing strategy to make inroads into the existing market by offering a price lower than what is offered by competitors with the same standards.

•          Complimentary Rate: When a hotel does not charge the room rent from a guest, it is known as complimentary rate.

•          Crib Rate: This is the rate charged for children above five years and below of age 12 years who are accompanying their parents.

•          Package Rate : A package rate is quoted for a bouquet of products or services. The rate is generally lower that the sum total of the prices of individual products or services offered in the bouquet. Hotels may offer the following packages:

•          Meeting package : A complete meeting package includes the residential arrangement of the delegates, meeting room, food and beverage requirements (meals, tea/coffee, snacks), along with transportation facility, audio visual equipment like projectors, etc. to the meeting delegates.

•          Meal package:  A meal package is the combination of room rent and meals, which may be all meals or a combination of breakfast and lunch/dinner. The hotel may offer meal packages based on the requirement of guests and the suitability of the hotel’s operations. The various meal plans offered by hotels are discussed at length in the subsequent section.

•          Marriage package : A marriage package includes all the necessary arrangements for marriage, like mandap, priest, party hall/lawn, accommodation for the marriage party, arrangement of reception buffet, and even a complimentary room/suite for the newly-wedded couple.

•          Holiday package:  A holiday package may include transportation, accommodation, meals, guide, and sightseeing at the destination. Generally, this package includes non-hotel products from other service providers like airlines.

Hubbart formula

The Hubbart formula, which is a scientific way of determining the room rent, was developed by Roy Hubbart in America in the 1940s. It resolves all the problems of the rule of thumb approach. The following steps are involved in calculating the room rent according to the Hubbart formula:

o   Calculate the total investment including the owner’s capital and loans, both secured and unsecured. Once the total investment has been calculated, calculate the fair rate of return on investment (ROI). ROI is the amount that would have been generated if the money invested in the hotel business had been invested in the open market.

§  Calculate the total expenses—like operating expenses, overheads, depreciation of fixed        assets, interest paid, heating and lighting, etc.—that will be incurred during hotel operations

o   Combine steps 1 and 2 to find out the gross operating income that is necessary to cover the operating cost, investment, and return on investment.

o   Calculate the income generated from other sources of income, like food and beverage sales, laundry, rent and lease of the hotel area, fitness centre, etc. Subtract the same from the amount calculated in step 3 to find out how much profit is expected from the room sales. This will be the total revenue generation by the room sales.

o   Calculate the total number of the guest rooms available for sale by multiplying the total number of rooms with the number of days in the year. Make the provision for expected average vacancy that is expected during the year. This step will provide the total number of rooms available for sale.

o   Divide the revenue generation (result from step 4) by the total number of rooms (result from step 5); the result obtained will be the average daily rate, which will cover the cost of operations and fair return on investment.