Staff to Room Ratio

Staff to Room Ratio – indicator at best Staff to Room Ratio is one of the critical factors that determines an optimum level of balance between permanent staff and hotel room capacity. This influences the labor cost which happens to be the single biggest expense line item in a hotel Profit and Loss Statement. How to calculate Staff to Room Ratio

Staff to Room Ratio in a hotel is computed using the following formula:

Full-Time Employees / Total Number of Available Rooms

What does Staff to Room Ratio do?

The function of the Staff to Room Ratio is to provide an indication of the balance between the number of full time (permanent) employees and the rooms available in a hotel.

You might well ask: What is the connection between full time employees and rooms available in a hotel? Well, the answer to that is: There is no direct correlation between the two which actually depends upon many factors like:

Is it for a city hotel or a resort?

This question basically addresses the fact that a city hotel is often a vertically oriented building structure with multiple floors. This means that the structure has various levels to it but area wise is not spread out. Contrast this to a resort which is spread out mostly and thus covers a wider area.

When the resort is spread out (and even in the case of a city hotel which is horizontally spread out), the logistics of staff movement becomes critical. Whereas, in a vertically oriented city hotel structure, movement of staff from one level to another may not take as much "time" as in the case of a resort. This has a direct bearing on the number of staff required to service a particular operation area for the simple reason that it takes more time to get from one point to another. In effect, it may dictate the hotel's manning requirements particularly the housekeeping function and more specifically the public area attendants.

How many restaurants does the hotel or resort have?

This is another important factor determining the Staff to Room Ratio in a hotel or resort. The more the number of restaurant outlets that the hotel or resort has, the more the staff complement needed. This will further be influenced by factors like how many of the restaurants are food restaurants (this brings the element of kitchens into the equation) and whether each of those have a dedicated kitchen etc.,

Whether the hotel is located in a developed country or a developing country?

This factor literally determines the labour cost factor of the hotel vis-a-vis rooms available. For example, a hotel or resort located in an emerging market like Brazil or Russia or a developing country like China or India will have a higher Staff to Room Ratio than in developed countries like US, Canada, Australia. This is mostly driven by the fact that basic salaries and wages are very high in developed countries. Additional factors could be better educated, trained staff etc.,

What is the degree of Multi-tasking?

Even in developing countries, salaries and wages are on the rise constantly which have a significant bearing on the bottom line performance of the hotel or resort. Since bottom line is driven by the top line, generating revenues faster than the increase in labour costs becomes paramount. When revenue increases cannot keep pace with labour cost increases, manning cuts are inevitable.

However, considering that the hotel industry is a service industry, keeping service levels high according to customer expectations may well determine sustained revenue growth and in this scenario multi-tasking has become a powerful tool to tackle perennially rising labour costs. By training staff to do more than one task (often at the same time), the Staff to Room Ratio can be kept in check. Multi tasking can also mean combining functions currently performed by different individuals so that these can be done by one person.

Staff to Room Ratio Examples

Staff to Room Ratio can range all the way from 2.5:1 (2.5 full time staff for every room available) in underdeveloped countries like Brazil, Russia through a ratio of 2:1 in developing countries like China, India (in fact, it is around 1.75:1 in India) to less than 1:1 in developed countries like US, Canada, Australia, UK.

Combined with a low staff to room ratio in developed countries, the labour cost % to gross operating revenue is very high, in the region of 40% to 50%. This compares with less than 30% in developing countries and less than 20% in emerging markets.

Staff to Room Ratio – an indicator at best

It is thus paramount to understand that the Staff to Room Ratio is at best an indicator. It is to be used more to verify if the ratio is significantly above or below the norm according to some of the factors stated earlier (city hotel or resort, how many restaurant outlets, whether in a developing or developed country) rather than apply as a rule of thumb.

What the ratio certainly provides however is a quick indication of the balance between the complement of full time employees and the rooms available. This is

very useful in the case of a new hotel project where the owners or investors would like a quick and dirty way of knowing what this balance is like. And as stated earlier, it has a major influence on the ultimate labour cost.

Operating Hotel Staff to Room Ratio

In the case of an operating hotel, the staff to room ratio can change over a period of years as the hotel or resort matures and the staff becomes more and more trained (of course assuming that they stay with the hotel over these years). This can result in significant improvement in the staff to room ratio.

Hotel Management: What is the correct ratio between number of rooms/ number of room cleaning staff? The question originally read '...room cleaning ladies.' Changed to room cleaning staff, since I don't believe the purpose of the question was actually to assess the proportion of rooms to specifically female members of staff :-) There are great answers here and I want to add mine.

I am working in a detergent&disinfectant manufacturing company and some of our customers are hotels. Moreover, we help them to develop their structure to reduce costs.

Please find the direct answer in bottom :-) If you interest, you can continue here:

The most important part of the answer is behind of the organization of the hotel, as mentioned in some answers.

Question 1: Does hotel has a team working under House Keeping Department to clean general areas?

In most 5 star hotels, there are special teams to clean lobby, glasses, organize around pool and more important polishing marbles. If House Keeping Manager has a different team for these works; the need for maids to clean rooms will decrease.

Question 2: What is the type of hotel-business hotel, vocation, all inclusive or casino?

If hotel is business hotel the need for maid will decrease too because generally business people are accepted the least dirty (sorry for the phrase) customer segment.

On the other hand, if hotel is all inclusive and accepts children; here the fun start. The need for maids nearly two times more in this situation when you compare to a business hotel.

Question 3: How big are the rooms? Are they empty ones or full?

This is another important point to discuss. Bigger rooms need more maids and if there are a lot of things in the room to clean, you need more and more maids to clean.

Question 4: Can you organize your maids when cleaning?

This is very important point to discuss. There are 2 types of situation when we think about a maid cleaning the room.

A) Check Out Cleaning: This is the time after customer left the hotel. Maid should clean every places, disinfectant all surfaces and maid must be sure that room is ready for the next customer. This process can take 45 minutes and Agusti Curto gave a detailed information about this calculation.

Moreover, by organizing maids together you can decrease this time to 30 minutes. In our own research with our customers, 2 maids go to room for a check-out cleaning and they finish in 26 minutes in average with a 4 minutes deviation.

B) Daily Cleaning: This is daily cleaning of the room. Maid should wash the bathroom, change the bed-linen, and mop every where. This should take maximum 15 minutes.

Here is the short answer for your question:

If maid cleans all hotel; 1 maid for 14 room is ideal as Michael Forrest Jones explained. If maid is just responsible for room and corridors, 1 maid for 20 room is ideal. In this case you need to hire other team for general areas. For this team, 1 steward for 30 room is ideal. If you can organize your maids to work together and catch your check-in chekout schedule very well with your maids holidays, 1 maid for 18 room is ideal. If hotel is all inclusive and accepts children with big and full rooms, 1 maid for 16 room is ideal If hotel is business hotel with small rooms with less furniture, 1 maid for 21 room is ideal.

Fourteen is the magic number. Give your housekeepers too many more than 14 rooms a day to do, they complain that you're overworking them, even if most of their rooms are nice, easy, stayovers where they don't have to do much more than tidy up and change out the dirty towels. Give them too many fewer, and they feel that you're screwing them on hours, even if most of their rooms were occupied by a wild party rock band that left them trashed.

So how many housekeepers do you need altogether for a given hotel? If you're usually full on the weekend, simply divide the number of rooms by 14. Otherwise, divide the number of rooms you rent on your busiest night each week by 14.

Then maybe add one. (This assumes that all housekeepers work both Saturday and Sunday, mandatory. But everyone likes a weekend off once in awhile. If you add one or two housekeepers to accommodate this, and let them go in turns at having weekend days off, then it could cause all of them to have a reduced number of hours available, and make it not quite a full time job. What I'll generally do is put it to a vote and let the housekeepers themselves decide.)

You'll need another one working on laundry (I'd give her a list of stayovers to make up close to the laundry room), you need to allow for cleaning of common areas, and you'll need to allow for deep cleaning every three months or so when things are slow (this is similar to a 'Chinese field day' in the military - you remove everything from the room and clean it, take the drapes down and wash them, steam the carpets, and set off a fogger for odor removal...)

It is more about the credits than the rooms. We all understand that a larger room may take longer to clean so this has to be reflected when you calculate the number of rooms to clean.

You should establish your credit value; the best is to calculate 1 credit as how long does a room attendant to clean one of your standard size rooms as departure. Opera can calculate by credits but not all PMS can. Example: 1 room attendant may take 45min (5* Luxury Hotel, 45sqm) to clean a standard room as departure. So 1 credit is 45 min. The same room as a stayover should be 3/4 (estimation) of this time therefore 0.75 credits. Then depending of the size of your suites credits may vary to 1.5, 2 or 3, etc....

If we take that 1 credit is 45min the maximum credits per day then the maximum credits per day should be 9.3 (in 7 hours od cleaning). This would be qual to 9 departure rooms or 13 stayovers. Room attendants need 30min to prepare their trolleys based on the cleaning sheet they take and another 15min to tidy their trolleys when they finish, allow 15min extra for morning briefing.

So this is the best way to adapt to the different standards and sizes of the rooms.

Room attendants will never be happy, there is nothing you can do and I don't blame them. Theoretically a stayover should take less time to clean but some guests create a real mess, specially families with children). A fair deal is to consider if you are giving them too many family rooms.

So when you calculate how many staff members you need you should take a report that tells you how many credits you will have to clean X day and divided by maximum number of credits they can clean. If you cannot calculate by credits check how many stayovers you have in a specific day and how many departure rooms. When you have more stayovers than departure rooms then increase the number of potential rooms they can clean; you need less staff.

I use a formula in the Hotel the PMS cannot calculate credits. I project how many rooms they can clean per day based of the ratios Stayovers Vs Departure rooms. Then I take the number of occupied rooms and I divide them by this theoretical number of rooms they should clean that day. If your Hotel is not full the day you calculate how many staff you need allow some % of last minute pick up.

It depends on the property and the day. Is it an all suite property and is it all stayovers or all checkouts? Suites will take longer as will check-outs. Too few rooms to clean and housekeepers tend to be non-productive and clean too slowly. Too many, and quality suffers. 12-15 per day is about right and with cart stocking and sidework, will keep you out of overtime. So, if you have 200 rooms to clean, divide by both numbers. This gives you a range of 13-17 housekeepers for cleaning. You should be fine within that range. More checkouts, lean towards the higher number, more stay-overs, the lower.

For bedrooms only - 17 per shift per housekeeper. This allows for 1 major clean per shift - ie spills / vomit / smoking in a non-smoker etc . . . If you include general use areas that can drop dramatically to an average of 10 -12, depending on amount of general areas.

“Indians have been trying to ape the 1:1 service ratio. However, this is considered difficult in the Indian context. Most industry experts analyse the Indian market stating that the country’s culture and the service standards will not allow the country to match ratios in the West. In the future, with the industry’s development, players will need to evaluate their services and processes and work out ratios accordingly. However, most believe that in India, the minimum ratio for the five-star segment hotels will remain up to 1:1.5. “Internationally, there are hotels which work on the 1:0.5 ratio, which is highly unlikely in India,” states Andrews. Guests, who visit hotels in the West expect a certain amount of coldness from hotel staff. On the other hand, Eastern hospitality is renowned for its warmth, Andrews adds. There are different -2 food media courses in hotel industry in which all these functions learnt.

The fact of the matter remains that today, the staff room ratio issue has moved beyond mere numbers. The industry’s changing dynamics have led to various hotel formats emerging across India; these define service standards. Thus, there is a range of ratios available across the marketplace. “While most people talk about the room staff ratio, there has not been a single national productivity survey performed for the industry. This situation leaves us with vague numbers and industry estimates and assumptions,” Simon opines. Amidst talks about skilled manpower, productivity and wage analysis, today, the hotel sector needs access to surveys determining the present ratio standards at which various parts of the industry operate.

One major factor to consider, is the ALOS (Average length of stay per guest), as it determines the number of back to back (Check out rooms) versus stay overs, which basically requires more time of preparation. Equation: Number of occupied rooms per night / Number of arrival in a given month or year = ALOS.

The appropriate ratio to be maintained between the No. of Hotel Room to No. of Room cleaning Staff (chamber maids / Room Boys) keeping mind few points as below ;-

All the arrival rooms should be ready by 1200 - 1300 hrs Most of the rooms would be available for servicing post 0930 hrs All occupied rooms should be services by 1400 - 1500 hrs

Staff to be relieved for morning tea & lunch Periodic cleaning schedules should be maintained.

Considering above points, plus the average occupancy of 85% and the room size of 200 sqmts of a 3 star hotel, an ideal ratio should be 5 : 1 and Room to Supervision Staff ratio 20 : 1.

Date: apr-29-2012

Quotation

Dear Sir / Madam,

We thank you for your enquiry and happy to quote for you

Per Hour System Casual work Staff F&B

Description

Per hour Amount

Male

11.00 Dhs. Per Hour / Per pax

Female

12.00 Dhs. Per Hour /per pax

Please find the work force as follows Assistance, Bell boy, Waiter, Waitress, Stewarding, Kitchen Assistance, Helper, Housekeeping, Utility Boy, On Yearly, Monthly and Per hour system contract basis

Term and Condition: ·

We required signed contract copy from both parities.

·

Transportation provided by our company(Raara)

·

The invoice will be submitted every 15 days of the month for casual staff

Yearly contract and monthly basic

Description

Day off

Total days

Total Hours

Total Amount Per monthly

House keeping work

Friday

26days

10 hours a day

2,300.00 per person

Bell boy

Friday

26days

10 hours a day

2,500.00 per person

Waiter

Friday

26days

10 hours a day

2,500.00 per person

Helper

Friday

26days

10hours a day

2,500.00 per person

Stewarding

Friday

26days

10 hours a day

2,400..00 per person

Handy man

Friday

26day

10 hours a day

2,400.00 per person

Kitchen assistance

Friday

26day

10 hours a day

2,500.00 per person

Utility boy

Friday

26day

10 hours a day

2,500.00 per person

Payment Term and Condition: ·

We required signed contract copy from both parities.

·

Transformation provided by our company

·

The invoice will be submitted every 28, 30, and 31 days end of the month

· Payment will paid in the name of the company Raara events and cleaning services L.L.C ·

Payment will be paid after 15 days of submitting the invoice

Thanks & Best Regards, Rouf choudhury Managing Director 0507169912 [email protected]

The size and complexity of the room interior furnishings, room floor layout and # of service elevators are huge factors in the calculation..... and how are the checkins being assigned to each floor.....the style of hotel if it's a destination hotel the cleaning staff have more rooms, with overnight stay hotels the ratio is less. And if the hotel is union staffed that's a negotiated contracted number.

Well it depends what kind of standards you want to uphold, I've worked in hotels where each maid cleaned 5 rooms per day and I've worked in others where they cleaned 20 rooms per day. It goes without saying that the more rooms they have to clean, the lower the standards get. Some hotels even pay the maids per room which in my opinion lowers standards as the maids want to cram in a maximum number of rooms.

I am the only cleaner where I work and on average I have 14 to do every Friday thats a full clean and every Monday is a half we have 29 rooms in total I do this all by myself washing, drying and folding included I have worked for big motels and was never this over worked due to having more staff this work is slowly killing me I'm sure I'm 22 and already have serve back and knee problems

It would vary based on the type of hotel, and the size of the rooms, but generally, industry standard hovers somewhere around 20 minutes spent cleaning each room...so 3 rooms per hour. To figure your ratio: 3 rooms cleaned per hour x 6 hour in a housekeeping shift (6 being an example) = 18 rooms for every housekeeper. For an 8 hour shift it would be 24 rooms (but not figuring for breaks, lunch, etc). So I'd posit that your ratio is probably somewhere in the middle; maybe 20:1.

Is there a standard employee-to-room ratio for hotels?

I haven't ever heard of a standard ratio for the entire staffing model of the hotel, although that doesn't mean one doesn't exist. There are standard ratios in different departments, and there are standard profit margins. Here are some simplified examples:

- In Housekeeping, one room attendant can usually clean between 14 and 16 rooms in a single shift. If you have a 100 room hotel that runs an annual occupancy of 50%, that gives you a total of 18,250 rooms to clean each year, or about 50 per day. 50 rooms per day would take about three room attendants to clean. Since people don't work seven days a week, you would want another one or two staff to cover all the days, so a total of five room attendants.

- In Food and Beverage, the expected profit margin is between 30% and 35%. Food cost is between 25-30%. If you charge $100 for food, $30 of those dollars need to be profit, and $30 of those dollars go to covering food cost. That leaves $40 for labor. If you staff's hourly wage is $10, you have four hours of labor to devote to preparing and serving that food.

- Sales managers should be able to sell at least six times their salaries. So if you pay someone $50,000, s/he should be able to book $300,000 in revenue. If you need to book $3,000,000 in revenue through the sales office, you would need ten

sales people at $50,000 to do it. (This is an inexact calculation because many sales people can book more than that in the course of a year, while some types of business, like weddings, require much more hand-holding - so the time invested by the sales person might be greater and thus preclude them from booking as much.)

What is the average guestroom to employee ratio say, at a mid level hotel and a luxury hotel? (including all departments) The ratio of guests to employees at a luxury hotel in a developing country is 1-1. In the US it is less because you have to pay the employees more.

In Europe the number of employees at luxury hotels has gone way down in the last 10 years while the price of guestrooms has risen. This is especially obvious at the front desk.

The position of concierge at luxury hotels in the US over the last 20 years has gone down, often replaced by much younger fake concierges who are really shills for local restaurants and tourist sites. The fake concierge does not really work for the hotel.

In Thailand the number of employees per guestroom is very high at luxury hotels and they are much better trained.

At the Park Hyatt Tokyo, a luxury hotel that I stay at regularly, there are around 150 rooms and over 600 employees. However, this hotel does a substantial wedding, conference, and banquet business as well as containing four different restaurants/bars.

I personally work at a luxury boutique hotel in downtown Portland. It has 150 rooms and two employees handle it well over night. Three is ideal for Friday and Saturday night. We recently had a new owner buy the hotel and skeleton crewed the staff. .the place is no longer a fun place to work, and they are cutting pay to the people

who have been there longest. I received a .20 cent raise, but a two and a half dollar an hour cut in pay by then dividing the shift and cutting my in room dining tips out.

I used to do night audit, valet, front desk, in room dining, personal concierge, security customer service, and reservations . Now I am not allowed to do in room dining. .but everything else.

When we were truly the best, we had four auditors, working four ten hour shifts on graveyard, had a reservation line outside the hotel we could direct calls to if we were busy, in the morning we had five employees and a operator, a mid shift and a little less in the evenings. We had a librarian, and turn down for every one.

Now we have only two peeps on shift, and maybe a front desk manager if she isn't the other person in the two people team, a mid, and an operator. I'm not talking about corporate, because they always have a place behind the scenes. The place had become toxic and it reflects in the sheer drop in trip advisor placement. We no longer have turndown service for all..just upon request, if it even gets done. No outside reservation lines means placing people on hold for way too long, and it is over working the staff.

This place has become toxic. You need a lot more than two people manning the front lines. Over worked people, and under pay wage. .not a successful combination in my opinion.

This staffing would be ok for a place of about 50 rooms or less. I have not mentioned anything about housecleaning, so keep that in mind. In India the ratio of Guest Room to Employee will be as;-

For a 3 star hotel (mid level hotel) will be 1 : 1.5 For a 4 star hotel will be 1 : 2 For a 5 star hotel will be 1 : 2.75 For a Luxury hotel will be 1 : 4

In Addition there are few HRD / Apprentice Trainees, on a average 10 - 15 % of the employees.

Based on my personal experience:

Mid-level hotels: 1.2 - 1.5 rooms per employee. Luxury hotels: 0.5 - 1 rooms per employee.

It depends. For better luxury resorts like Aman, the staff:guest ratio may be 3:1. Adding a little region specific information, this is a link from a website giving the insights to Indian hospitality that may be helpful Room to staff ratio: The numbers game

Obviously as Fred Landis mentioned, in less developed countries, employees generally cost less to employ, therefore allow a higher effective ratio.

Hotel Manning Needs March 1, 2014

When you have the position as HR Manager, the first thing that you need to do is make calculation on the number of employees the hotel needs to have. You need to decide how many employees that are needed in each department. The number of the employees depends on the type of hotel that you run. Is your hotel a budget hotel, a three star hotel, a five star hotel? Different type of hotel have different in size, service, number of room, facilities and soon. There is a pretty common ratio to determine the number of the employees. The ratio falls from 0.5 to 2 employees per room. Or the general one in a three star hotel is 8 persons per 10 rooms, 10 or 12 persons per 10 rooms in five star hotels. Usually in the country where the employees are cheap, such as in developing country the number can be higher. For

example: In India employee per room in the luxury hotel is 2.7, up scale is 2.11, mid-market is 1.5, and budget is 0.72. However, the trend right now is not the big number employees that count, but on how to utilize the employees to deliver the highest service with proportionate number. That’s why employees have to be able to do a multi-tasking job.

Now how about to calculate the need of employee per department? I’m going to give you an example of how a three star hotel manages the number of the employee. Let’s say that Hotel A has 136 rooms in 9 floors with four meeting rooms, a coffee shop, and a swimming pool. The question is how many employees needed?

If we use the calculation of 8 employees per 10 rooms than the hotel will need 108 employees. How about the needs in Housekeeping, Front office and other operational department?

a. housekeeping department

The hotel has 136 rooms. If one housekeeper can clean up 30 minutes per room, with 8 hours of working, than one housekeeper can clean up 16 rooms. Therefore 136 rooms are divided into 16, than the hotel will need 9 room attendant minimum. In the public area, let’s say there are three floors, than at least the hotel needs a minimum of 3 persons of public area. And it needs 1 person to handle as order taker and 1 person laundry. And it will need 2 supervisors. So, the total it will need minimum 15 people.

b. In the front office

In the front office department, the hotel will need 1 reception in the morning, 2 in the afternoon (as there will be more check outs) and 1 in the night, plus additional 1 person for day off. It will also need 2 telephone operators and reservations. It will need minimum 3 concierges. And it also needs 2 supervisors in charge. So, the total is 12 persons.

c. the Restaurant (capacity of 70 pax)

The hotel will need 2 waiters, 1 cashier/greeter in the morning, 2 waiters and 1 cashier/greeter in the afternoon, 1 waiter and 1 cashier/greeter in evening, 2 banquet waiters, plus additional 1 waiter extra for day off. It will also need 1 person supervisor. Minimum the restaurant will need 12 people.

d. Engineering Department

In the engineering department, it will needs 2 persons in the morning, 2 persons in the afternoon, 1 person in the evening, and a supervisor. Minimum, it will need 6 persons of engineering and maintenance.

e. Kitchen

In the kitchen it will need 1 cook in the morning, 1 in the afternoon, 1 in the evening, 1 pastry cook, and 1 additional cook for day off, 3 stewards, and a chef the party. In total it will need 9 kitchen staffs.

Usually the hotel is very busy, and minimum staffing is normally the case. The result is normally there are sick employees. In order to overcome the situation, it is often the hotel hires trainees and daily workers to assist in the hotel operation. Human resource also needs to have an evaluation on the effectiveness on the number of the employees hired; this is by doing a calculation of man days lost.

It is also need to consider by the human resources to keep the labor costs under budget. The expected labor budget is under 25% of the total costs.

Staff/Room Ratio

Staff to Room Ratio is one of the critical factors that determine an optimum level of balance between permanent staff and hotel room capacity. This influences the labor

cost which happens to be the single biggest expense line item in a hotel Profit and Loss Statement.

How to calculate Staff to Room Ratio

Staff to Room Ratio in a hotel is computed using the following formula:

Full-Time Employees/ Total Number of Available Rooms

What does Staff to Room Ratio do?

The function of the Staff to Room Ratio is to provide an indication of the balance between the number of full time (permanent) employees and the rooms available in a hotel.

You might well ask: What is the connection between full time employees and rooms available in a hotel? Well, the answer to that is: There is no direct correlation between the two which actually depends upon many factors like:

Is it for a city hotel or a resort?

This question basically addresses the fact that a city hotel is often a vertically oriented building structure with multiple floors. This means that the structure has various levels to it but area wise is not spread out. Contrast this to a resort which is spread out mostly and thus covers a wider area.

When the resort is spread out (and even in the case of a city hotel which is horizontally spread out), the logistics of staff movement becomes critical. Whereas, in a vertically oriented city hotel structure, movement of staff from one level to another may not take as much “time” as in the case of a resort. This has a direct bearing on the number of staff required to service a particular operation area for the

simple reason that it takes more time to get from one point to another. In effect, it may dictate the hotel’s manning requirements particularly the housekeeping function and more specifically the public area attendants.

How many restaurants does the hotel or resort have?

This is another important factor determining the Staff to Room Ratio in a hotel or resort. The more the number of restaurant outlets that the hotel or resort has, the more the staff complement needed. This will further be influenced by factors like how many of the restaurants are food restaurants (this brings the element of kitchens into the equation) and whether each of those have a dedicated kitchen etc.,

Whether the hotel is located in a developed country or a developing country?

This factor literally determines the labour cost factor of the hotel vis-a-vis rooms available. For example, a hotel or resort located in an emerging market like Brazil or Russia or a developing country like China or India will have a higher Staff to Room Ratio than in developed countries like US, Canada, Australia. This is mostly driven by the fact that basic salaries and wages are very high in developed countries. Additional factors could be better educated, trained staff etc.,

What is the degree of Multi-tasking?

Even in developing countries, salaries and wages are on the rise constantly which have a significant bearing on the bottom line performance of the hotel or resort. Since bottom line is driven by the top line, generating revenues faster than the increase in labour costs becomes paramount. When revenue increases cannot keep pace with labour cost increases, manning cuts are inevitable.

However, considering that the hotel industry is a service industry, keeping service levels high according to customer expectations may well determine sustained revenue growth and in this scenario multi-tasking has become a powerful tool to tackle perennially rising labour costs. By training staff to do more than one task

(often at the same time), the Staff to Room Ratio can be kept in check. Multi-tasking can also mean combining functions currently performed by different individuals so that these can be done by one person.

Staff to Room Ratio Examples

Staff to Room Ratio can range all the way from 2.5:1 (2.5 full time staff for every room available) in underdeveloped countries like Brazil, Russia through a ratio of 2:1 in developing countries like China, India (in fact, it is around 1.75:1 in India) to less than 1:1 in developed countries like US, Canada, Australia, UK.

Combined with a low staff to room ratio in developed countries, the labour cost % to gross operating revenue is very high, in the region of 40% to 50%. This compares with less than 30% in developing countries and less than 20% in emerging markets.

Staff to Room Ratio – an indicator at best

It is thus paramount to understand that the Staff to Room Ratio is at best an indicator. It is to be used more to verify if the ratio is significantly above or below the norm according to some of the factors stated earlier (city hotel or resort, how many restaurant outlets, whether in a developing or developed country) rather than apply as a rule of thumb.

What the ratio certainly provides however is a quick indication of the balance between the complement of full time employees and the rooms available. This is very useful in the case of a new hotel project where the owners or investors would like a quick and dirty way of knowing what this balance is like. And as stated earlier, it has a major influence on the ultimate labour cost.

Operating Hotel Staff to Room Ratio

In the case of an operating hotel, the staff to room ratio can change over a period of years as the hotel or resort matures and the staff becomes more and more trained

(of course assuming that they stay with the hotel over these years). This can result in significant improvement in the staff to room ratio.

Hotel chains might cut staff-to-room ratio

A senior executive in an audit firm checked into a budget hotel on his recent trip to Canada. The hotel had installed an ironing table on each floor for its guests to use themselves. Similar arrangements had been made with water dispensers, and so on. The idea was to do away with the concept of a bell boy, or room service.

This hotel is no exception, as most international chains in the budget and upper categories keep the staff-to-room ratio low, contrary to the Indian hospitality scene. But, things are set to change in India, too. “It’s not an easy process, but hotels have started reducing their employee-to-room ratio in India to cut costs. But, we are still on the higher side when compared with chains abroad,” says Kaushik Vardharajan, managing director, HVS Consulting.

With costs under pressure, the payroll expenditure as a percentage of revenue has increased from 10-12 per cent to 18-20 per cent over the past year, experts say. Lalit Hotels, for instance, employs close to three staff members for every room, which is significantly higher than the international norm of one per room in the luxury category. GLOOMY PICTURE Employee per room in India Luxury

2.70

Upscale

2.11

Mid-market 1.52 Budget

0.72

(The global average is almost half the Indian average)

Source: HVS Indian hotels manpower survey 2011 edition

“Our aim is to bring our ratio down from 2.7 to 1.75 staff per room by next year. We are already encouraging multi-tasking in order to manage our employee costs and going forward, even the hiring would be done very judiciously,” said Jyotsna Suri, chairperson, Lalit Suri Hospitality Group.

As the hotel inventory in India increases, the cost of labour is expected to rise alongside, making cheap labour unsustainable. Therefore, hotels are expected to pay a lot more attention to quality and training of employees rather than adding number to the manpower. As costs come under pressure, hotels across categories, including the luxury chains like Taj and Oberoi, are also looking at rationalising their staff-to-room ratio, an industry analyst said

EIH Ltd, which operates the Oberoi Hotels and Resorts, saw a 32.7 per cent decline in the net profits for the quarter ended March. Experts say in the current economic climate there is nothing much that the companies can do to improve their top line, for factors beyond control.

“Despite encouraging signs in the first half of 2011, there was growing uncertainty during the latter part of the year. As a result, recovery has been fragile during 2011. Room rates have been subdued and it has not been generally possible for hotels to revise room rates upwards,” P R S Oberoi, chairman, Oberoi Group, had stated earlier.

Industry watchers say expectations of the business traveller have changed with so many more options available across different segments, which is bound to bring about rationalisation of costs as well as rates. “Companies are facing pressure on the bottom line. There is consciousness among hoteliers not over employ labour, because it has been coming cheap till now, but it has not translated into any visible change yet,” said Pankaj Arora, managing director, Protiviti Consulting.

Intercontinental Hotel Group, which operates the brands Crowne Plaza and Holiday Inn in India, has double the staff-room ratio in India compared to its global markets. The ratio for Holiday Inn is in the range of 1.5 to 1.8 staff per room, while in the US, it is only around 0.6 to 0.8. “The level of attention can be significant in India. That

does not necessarily mean we don’t deliver service to our global customers. It doesn’t matter how many people you have. The interaction between each individual is equally important,” said Chris Moloney, chief operating officer-southwest Asia, IHG. THE STAFF TO ROOM RATIO IDELLY WILL BE BETWEEN 1.5 TO 1.8. BUT IT WILL ALSO DEPEND ON WHETHER IT IS AN OLD PROPERTY OR A NEW ONE. THE EMPLOYEE COST SHOULD NOT EXCEED 10 % TO 12 % OF THE TURNOVER. BUT THAT AGAIN WILL DEPEND ON WHETHER THE HOTEL IS IN A CLASS CITIES (METROPOLIES) OR B / C CLASS CITIES THANKS, PRAFUL

Formula for Calculating Staffing Needs Calculating staffing needs is part of human resource planning, the process of analyzing and identifying staffing gaps and surpluses. Human resource planning focuses on staffing the organization with the right number of personnel with the required skills when needed to meet business objectives in the short and long term. Various formulas are used to estimate and predict staffing needs, based on the company's historical and estimated performance data such as sales and production numbers. Ads by Google Rule of Thumb

The rule of thumb method of calculating staffing needs is based on general organizational structure. For example, if the organization has set up its structure to have one operations manager per five line supervisors, then short term staffing will include keeping the same number of supervisors when there is turnover. Long term staffing will include planning five supervisors for every manager added. The rule of thumb calculation is not exacting or based on in-depth analysis, but on maintaining the organizational structure. Delphi Technique

The Delphi Technique is a method of human resources forecasting that uses input from a group of experts to analyze staffing history and staffing planning. A group of senior managers, business consultants or a combination of related business people familiar with the organization's staffing history answers questions about staffing, and their answers are compiled and used for the group to review individually. The group doesn't get together physically, but is coordinated by a facilitator who distributes the questionnaires, compiles answers and returns the information to the panel participants for further review until there is a refinement of the staffing forecasting needs. The experts are kept anonymous from each other to prevent bias and group-think and get information that is as objective and accurate as possible. Ratio Methods

Two different ratio methods are used in human resource forecasting: staffing ratios and productivity ratios. Staffing ratios are used to predict hiring need based on established organizational form. For example, if the company has an administrative pool of five secretaries for every 20 senior managers, that ratio is used to estimate recruiting for secretaries. Productivity ratios use estimates of units produced per employee and applies them to sales forecasts for hiring needs. A company that sells 2 million widgets per year and employs 25 production workers needs to hire more production workers if an increase in sales is expected, or must at least maintain a staff of 25 production workers to meet current sales. Statistical Regression Analysis

Statistical regression analysis compares relationships in historical data for forecasting staffing needs. Gross sales per year over the past five years and staffing during that time are analyzed as sufficient or insufficient to support sales in the next five years. Ads by Google

Absence Rate

What is It? Calculating the absence rate helps an organization determine the number of days lost as a result of all absences from work during a given period. This ratio will enable the organization to compare with others within their industry through national surveys to determine whether the organization is in line with those

averages or if further investigation is needed. Calculating the absence rate is the first step in determining how absences affect an organization in terms of productivity and actual cost. The absence rate can be calculated by organization, department or job group.

How is it Calculated? For purposes of this calculator, the Absence Rate ratio is calculated by dividing the worker days lost through absence in a calendar, fiscal year or other 12 month reporting period by the average employee population in that calendar, fiscal year or other 12 month reporting period multiplied by the number of work days available per employee in that calendar, fiscal year or other 12 month reporting period.

Absence Rate = Workdays Lost Due to Absence ( Average Employee Population x Number of Work Days Available per Employee )

How many rooms should a maid clean in an 8 hour shift? Most hotel chains will limit the number to 14-16 rooms per shift. Of course room size and type affects this so do average the time that your fastest and slowest maid takes without compromising quality. Experiment with pairs of maids working together specializing in tasks. You may find that where one maid alone could do 14 rooms per shift on average whilst 2 maids together could do 30 or more rooms on average.

Hotel Staff

Hotel staff - is the appearance of every hotel. People, working in the hotel, form the attitude of the clients to the hotel no less than the interior or the menu. Among the most common jobs represented in the hotel are: concierge, doorman, maid, technician, maître d'hôtel, cook, waiter, security guard, manager of the hotel. Big hotels hire animators, doctors, masseurs, dealers as permanent employees. It is considered a sign of a good tone for a modern hotel to have an independent specialist for public relations and PR-manager.

Hotel business is an independent branch of the hotel industry. Therefore, the question of hotel staff training is of a great importance. Nowadays, many universities have special departments, where specialists for the hotel industry are being trained. Major hotel chains create special schools, where hotel business is studied. There are hundreds of different external programs, which help to obtain skills of various professions in hotel business.

Nowadays, the standards of education in hotel business are Swiss and French schools. Among the most eminent institutions for staff training Hotel School in Lausanne, Switzerland can be distinguished. The range of professions, which are taught in the hotel industry, is rather wide: from financiers to specialists in the field of spa, recruitment and telephone conversations.

The amount of the staff engaged in hotel activity largely depends on the status of the hotel. According to the recommendations of the World Tourist Organization, the optimum number of staff per 10 rooms in three star hotel – 8 person, in four star hotel – 12 person, in 5 star hotel – 20 person.

What regards the level of payment, there is still no common approach. The amount of salary depends on a wide array of factors: country, belonging to a major corporation, seasonality, etc. There is a special programs for career advancement, bonus and award systems in some hotel chains. Like Marriott or Hyatt. With some degree of certainty we can tell you about the level of salaries for managerial staff in the hotels. If you take an American hotel market as an example, the average payment level ranges from 36 thousand dollars per year for a reception manager to 57 thousand dollars per year for the hotel manager. In Russia the hotel manager gets from 1, 5 thousand dollars in the 3 star hotel to 4 thousand dollars in the 4-5 star hotel.

Among the basic skills, that a professional engaged in hotel business must have, are: the ability to handle stress, punctuality, knowledge of foreign languages, and attention to details. Those requirements are universal for managerial staff as well as service staff.

In <> column we will tell you about the main occupations in the hotel business, familiarize you with a number of professional nuances and provide you

with the information about the level of salaries and demands for different hotel jobs all around the world.

� by city-of-hotels.com. Please include a link to the source page: http://www.city-ofhotels.com/165/hotel-staff-en.html

What’s the Correct HR-to-Employee Ratio?

Used in HR Weekly -- July 24, 2007. Posted online for a week the same day.

Issue: It can be easy to misuse or misinterpret the controversial HR-to-employee ratio.

Benefit: That metric can help measure HR effectiveness, but only if interpreted and used correctly.

Action: Recalculate your ratio using the advice below, then use the number as a guide for future staffing.

HR-to-employee ratios are a somewhat controversial metric that can help establish HR staffing and determine how well HR delivers services. But you should calculate and use the number correctly, or don't use it at all.

"The ratio is very helpful if you know what you're doing," says James Hatch, a partner with PricewaterhouseCoopers' Saratoga Institute, which specializes in HR metrics. "But it can be very dangerous if you don't know what you're doing."

One key danger: Executives may use ratios as a reason to cut HR staff.

Looking for more information to advance your skills as an HR professional? — Get The Complete Compliance Guide to Federal & State Employment Law now!

Many HR professionals don't calculate the ratio correctly. Here's how to do it right: Divide the number of HR full-time equivalent (FTE) positions by the total number of employees (FTEs), then multiply the outcome by 100.

Example of a six-employee HR department at a 250-employee company:

6

× 100 = 2.4 ratio

250

But HR professionals often include or exclude the wrong HR jobs in the formula. The ratio should include HR professionals who work as generalists and those in areas such as benefits, compensation, labor relations and organizational effectiveness, says Hatch. The ratio should exclude payroll and training-and-development employees.

High HR-to-employee ratios in smaller organizations (see chart below) may mean that it takes a minimum HR baseline to deliver primary HR services. But once that baseline is met, the incremental amount of HR staff required to support more employees doesn't increase at the same rate.

If your ratio is higher than average, examine your HR department's role.

If the role is primarily organizational asset preservation—preventing litigation by overseeing policies, cutting HR costs and outsourcing—then a ratio of 1.00 (1 per 100 employees) for large employers is the standard benchmark. If your department's goal is asset creation—an ongoing alignment with business strategy— then the ratio could be near .60 (1 per 166 employees).

High HR ratios aren't necessarily bad for departments that are strategic partners, have mature self-service technology and decentralized HR departments. Example: A hotel chain with a core strategy to provide intimate customer service maintains a . 80 ratio compared to 1.3 for competitors.

Suppose your HR department has a high ratio, but isn't a strategic partner and has few automated HR services. Look to streamline services and possibly outsource.

Low HR-to-employee ratios can be misleading. "A low ratio might mean you get things done quickly, but if you're getting the wrong thing done quickly, it has no value," says Claudia Schwartz, principal of HR Results consulting firm.

Schwartz once used a high ratio to ask for more employees when she headed the HR department at a 10,000-employee company. However, she used the ratio as only one piece of the information to make her case, and she made sure to measure the number accurately.

Average HR-to-Employee Ratio, by Organization Size

Fewer than 100

2.70

100 to 249

1.26

250 to 499

1.07

500 to 999

0.82

1,000 to 2,499

0.79

2,500 to 7,499

0.53

7,500 or more

0.42

Source: SHRM Human Capital Benchmarking Study

__________________________ What's the Ideal HR-to-Staff Ratio?

Comments from participants in our HR Specialist Weekly forum:

1. "I think a good ratio is one HR employee to every 100 employees. After 100, it starts to get a little more difficult to keep on top of things." —Casey, Michigan

2. "I strongly believe that once your company reaches 50 employees, there should be some other HR assistance within the department. Many federal laws, as well as benefit practices, change once your company moves from a small group to a midsize group." —S.B., New Jersey

3. "(The ratio) depends on how much the company understands and appreciates what HR professionals do. When I was working in retail, I was the only HR person in the store. I had between 170 and 215 employees. That company knew that HR management was important to an extent, but not enough to provide extra help." — Chris

EVALUATING FRONT OFFICE OPERATIONS

Evaluating the result of front office operations is an important management function. Without thoroughly evaluating the results of operations, managers will not know whether the front office is attaining planned goals. Successful front office managers evaluate the results of department activities on a daily, monthly, quarterly, and yearly basis. The following sections examine important tools that front office managers can use to evaluate the success of front office operations. These tools include. The daily operations report Occupancy ratios Rooms revenue analysis The hotel income statement The rooms schedule Rooms division budget reports Operating ratios Ratio standards

THE DAILY OPERATIONS REPORT The daily operations report, also known as the manager’s report, the daily report, and the daily revenue report, summarizes the hotel’s financial activities during a 24 hour period. The daily operations report provides a means of reconciling cash, bank accounts, revenue and accounts receivable. The report also serves as a posting reference for various accounting journals and provides important data that must be input to link front and back office automated functions. Daily operations reports are uniquely structured to meet the needs of individual hotel properties. Room statistics and occupancy ratios from an entire section of a typically daily operations report. Enriched by commends and observations from the accounting staff, statistics shown on the daily operations report may take on the more meaning. For example, statistics about the number of guests using the hotel’s valet parking services take on added significance when remarks indicate that valet sales are down while occupancy is up. The front office manager may assume that the front office is not properly promoting available guest valet parking services. The information provided by the daily operations report is not restricted to the front office manager or hotel general manager. Copies of the daily operations

report are generally distributed to all department and division managers in the hotel. OCCUPANCY RATIOS Occupancy ratios measures the success of the front office in selling the hotel’s primary product: guestrooms. The following rooms statistics must be gathered to calculated basic occupancy ratios: Number of rooms available for sale Number of rooms sold Number of guests Number of guests per room Net rooms revenue Generally, these data are presented on the daily operations report. Occupancy ratios that can be computed from these data include occupancy percentage, multiple (or double) occupancy ratio, average daily rate, revenue per available room (Rev PAR), revenue per available customer (Rev PAC), and average rate per guest. Computed occupancy percentage and average daily rate may also appear on a property’s daily operations report. These ratios typically are calculated on a daily, weekly, monthly, and yearly basis. The front office system typically generates occupied rooms data and calculates occupancy ratios for the front office manager, who analyzes the information to identify trends, patterns, or problems. When analyzing the information, the front office manager must consider how a particular condition may produce different effects on occupancy. For example, as multiple occupancy increases, the average daily room rate may also increase. This is because, when a room is sold to more than one person, the room rate for two people in a room is usually not twice the rate for one person, the average room rate per guest decreases. The following sections examine how daily occupancy ratios are calculated for the Gregory Hotel. Rooms division data needed for the calculations are as follows. The Gregory Hotel has 120 rooms and a rack rate of $98. (for simplicity, we will assume in this example that this rack rate is applicable to both singles and doubles) Eighty-three rooms were sold at varying rates. Eighty-five rooms were occupied by guests. (Rooms sold does not equal rooms occupied by guests because, on this particular day, single guests occupied two

rooms at a complimentary room rate, thereby generating no rooms revenue. Note that the handling of complimentary rooms may differ among hotel properties) Ten rooms were occupied by two guests, therefore, a total of 95 guests were in occupancy. $6,960 in room’s revenue was generated. $7,363.75 in total revenue was generated, including rooms, food, beverage, telecommunications, and other.

OCCUPANCY PERCENTAGE The most commonly used operating ratio in the front office is occupancy percentage. Occupancy percentage relates the number of rooms either sold or occupied to the number of rooms available during a specific period of time. It is important to note that some hotels use the number of rooms sold to calculate this percentage, while other hotels use the number of rooms occupied to calculate the statistic. Including complimentary rooms in the calculation can change certain operating statistics, such as average room rate. Using rooms sold, rooms occupied both is valid, depending upon the needs and history property. This discussion will use rooms occupied to illustrate the occupancy percentage calculation. Sometimes out-of-order rooms may be included in the number of rooms available. At properties that evaluate management performance partly on the basis of occupancy percentage, including out-of-order rooms in the number of rooms available provides the manager with incentive to get those rooms fixed and recycled more quickly. Including all rooms also provides a consistent base on which to measure occupancy. Conversely, not including out-of-order rooms may allow managers to artificially increase the calculated occupancy percentage simply by improperly classifying unsold rooms as out-of-order. Some properties do not include out-of-order rooms because the rooms are not available for sale. Also, to the extent that the occupancy percentage is used to evaluate the performance of front office staff having no control over out-of-order rooms, including those rooms may unfairly penalize the front office staff. Regardless of the approach chosen, it should be used consistently. The occupancy percentage for the Gregory Hotel is calculated as follows: Number of rooms occupied Occupancy Percentage

=_________________________ X 100 Number of rooms available = 85 / 120 X 100

= 70.8%

MULTIPLE OCCUPANCY RATIO The multiple occupancy ratio (frequently called the double occupancy ratio, although this phrasing may not always be accurate) is used to forecast food and beverage revenue, indicate clean linen requirements, and analyze average daily room rates. Multiple occupancy can be calculated by determining a multiple occupancy percentage or by determining the average number of guests per room or occupied (also called the occupancy multiplier or the multiple occupancy factor). The multiple occupancy percentage for the Gregory Hotel is calculated as follows. Number of rooms occupied by more than one guest Multiple occupancy percentage =______________________________________ X 100 Number of rooms occupied = 10 / 85 X 100 = 11.8%

AVERAGE DAILY RATE (ADR) A measure of the average rate paid for rooms sold, calculated by dividing room revenue by rooms sold. ADR = Room Revenue / Rooms Sold AVERAGE RATE PER GUEST: Resort hotels, in particular, are often interested in knowing the average rate per guest (ARG). This rate is computed inclusive of every guest in the hotel, including children. The average rate per guest for the Gregory Hotel is calculated as follows: Total Room Revenue Average Rate per Guest = _____________________ Number of Guests

= $6,960 / 95 = $73.26 YIELD MANAGEMENT: Hotel yield management systems have developed as a separate add-on to normal reservation systems. They work by calculating how full the hotel is likely to be on a given date in the future. This is done by constantly measuring previous occupancy and booking patterns and projecting them forward into the future. The reservation is then advised whether or not top take a booking, and at what rate. This has the effect of smoothing peaks and troughs of demand and ensuring that rooms are sold at the best possible price. In a period of low demand. Sunday evening for example, the system would recommend accepting a rate lower than rack to ensure the booking and gain revenue for the hotel. It should be recognized that the hotel room can never be sold twice like an airline or coach seat, it is perishable. If a room is not sold on a particular night then it is never sold. This is because there are two elements, space (the room) and time (the date). Concept of yield management: The word yield means to produce or give forth an output or return, and the term yield management means output. When applied to accommodation, the term means the management of revenue generation from rooms.

Measuring yield: It is divided into two types: Actual Revenue. Potential Revenue. Actual Revenue. The revenue generated by sale on discounted rate. Potential Revenue. Revenue which could be generated if all rooms were sold at rack rate. Uses of yield management Yield management has now caught on in the hotel industry. It id imperative that hoteliers understand the importance of the basic factors of yield management, room rate category, room inventory, and group buying power. The goal of revenue

management is twofold: to maximize profit for guest room sales and to maximize profit for the hotel services. FORMULA 1: POTENTIAL AVERAGE SINGLE RATE If Casa Vana Inn had not varied its single rate by room type (for example, if all single were $90), the potential average single rate would equal its rack rate. When the single rate differs by the room type, as in this case, the potential average single rate is computed as a weighted average. It is computed by multiplying the number of rooms in each room type category by its single room rate and dividing the sum total by the number of potential single rooms in the hotel. For the Casa Vana Inn, the potential average single rate is computed as follows: Room Type

No. of Rooms

Single rack rate

Revenue at 100% Occupancy singles 1 bed

100

$90

$9000 2 beds

200

$100

$20,000 -

300

-

$29,000

Single room revenues at rack rate Potential Average single rate =____________________________ Number of rooms sold at singles = $ 29,000 / 300 = $ 96.67 FORMULA 2 : POTENTIAL AVERAGE DOUBLE RATE If the hotel had not varied its double rate by room type, the potential average double rate would equal its rack rate. When the double rate differs by room type, as in this case, the potential average double rate is computed as weighted average. It is found by multiplying the number of rooms in each room type category by its respective double room rack rate and dividing the sum total by the number of potential double rooms in the hotel. For the Casa Vana Inn, this computation is as follows: Room Type

No. of Rooms

Double rack rate

Revenue at 100% occupancy doubles 1 Bed

100

$110

$11,000 2 Beds

200

$120

$24,000 -

300

-

$35,000

Double room revenues at rack rate Potential average double rate =________________________________ No. of rooms sold as doubles

= $35,000 / 300 = $ 116.67 NOTE: For lodging properties basing potential revenue on 100% double occupancy, this step is all that is necessary to determine potential average rate ( see formula 5). FORMULA 3: MULTIPLE OCCUPANCY PERCENTAGE An important element in determining a hotels yield statistics is the proportion of the hotel’s rooms that are occupied by more than one person that is, the multiple occupancy percentage. This information is important because it indicates sales mix and helps balance room rates with future occupancy demand. In the case of the Casa Vana Inn, if 105 of the 210 rooms sold (at 70% occupancy) are normally occupied by more than one person, the multiple occupancy percentage is computed as follows: 105 Multiple occupancy percentage = _____ 210 = 0.5 or 50% FORMULA 4 : RATE SPREAD In addition to multiple occupancy percentage, another intermediate computation is important to yield statistics. The determination of a room rate spread among various room types can be essential to use of yield decisions in targeting a hotel’s specific market. The mathematical difference between the hotel’s potential average single room rate ( formula 1 ) and potential average double rate ( formula 2 ) is known as the rate spread. For the Casa Vana Inn, the rate spread is computed as follows:

Rate spread =Potential average double rate – Potential average single rate = $ 116.67 - $ 96.67 = $ 20 FORMULA 5: POTENTIAL AVERAGE RATE

A very important element revenue management formulation is the potential average rate. A hotel’s potential average rate is the collective statistic that effectively combines the potential average rate, multiple occupancy percentage, and rate spread. The potential average rate is determined in two steps. The first steps involves multiplying the rate spread by the hotel’s potential average single rate to produce a potential average rate based on demand (sales mix ) and room rate information. For the Casa Vana Inn, the potential average rate is computed as follows. Potential average rate = ( Multiple occupancy % X Rate Spread) + Potential average Single rate = (.5 X $20) + $96.67 = $106.67 FORMULA 6 : ROOM RATE ACHIVEMENT FACTOR The percentage of the rack rate that the hotel actually receives is expressed by the hotel’s achievement factor (AF), also called the rate potential percentage. When revenue management software is not being used, the achievement factor is generally calculated by dividing the actual average rate the hotel is currently collecting by the potential average rate. The actual average rate equals total rooms revenue divided by either rooms occupied (depending on hotel policy). For the Casa Vana Inn, the room rate achievement factor is computed as follows: Actual average rate Achievement factor = _____________________ Potential average rate = $ 80 / $ 106.67 = 0.750 or 75% The achievement factor is also equal to 100% minus the discount percentage. By calculating its achievement factor, management discovers how much its actual room rates from varied from established rack rates. In this case, the discount is 25 percent. As shown below, the achievement factor can be used in one method of determining the yield statistic. It is not necessary to calculate the achievement factor, because the yield statistic can be determined without it. Nonetheless, the achievement factor is an important statistics in its own right because it allows management to monitor and therefore better control the hotel’s use of discounting.

For this reason, many hotels calculate the achievement factor as part of their revenue management efforts. FORMULA 7: YIELD STATISTIC An important element in revenue management is the yield statistic. The yield statistic calculation incorporates several of the previous formulas into a critical index. There are various ways to express and calculate the yield statistic, all of which are equivalent.

Actual Rooms Revenue Yield = ____________________ Potential Rooms Revenue

Room Nights Sold

Actual Average Room Rate

2. Yield = ___________________ X _______________________ Room Nights Available

Potential Average Rate

3. Yield = Occupancy percentage X Achievement factor

The first equation is used for a hotel that offers all its rooms at a single rack rate, regardless of occupancy. When (as far more common) a hotel uses more than one rack rate for different room types and / or occupancies, potential rooms revenue equals total room nights available times the potential average rate. The self-explanatory second equation is not demonstrated here. The third equation is illustrated below. For the Casa Vana Inn, the calculation is as follows: Yield = Occupancy Percentage X Achievement Factor = 0.7% X 0.75% = 0.525 or 52.5%

FORMULA 9: EQUIVALENT OCCUPANCY

Management can use the equivalent occupancy formula when it wants to know what other combinations of room rate and occupancy percentage provide equivalent net revenue. The equivalent occupancy formula is very similar to the identical yield occupancy formula, but takes marginal costs into account by incorporating gross profit or contribution margin. The cost per occupied room ( also called the marginal cost ) of providing a room is the cost the hotel incurs by selling that room (for example, housekeeping expenses such as cleaning supplies); this cost would not be incurred if the room were not sold ( as opposed to fixed costs, which are incurred whether the room is sold or not). The contribution margin is that portion of the room rate that is left over after the marginal cost of providing the room has been subtract out. To find the equivalent occupancy, use either of the following formula (which are equivalent versions of the same equation).

Rack rate - Marginal cost Equivalent occupancy = Current occupancy % X __________________________ Rack rate X (1-discount %) – Marginal Cost Equivalent

Current Contribution Margin

Occupancy = Current Occupancy % X ____________________________ New contribution Margin Recall the example discussed under identical yield statistics. Now assume that the Casa Vana Inn is currently operating at 70 percent occupancy with an average rate of $80, and considering strategies designed to raise its average rate to $100. Further assume that the marginal cost of providing a room is $12. What occupancy percentage must the Casa Vana Inn achieve to match the net room revenue it currently receives?

Current Contribution Margin Equivalent Occupancy = Current Occupancy % X_________________________

New Contribution Margin

$80 - $12 = 70% X _________ $100 - $12 = 0.541 or 54.1 % Recall from the discussion of identical yields that the Casa Vana Inn needs a 56 percent occupancy to produce an identical yield statistic – that is, equivalent gross revenue. However, the Casa Vana Inn does not need to match its gross revenue to achieve the same net revenue, since by selling fewer rooms ( at the higher price), it incurs fewer associated operating costs. Although rack rates are raised relatively infrequently, discounting is a common practice in the lodging industry. What is the equivalent occupancy to 70 percent with an $80 average room rate if the average room rate is discounted by 20 percent (to $64)?

$80 - $12 Equivalent occupancy = 70 % X _________ $64 - $12 =0.915 or 91.5 %

Flow-Through Analysis

McCaysville GA – May 25, 2013 – (hospitalitybusinessnews.com – by Eric Hertha) Usually, when revenues increase, profit goes up. The opposite is also the norm. Revenues decrease and profit goes down. But how much should profit go up and how much should it go down? The analysis of this is most often called “FlowThrough” and sometimes “revenue conversion”.

My feeling is that if you do not know generally what something should be then you cannot tell if there is a problem. Let’s say that you introduce a new menu into your

restaurant and all items are cost out with a 30% food cost. If, at the end of the first month, you show a food cost of 40% then you would know that something is not right and a further investigation would need to be done in order to determine why the discrepancy exists. The same can be done for the overall revenue and profit of the hotel or restaurant. We can come up with formulas that will compare the variance between budget (for example) and actual and then pinpoint potential problem areas.

Dig deep?

When performing the Flow-Through analysis you can create formulas that analyze your business down to the penny, or, you can take a “30,000 foot” perspective and simply make good estimates of costs and profitability and then go from there. Logic would tell you that the more precise you are the better the result will be. Actual results may show that good estimates will give you the results that you are looking for. And what are these results? The whole purpose of this exercise is to guide you, it is to make you aware, it is to point you down the right road; it is to show you where there are potential problems within your organization. For the purpose of our discussion we will try to give examples of what you should look at. This being said I am sure that many people reading this document will come up with alternative options that add value to their situation and ultimately make this analysis more beneficial to them.

So, how do we do this?

Well, in a nut shell, we have two areas to look at; first revenues and next costs. This is probably fairly obvious so let’s look further. Depending on the type of revenue, different costs will change. Some of these costs are accounted for within the department and others are accounted for in overhead departments. For example if room revenues increase and the guest pays with a credit card, the commission expense will not affect rooms’ department profit, it will increase G&A costs.

A point should be made here; simply because revenues increase you should not always expect that profit should too. Take rooms revenue as an example. Let’s say that we have the following situation:

Flow-through 1 Note: Variance due to rate: – ($175-$130)*4,500 = $202,500. Variance due to occupancy: – $130 * (6,375-4,500) = 243,750

In the above example we would expect that the Rooms’ Department profit and GOP would decrease even though revenues have gone up. This is due to the difference in profit margins on a $1 increase in room rate (95%) vs. the profit on one additional room occupied (70%).

So, what should your Flow-Through be?

The answer to this is that there is no answer. Some people seem to think that a Flow-Through at GOP vs. budget of 65% is the target number. Its fine to have a target, but on a month-to-month basis the target will change. If you simply say we want a 65% Flow-Through, then perhaps you will lose some upside profit. What happens in a month where the increase in revenue is all attributable to room rate? In this case, depending on your variables costs wouldn’t you expect a Flow-Through in the vicinity of 80%-90%? So, on a monthly basis you need to calculate what your target GOP is and then compare this to the actual and go from there.

Rooms Department Flow-ThroughFlow-Thorugh 2

Let’s start with the rooms department and put together the basic worksheet for our Flow-Through analysis.

To begin with, we need to determine what profit we can expect from each of our room segments if the rate increases or if occupancy increases. Additionally, we need to know which costs reside in the rooms department and which costs reside elsewhere. For example, if our room rate increases by $1, there could be an increase in travel agent commissions, which is recorded in the Rooms Department. There could also be an increase in Credit Card Commissions and this cost resides in G&A.

In our example, we will use a limited number of market segments. This should give the reader a good idea of how to adapt this to their situation. The segments that we will use are Transient (B.A.R.), Corporate and Wholesaler. We have put together a table that shows some of the variable costs associated with a change in occupancy. This is presented to give the reader an idea of how to go about this calculation. In order to do a comprehensive analysis, you will need to identify each expense as either fixed or variable and then calculate the associated cost, for the variable costs, for either a change in occupancy or rate. To be clear, in this example we have not included energy costs. These will have to be added in order to come up with your final report.

Additionally there are some “fuzzy” areas, for example linen expense. The cost of towels and sheets are a variable cost. But is it accounted for as such? By this I mean, how many hotels have come up with a “wear and tear” cost per room occupied for towels and sheets and then accrue this amount on a monthly basis? To my knowledge most hotels budget a monthly amount, perhaps based on occupancy and then expense what is put into circulation. Then on an annual basis an inventory is done then circulating stock is trued up. So these costs may very well be treated as fixed for this analysis. There is absolutely no reason why your fixed costs cannot change on a monthly basis. For example, window washing: maybe this is done on a quarterly basis and budgeted as such.

Finally, should we take into accoFlow-Through 3unt the number of guests in a room? In our example Corporate rooms would be 95% single occupancy while Wholesaler rooms would be 95% double. So shouldn’t there be a difference in Guest Supplies? The answer is maybe. If Corporate stays average one day, then you will most likely throw out a lot of product where the Wholesaler room (with an average stay between 3-7 days) uses it. So the cost is the same. If your corporate average stay is longer maybe there is a reason to look at this. Also, what about suites and “Executive Floor” rooms? But, I will get back to our original premise. The purpose here is to point someone in the right direction so that potential cost issues will be investigated. There are a lot of exceptions to look at. In a lot of cases they will not matter. You will need to look at your own situation to determine whether these variances need to be accounted for in this analysis.

In connection with rate , we have one variable in Rooms and one in G&A. In our example here the reservation fee is a fixed amount.

So we now have our variable profitability calculated for both occupancy and rate, by market segment. Now we can perform our Flow-Through analysis for the rooms department by comparing our actual figures against these budgeted ones. This comparison can be done by market segment or in total. A suggestion would be to prepare an excel sheet so that on a monthly basis the actual and budget figures could be input and then the analysis would be performed automatically.

One final point here is that you will need to determine if your fixed costs come into play. For example, if your revenues do not cover your fixed costs, this will change the Flow-Through calculation. Also, if your hotel has “other revenue” in the rooms department, then this will need to be included in the analysis too.

Food and Beverage Department

Food revenue is somewhat similar to rooms in that you have both volume and price variances in your revenue and you can have different market segments. How you analyze this is up to you. I have normally looked at total food revenues and calculated the Flow-Through. If you have a situation where there are, for example, three outlets with very different costs, then perhaps you will need to split them out. For our discussion here we will look at this department on an overall basis.

Food volume variance

When the number of covers served changes, what does this effect? This depends on your situation to some degree, but in general the following will be affected. For our examples I have added estimated costs to each one:

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Food Cost – 30%

–

Payroll – 20% (You may want to put this in $ terms)

– Expenses – 5% (For this example we have a percentage for our variable costs associated with each additional cover).

Based on the above we have calculated that our profit, within the department, on each additional cover is 45%. In order to calculate the payroll cost you will need to know how many covers are being served per hour by the wait staff, how many are cooked by the kitchen staff, and how many are cleaned by the stewards.

In addition to these costs, we will have increased utility costs and an increase in credit card commissions. Additionally, if your hotel participates in a loyalty program, there may be an additional cost for that as well. In some cases the loyalty program is a percentage of “qualifying revenue”. Therefore our net, variable profit, on a volume increase will be somewhere between 40% and 45%.

Average Cover dollar increase

It should be made clear that an increase in menu pricing is different from an average cover increase. In the context here an increase in the average cover is due to a change in the market mix. If the cover increase came as a result of a menu price increase, then the profitability would be higher as food cost would not increase.

If the average cover increases, the following costs need to be calculated. For our examples, I have added estimated costs to each one:

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Food Cost – 30%

– Expenses – 5% (I have put in 5% but perhaps this will not change at all. You need to be careful and look at all of your costs.

Based on the above, we would look for a profit of 65% on each $1 increase in the average cover within the F&B department. As with other areas of this analysis, you need to be careful. When you do your analysis, perhaps you find that you are not achieving the profit levels than you projected. Maybe the 65% isn’t right. The idea then is that you may need to adjust your figures based on the analysis. For example, maybe you introduced a special “appetizer” program in the restaurant.

This has increased sales dramatically, the average cover has gone up, but because the average cover increase is due to additional food items being served, you need additional kitchen staff and thus payroll has increased more than our initial estimate.

In addition to these costs, we may have increased utility costs, there will be an increase in credit card commissions and, if your hotel participates in a loyalty program, there may be an additional cost for that as well. In some cases the loyalty program is a percentage of “qualifying revenue”. Therefore our net, variable profit, on a volume increase will be somewhere between 60% and 65%.

Beverage Sales

As beverage sales are not normally broken out by average covers, the Flow-Through analysis must be based simply on the change in total sales.

The major issue here will be to estimate the increase or decrease in payroll. If I sell one more dollar, how much does my payroll increase? The answer to one dollar is most likely that no increase exists in payroll costs. At some point the increase in sales is going to require an additional bartender or server. What I have normally done is to take my variable payroll percentage for the beverage department and then take 30% – 50% of that amount and come up with a percentage for it compared to total sales. For example, if my variable beverage payroll is 30% the I would use a percentage between 9%-15% for the incremental sales. Of course, if you find that this does not give the proper results then you may need to make an adjustment.

So here are some cost estimates for the beverage department:

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Cost of Sales – 25%

–

Payroll

– 15%

– Expenses – 5% (as with food you will need to break out the variable expenses and come up with an accurate percentage)

Based on the above, we can expect that for every additional dollar in sales we will see a profit of 55% within the Beverage department. Additional overhead costs will consist of credit card commissions, loyalty program, and utilities. Again we would probably expect that at the GOP level, we would have a Flow-Through of between 50% and 55%

Other F&B income

If you derive any income from room rental, audio visual rentals, etc you will need to determine the incremental profit on each source of income.

Minor Operating Departments / Other Income

Depending on what other departments you operate, you will need to come up with the formulas to calculate Flow-Through for each of them. You simply need to go line by line and determine what costs are affected by each change in revenue just as we have done above.

Calculating the Flow-Through Percentage

Flow-Through is defined as the amount of money that you keep for every dollar that sales increase. Revenues go up $1. GOP goes up $0.60. You have a 60% FlowThrough. When revenues go down Flow-Through represents your savings. So if revenues go down by $1 and GOP goes down by $0.40 then you saved $0.60 and your Flow-Through is 60%.

Positive Flow-Through is good. Negative Flow-Through is bad.

So let’s take a look at the different scenarios

1. Revenue up $100. GOP up $60

Flow-Through 60%

2. Revenue down $100. GOP down $40

Flow-through 60%

3. Revenue Up $100. GOP down $60

Flow-Through (60%)

4. Revenue Down $100. GOP up $60

Flow Through 160%

60/100 = 60% 1- (40/100) = 60% . Your costs were 40% you saved 60% If your GOP change was ZERO you would have a Flow-Through of zero. Your GOP went down $60 so it is Negative 60% Flow-Through 60/100 = 60% + 100 = 160%. or (60/100)+1 = 160% . In the case if the GOP change was Zero then you would have 100% flow-through.

Conclusion

By using the information above, you should be able to set up a monthly report that will calculate the Flow-Through for your property and thus give you a better understanding of where potential areas of concern exist. Remember that FlowThrough is based on the revenue mix so a Flow-Through percentage of 10% one month may be a better performance than one of 60% a month later. Never accept a number or percentage until you understand what it means.

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Eric Hertha has worked in the hospitality industry since 1981. During this time he has worked at hotels in Canada, U.S.A, The Caribbean, and Latin America, with Fairmont, Hilton, Wyndam and privately owned branded and unbranded properties.