In the lodging industry, the primary source of revenue is derived from the rental of rooms and suites to guests. This revenue stream, referred to as Rooms Revenue, encompasses several categories that contribute to the financial success of a property. Below, we delve into the components of Rooms Revenue, providing a comprehensive understanding of each category and its significance.
1. Categories of Rooms Revenue
1.1 Transient Rooms Revenue This segment includes income from renting rooms and suites to individuals or groups occupying fewer than 10 rooms per night. Transient stays can also include guests who establish permanent residence at the property, with or without a formal contract. The following subcategories define transient revenue:
- Retail Rate: The standard, non-discounted rate available when rooms are not limited by demand.
- Discount Rate: A reduced rate available to the general public, often tied to promotions, advance purchases, loyalty redemptions, or packages.
- Negotiated Rate: A corporate rate agreed upon with specific organizations, requiring identification for booking.
- Qualified Rate: Rates for specific affiliations, such as government employees, senior citizens, or AAA members.
- Wholesale Rate: A discounted rate sold to wholesalers who package it with other travel services and resell it to consumers.
1.2 Group Rooms Revenue This revenue arises from renting blocks of rooms to groups, typically defined as 10 or more rooms per night sold under a contract. Group Rooms Revenue often includes the following segments:
- Corporate Groups: For industries like manufacturing, healthcare, or sports organizations.
- Associations and Conventions: Rates negotiated for professional or trade associations.
- Government Groups: Rates for active military and other government agencies.
- Tour/Wholesaler Groups: Blocks sold to tour operators for organized travel packages.
- SMERF Groups: Social, Military, Educational, Religious, and Fraternal organizations.
1.3 Contract Rooms Revenue This category is for long-term agreements involving blocks of rooms rented consistently over extended periods (typically more than 30 days). Examples include airline crew accommodations and corporate training sessions.
1.4 Other Rooms Revenue Miscellaneous revenue tied to guestrooms is categorized here. This includes fees for no-shows, early departures, late check-outs, rollaway beds, and surcharges like service charges for amenities. Revenue from items placed in rooms for sale (e.g., bottled water) is categorized separately under Food and Beverage or Miscellaneous Income.
2. Special Considerations for Rooms Revenue
2.1 Package Revenues Packages combining lodging with additional services, such as meals or spa treatments, require careful revenue allocation. The total package price is distributed among departments based on the market value of each component.
2.2 Barter Transactions Barter arrangements involve exchanging accommodations for services, such as advertising. The property recognizes revenue and expenses for these transactions, valuing them conservatively based on average market rates.
2.3 Taxes and Loyalty Programs Properties must account for sales, excise, and transient occupancy taxes correctly, as these are collected on behalf of taxing authorities. Loyalty programs require liabilities for points issued and revenue recognition when points are redeemed.
2.4 Wholesaler and OTA Revenues Wholesalers purchase rooms at discounted rates and resell them to consumers. Revenue from these sales is recorded at the net rate received by the property, avoiding inflation of metrics like ADR (Average Daily Rate) and RevPAR (Revenue Per Available Room).
3. Mixed-Ownership Lodging Facilities
Properties may incorporate timeshares, strata, fractional ownership, or full ownership units. The revenue treatment depends on the level of economic risk assumed by the property and is categorized into three scenarios:
- Long-term risk by the property: Units are treated as part of the room inventory.
- Short-term risk by the property: Revenue is recorded in Other Operated Departments.
- Risk by the unit owner: Revenue is recognized as commission or reimbursement income.
4. Calculating Total Rooms Revenue
Total Rooms Revenue is derived by summing the revenue from Transient, Group, Contract, and Other Rooms categories, then subtracting any allowances. This figure forms the basis for performance metrics and departmental analysis.
By understanding these categories and considerations, lodging professionals can accurately record and analyze Rooms Revenue, ensuring financial clarity and strategic planning for their properties.
