understanding hotel organizations
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UNDERSTANDING HOTEL ORGANIZATIONS. Organizational Chart Line and Staff Functions Business Forms Revenue Sources Profit and Costs. Contents. Like most service related organizations, hotels are divided between LINE functions and STAFF functions.

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Organizational Chart

  • Line and Staff Functions
  • Business Forms
  • Revenue Sources
  • Profit and Costs

Like most service related organizations, hotels are divided between LINE functions and STAFF functions

line functions

Line functions are the tasks assigned to employees that bring them in regular contact with guests.

  • Line operations in a hotel are the Rooms Division & Food and Beverage Division.
  • Line employees are hands-on participants in the assembly and delivery of the hotel’s services.
Line Functions
rooms department

Performs the lodging function of a hotel.

  • Includes Front Office and Housekeeping
  • Tasks performed:
    • Receive reservation
    • Receive guests
    • Assign rooms to guests
    • Maintain status of room (available or vacant?)
    • Receive mail / phone messages for guests
    • Maintain security & cleanliness in rooms and public areas
    • Answer guests’ questions
    • Close coordination needed by all subunits


  • Provide food and beverage for guests
  • May include coffee shop, restaurant, poolside snack bar, room service, banquet, function rooms, lobby bar, nightclub / disco, room service
  • Provides banquet and catering services for events in the hotel

Food and Beverage Department cont.

  • Consists of kitchen (food preparation) and F&B service
  • Contains individual F&B outlets – restaurants and coffee shop etc (each managed by a manager)
  • Full service hotels have convention and catering subunit
  • Stewarding subunit does the purchasing,cleaning and washing, expediting and arranging facilities for food and beverage
staff functions

Staff functions are those behind the scenes activities that support the line functions and have little contact with guests.

  • Example: Engineering, security, human resources, marketing, accounting
Staff Functions

Sales and Marketing Department

  • Individual sales manager in charge of corporate accounts, conventions, tour and travel markets.
  • Low intradepartmental interdependence.

Human Resources Department

  • Consists of employee recruitment, benefits administration, training subunits

Accounting Department

  • Prepares payroll, manages accounts receivables, accounts payables, handles purchases and cost controls, store room operations, night audits

Engineering and Security

  • Repairs, maintenance, guest security
hotel functional organizational design



Room status



Front Office

Clean room

Concierge / Bellhop


Hotel Functional Organizational Design
lodging business forms1

The five basic lodging business forms:

  • Owner operated
  • Owner managed
  • Independent
  • Franchised
  • Management Contract
Lodging Business Forms
owner operated

Understood to have been the first type of lodging management association

  • Hotel is run by an owner and the owner’s family
  • Currently popular Bed and Breakfast hotel is considered owner operated
Owner Operated
owner managed

The owner has hired additional (non-family) personnel to help with the running of the property

  • The overall management is in the hands of the owner, but day to day operations can be in the hands of others
Owner Managed

The owner has no role or management in day to day operations

  • An independent group of managers are responsible to the owner for the hotel’s performance
  • The hotel is not chain affiliated

Independently owned hotels that affiliate themselves with a chain

  • The chain provides standard operating procedures and guidelines to maintain a consistent level of quality and service
  • The chain has limited control
franchise costs benefits

You can expect to pay in the range of $90,000 to $150,000 in initial fees for a first-class hotel franchise like Hilton‘s Homewood Suites.

Additional costs typically include royalty fees, reservation fees, marketing fees, frequent traveler fees, and miscellaneous charges for items like training or commissions. These numbers are calculated assuming a 300-room hotel with 60% occupancy for the first year, so actual costs can vary. Total costs over ten years can run as high as $10 million or more.

Franchise Costs/Benefits
franchise costs benefits1

Those with the best relationships with their franchisors reported gross operating profits per room (GOPAR) of $12,400, which translates to over $3.2 million per year in a 300 room hotel.

  • Top Franchises: Marriott (Ritz Carlton), Hilton, Four Seasons, Park Plaza, Holiday Inn
Franchise Costs/Benefits
management contract

Independently owned hotels that affiliate themselves with a chain

  • The chain maintains a high level of control as the chain operates the hotel on the owner’s behalf
  • Many hotel companies offer both franchises and management contracts.
  • Management fees are paid as a % of revenues
Management Contract
revenue sources

A revenue source is the result of a product or service a hotel makes available to guests for a price.

  • Sleeping Rooms
  • Meeting / Function Space
  • Outlets / Ancillary Revenue Sources
Revenue Sources
sleeping rooms

The sleeping room is the most profitable of all of the hotel’s products

  • A sleeping room is an accommodation unit
  • The price of each of these units is called the room rate
  • Occupancy is the measurement of how many rooms are sold each night verses how many rooms the hotel has to sell.

e.g. 75 rooms sold of 100 rooms available

= 75% occupancy rate

Sleeping Rooms
meeting function space

Many hotels incorporate the revenue source of non-sleeping rooms sales

  • Meeting rooms, or function rooms are used for any type of group meeting
  • The revenue sources from meeting/function space comes from:

1. Selling space for a specified period

2. Providing food and beverage service in these rooms

Meeting/Function Space
outlets ancillary revenue sources

An outlet is a food and beverage point of sale

  • Ancillary revenue sources are revenue sources outside of sleeping rooms or food and beverage such as gift shops or spa services.
Outlets/Ancillary Revenue Sources
profit margin

The hotel sleeping room is the most profitable portion of all hotel products because of profit margin.

  • Profit margin is determined by comparing sales revenue verses the costs incurred in providing a product or service.
Profit Margin
room cost

Room cost analysis looks at what it costs the hotel to keep a room running in relation to what it is sold for to the guest.

Room Cost
room cost example

ABC Hotel sells a room for an average of $150 per night. The cost incurred in preparing each room for sale are:

Heat $3.00

Light $2.00

Power $2.00

Housekeeping $9.00

Engineering/Grounds $5.00

Debt service of owners $0.50

Marketing $2.25

Management costs $2.75

Corporate obligations $2.00

Taxes, etc $2.50

Total: $31.00

  • Compare this to the actual cost to the price sold (room rate) and the room cost can be determined:

Roomcost = Actual CostRoom Rate

= $ 31.00


= 21.0%

Room Rate – Room Cost = Profit

Room Cost Example
food cost

A common misconception in the hospitality industry is to consider food sales as profitable as room sales. This is not the case

  • Food cost is the cost of a particular food item in relation to the price for which it is sold
  • Put simply, the food cost percentage is the percentage of the profit taken up but the actual cost of the item
Food Cost
food cost example

The equation for determining the cost is:

Food cost = Purchase Price / Menu Price

For example:

Item Purchase Price Menu Price Food Cost

Steak $5.95/ea. $22.00 27.0%

Chicken $3.95/ea. $17.95 22.0%

Caesar Salad $1.99/ea. $ 9.95 20.0%

Food Cost Example
opportunity cost

Each night when a room goes unsold the hotel loses that opportunity to ever sell it again

  • This is called opportunity cost
  • The “Empty Room Theory” states that once a room goes unoccupied, it is gone forever
Opportunity Cost
opportunity cost example

ABC Hotel has 400 sleeping rooms

Consider the following example:

Room Cost Room Rate Profit Margin

Sleeping Room $30.00 $150.00 $120.00


The daily maximum room profit potential is: $48,000 ($120x400)

Weekly: $336,000

Monthly: $1,400,000

Yearly: $17,520,000

$17,520,000 is the maximum potential room profit that ABC Hotel could make in a year. Each unoccupied room subtracts from that number. It is easy to understand why hotel operators focus so much attention on occupancy.

Opportunity Cost Example
captive audience quotient

A captive audience are guests who are staying at the hotel who will utilise the outlet in the hotel.

  • Captive audience quotients apply to both outlet/ancillary sales and catering sales
  • Group catering contribution is the catering business acquired by a hotel that has all, or a large percentage of, the attendees staying at the hotel itself
Captive Audience Quotient