How to properly record packages in your hotel

Packages are, on the one hand, straightforward. They are a well-established offering in most hotels, customers love them, and they are not going away. On the other hand, most hoteliers are at a loss to properly set up and manage the transactions so that they do not end up with a mess in their books and systems. That is what this piece is about: How to properly administer these seemingly complicated and unruly devices.

First: Pricing aspect

Packages are a combination of a room and at least one other component, like a bed and breakfast package. They can also combine many items like we see in a romance package: room, meals, room drop, massage, etc.
Because it is a package there is almost always a discount from say the rack rate. That is what makes it attractive along with the components.
The critical aspect of the pricing is that every item should be discounted the same amount, i.e., percentage. The discount percentage must go up and down based on the sell level and that applies to all the individual parts of the package. This can make it an administrative hassle – the software will help but I am not going there with this article, I am just explaining the concept.

Second: How package is set up in property management system

The package should be built and posted nightly with all the components, and this is where it gets tricky.

Let’s use the B&B package: $250 is the “base” package price and that is based on a full rack rate of $200 for the room and $50 for breakfast for two. At night we run the end-of-day process and we post the package – $200 for room revenue, $20 for the room tax, $50 to the food package account, and $5 to the same food package account for the food tax. I am using a straight 10 percent tax across the board. What I just laid out takes care of the room revenue – plus tax – full stop, but not the other parts of the package. This is where you need to pay attention.

Third: Use and posting of food

The following morning the customers have their two breakfasts, and the charge is posted either by the system knowing that the room is on a package with $50 for breakfast, or the restaurant/waiter has a manual process to do the same. Either way, the charge for breakfast finds its way back to the “food package account” and not the customer’s room account.
If it were to be posted to the room account, the customer would be charged twice. This is the critical sidestep of the packaging process.

The important aspect of revenue recognition

We recognized the room revenue last night with the end-of-day process and the food revenue today – only when the restaurant created the breakfast bill – and even more importantly, when the guest consumes the food.

Revenue recognition is an important administrative aspect to firmly understand. For example, if the guest missed their breakfast, we would have an amount sitting on the package account waiting for the restaurant charge. But the only way we recognize the food revenue is when the restaurant posts the charge/revenue when the guest is served their food. The opposite is also true in this example when the guest has an upgraded breakfast – let’s use steak and eggs and crab benedict. The additional charge for the extras finds its way through the same posting process in the restaurant to the food package inclusion account. In either example, we need to review the food package account and adjust the variance.

In the first example of the guests skipping breakfast this is called breakage, and we would remove the amount from the food package inclusion account and move it to the “other income” account. It is not food revenue because we did not earn any food revenue because the guests did not eat. For the overages example, we need to do the same review and charge the guest’s room account for the amount in addition to the basic buffet allotment. This also can be done by the waiter/restaurant if they are properly set up and trained.

This is where things fall apart nine times out of 10

We do not review the package inclusion account daily and fix all the anomalies and our processes in the restaurant do not catch the variations on the normal application and consumption of the package.

What typically happens is one of three things:

1. The restaurant knows the guests are on a package and they do not bother charging the overages to the guest’s account, they post the entire amount to the package account, and we end up with a large balance to write off on the package account. This directly impacts the food revenue negatively when we do the write-off.
2. The guest gets the breakfast charged to their room and not the package account. This does not affect the food revenue at that time, but it is an inaccurate post on their room account and a source of guest dissatisfaction. Meanwhile, the package inclusion account has an amount waiting to be matched from the restaurant posting and this again creates a variance to write off.
3. Or, this sits in either position and is irreconcilable due to the tremendous amount of dollars and transactions sitting on the package account. People are literally shaking their heads as to what is going on with these “packages.”

The cure is the daily review and adjusting of the package account. I remember an exec chef coming to my office and making an inquiry about the balance of the account at the end of the month. He is English and has a wicked sense of humor. I would tease him a bit and say it is only $45k.
He retorted, “As usual you accounting F#@*S are going to steal my money!” which meant it was going to other income not F&B revenue.

“Yup,” I would say!

This is indeed a good problem to have!

David Lund, a financial consultant for hotels, shares his thoughts on how hotels should approach hotel finance software and tools, and the role technology plays in daily operations, highlighting the skills needed to succeed. With vast experience in hospitality operations, finance, and accounting, David offers his unique view on the hospitality business and advocates financial literacy for hoteliers as one of the most crucial skills to have.

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