As hoteliers across the land prepare are in the midst of another budget planning season, consider these five tips to help ease the process, and guide you into a successful 2020 season.
NB: This is an article from Rainmaker
TIP #1: Budget for Profit Not Just Revenue
Budgeting for profit requires examining revenue from all sources, including rooms, food and beverage, recreational activities, spa, and retail. However, this only gives you half of the story. To increase profits in 2020, it’s equally important that you understand all your expenses as well.
Revenue management strategists must evaluate the impact of comp expenses, group/travel agent commissions, credit card fees, and costs associated with advertising and promotions. In addition, analyze your company’s P&L statement and operational budget to help you understand how much bottom-line margin your property is truly making. Incorporating this information provides insight into your financial performance strengths and weaknesses.
For example, a common factor contributing to hotel operational costs cannibalizing bottom-line growth is the growing cost of labor. From August 2018 to August 2019, hospitality saw a 3.6 percent increase in average hourly earnings. Effective use of a revenue management system (RMS) provides more accurate forecasting, helping you reduce labor costs by planning staffing to match occupancy.
TIP #2: Analyze Your Distribution Channels
Developing a successful budget for 2020 should not only include granular segmentation of your guests, but an analysis of your distribution channels as well. An RMS allows you to examine which channels are bringing in your most profitable customers, accounting for the acquisition costs and expenses for each. You can even determine which channel’s guests are spending more on ancillary products and services. By evaluating the margins of each channel, you can proactively develop an optimal mix of direct and third-party channels designed to drive the greatest revenue growth in the coming year.
TIP #3: Understand the Past & Identify Trends
A key element of the hotel budget planning process is examining historical data. Spot trends by looking at key performance indicators (KPIs) from the previous three to five years, like average daily rate (ADR), occupancy, and revenue per available room (RevPAR). Use past data on guest segment behavior and pace reports to spot any lost opportunities, or to see where you outperformed expectations. And look at demand patterns and booking data, in conjunction with holidays and local events to build up a seasonality curve – highlighting outliers and their causes – in order to make strategic pricing decisions for 2020.
TIP #4: Incorporate a BI Tool
The prevalence of big data has caused a surge in hotels turning to business intelligence (BI) solutions to improve the entire budget process. BI software allows deeper visibility into data such as your mix of business, the source/channel that your business is coming from, where your travelers are coming from, what their booking patterns may be and what their total spend is while on property. This data can be useful in determining what your key strategies should be during specific times of the year. In other words, when should you market to leisure guests versus business guests and how should you market to them in order to generate greater guest satisfaction and a higher ROI.
Armed with business intelligence, hotels have a much greater ability to translate current and historical information into forward thinking data. A comprehensive BI tool allow you to move away from perceptions based on limited data points towards an accurate analysis of your entire market as well as their projected capacity for future profits.
TIP #5: Put the Right Systems in Place
To develop an effective budget plan for 2020, revenue management professionals need the right tools in place. Ensure true profit optimization in the coming year by employing a science-based RMS. And if you don’t already have a strong system in place, it’s worthwhile to budget for one. An advanced cloud-based solution pays for itself by improving accuracy, efficiency and operational performance – giving all departments access to a single source of truth. Furthermore, the depth and flexibility of data analysis and reporting reveal hidden revenue and cost-reduction opportunities.
By combining revenue management expertise with next-gen technology, you ensure your budget presents an accurate and detailed strategy for improving performance and maximizing profits in 2020.
