Welcome to another Expert Insights discussion.
Today we are joined by 2 guests:
In this episode we touch on a number of areas around ‘Hotel Breakeven’, what it is, why it’s important and how can it help you model revenue strategies as we plan for the recovery.
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Thibault highlights why it is now more critical then ever to understand your breakeven point to evaluate whether it is viable to open, or when it is right to open: “Yes it is important to make money but we also cannot loose money. We need to understand our fixed and variable costs and what is the occupancy point where you are not going to make money, but you are also not going to lose money either. Not using gut feeling, but using data, you can adjust your strategy, pricing and other key metrics to evaluate impact.”
Peter mentions that breakeven can sometimes be seen as a negative: “Why would we only care about breaking even when we were focused on making profit. The current climate has changed that. We need to be focused on ensuring that when we do reopen, we understand where that breakeven point is. Maybe that we are comfortable reopening before we get to breakeven, but we need to know where we are in relation to that. It’s important to understand our fixed costs, and understanding those costs will really help us to recognise the breakeven point.”
“It’s not to say we don’t need to worry about the variable costs. But if we only have a cost of when we actually have a room occupied, then we don’t need to worry so much about that cost, because then when it’s occupied, we pay it if it’s not occupied, we don’t pay it. If we don’t understand the numbers, then we don’t know what we’re dealing with and then we won’t know how to make these decisions moving forwards”.
Thibault also stressed the importance of measuring, monitoring and evaluating your costs: “Sometime when I do this exercise, some clients, I’m surprised because the variable costs per room, most of the hotels don’t even know to calculate it. It’s actually quite complicated to find out the variable cost per room. We all know about the fixed costs and we all know about the amount of costs we have per month, but if we start to split it, like, what is my fixed cost? What is my variable cost, then it’s makes the exercise a bit more complicated.”
Thibault continues: “I think what is important here is to use this kind of tools. But what is more important is what you do with it and the strategic decision that we’ll take after this evaluation. As an example is looking at your breakeven analysis, and you take your break breakeven occupancy points, and you compare this with your occupancy forecasted, and you you see if it makes sense or not. So you have one, which is like the occupancy forecasted is below the break even point, then you may consider to postpone the opening or adjust your variable and fixed costs to reduce your breakeven points to find the correct one, which makes sense with your trends are forecasting occupancy. Or if your occupancy forecast is above the break even point, then you have a good night and you can slowly but surely re-open?”
🎞 Here are the chapters:
- Guest Introductions (2:11)
- Why Is Breakeven Important (5:02)
- What costs should we be considering (8:56)
- Understanding the numbers and tools to help (14:16)
- Factors affecting opening and how to model (23:17)
- Possible opening scenarios (22:52)
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You can also listen to this interview as a podcast via the following feeds: