How To Create a Budget for Hotels

This is the time that GM’s, Revenue Managers and Sales hate the most as it is the time for budgeting. A lot of hours will be spent in meetings analyzing data late into the night. This is when the GM gives you the speech that he would like to see an exponential growth because the demand has been increasing or simply because he has already made some “compromises” to the owners before even looking into numbers. By this time, the sales department is already terrified by the speech, screaming that it was quite a difficult year and they are not foreseeing an increase in demand. If you're somehow involved in this process, it is time for the Revenue Manager to step in and try to harmonize their expectations.

Here are some tips and tricks that can help you out in structuring your budget.

Step 1

Make sure that you have accurate data. It is vital for any organization, but this is not a process that you need to put your hands on only when you’re budgeting. This is something that you need to manage the entire year. Conduct regular audits into reservations, and check if market segmentation, rate plans, source codes or profiles are correctly in place. If you see that there’s no consistency, maybe you will need to train your business associates in the reservations department and highlight the importance of having all the correct data in every single reservation.

Step 2

Now that you have consistent data, try to do something different (for me, it works most of the time). Ask your sales department to give you their best estimates. Ask them the number of room nights sold, ADR and room revenue for each company/tour operator, per month, that they feel comfortable. This will work as a foundation and make people from sales happy because your starting point meets their expectations already. Even if you have to increase their goals, they will feel like they have been part of the decision making. It is also good for you to see if they are aligned with your strategy. As an example, if corporate rates increased by 5% next year, you will realize if this is being taken into consideration in their projections.

Step 3

Forecast your last months of the year, and do not use the budget of the year that you are into as a reference. The reason behind it is that you have produced those numbers more than a year ago, and usually either you are far away from them, or you have already surpassed them. By forecasting the last months you will more likely to be closer with your budget accuracy.

Step 4

Produce a "demand calendar". Check your occupancy for each day of the year that you are into. Do this in an Excel sheet, with a “conditional format” by "painting" occupancy levels. As an example, 0-25% paint it in black, 26% to 50% in blue, and so on. You will then see where the demand is low or high and also analyze if there are revenue opportunities. Which day of the week is stronger or weaker? Did you have holes in your high demand period, that maybe next year you would like to apply restrictions? Or just maybe that group you thought was a good business opportunity at the time prohibited higher revenue opportunities by blocking transient room sales. By doing this colorful chart you will have a bird's eye view of the demand patterns of your hotel.

Step 5

If you have a large conference hotel, make sure that you produce a daily budget and not a monthly budget. The reason is that sometimes large groups can create spikes in your weekly occupancy, and that will turn away business, or taking out days of the week where your typical leisure segment is. If you are not doing a daily budget, please be prepared as you might have a significant deviation from the reality of your hotel.

Step 6

If you have a benchmarking tool, make sure that you will do the proper analysis. Check where the revenue opportunities are. Is it in the Occupancy or the ADR? Is it weekends or weekdays? Try to do this exercise: if you know your competitive set occupancy and you know how many rooms they have, then you will have the number of rooms sold. Once you have their average rate just multiply the number of rooms sold by the ADR and you will have their room revenue. If you have this data from the last two years, you can easily identify their growth percentage vs yours.

Step 7

Review any special events in your town or region, and measure the impact that they could have in your business. Usually, you should categorize them as positive events or negative events. Both of them have a direct impact on your demand. If you have a resort, a bank holiday could drive business to your hotel, in which you should categorize it as a positive event. If you have a corporate hotel and a bank holiday on Wednesday, you should be prepared in advance and reflect that info in your budget.

Step 8

Revise your room inventory and if this fits your needs. There are a lot of hotels that oversell their standard rooms and then upgrade guests. If you are one of these hotels, maybe is time for you to review your rate modifiers or even your room types and try to figure it out the reason why are you not able to sell those rooms. Sometimes it’s not about rates, it’s how you are marketing your room types, where either could have the wrong room description or lack of quality in your photos.

Step 9

Check your competitors. Not only benchmarking reports. Check their online performance and digital strategy. If you see that they are making online campaigns or other activities, maybe is time for you to allocate some resources and money into this. If you don’t have the knowledge try to find some company that can help you out and built a roadmap, with specific targets.

Step 10

There are tools available in the market that can help you out to gather all this information and save you a lot of time. Climber distills your data into actionable insights.

Author: Pedro Sousa