March 25, 2022
By Kim Campbell

A hotel’s budget is about much more than what a hotel spends. In addition to analyzing a hotel’s expenses, building a successful hotel budget involves cutting costs, optimizing demand forecasting, implementing new digital hotel technology, and other hotel budgeting strategies that we explore below. 

In this post, we cover some not-so-obvious ways that hotels can better prepare for their financial future. We have prepared a list of hotel budgeting tips to help hoteliers, revenue managers, and marketing directors improve their property’s financial picture and performance.

Discover hotel budgeting tips that help cut costs, save on labor expenses, and more

Identify and incorporate trends

In addition to occupancy, RevPAR, and ADR, hotel revenue managers should regularly review comprehensive reporting to identify and analyze all trends that affect budget performance. Once hoteliers have identified trends in certain areas of the hotel budget, they can incorporate historical trends into future budgets.

1. Track demand trends and seasonal fluctuations.

Do you know what caused year-over-year changes in local demand? Did annual events start or stop coming to the area? Did you lose corporate accounts to the competition or gain a new large account? Did your hotel’s peak-season, off-season, or shoulder season travel shift?

Determine the root cause of demand trends. Include continuing trends in your next budget.

Hotel budgeting made simple: Here's how we can help

2. Compare year-to-date hotel revenue.

Identify how much revenue your hotel has brought in year-to-date. How does that number compare to how much revenue your hotel had brought in at the same time last year? Look for trends in market segment performance, negotiated account pickup, dramatic ADR or RevPAR fluctuations, or other unusual trends.

3. Review YOY profit and loss variance.

Review your hotel’s P&L statement to determine how the property is performing year-over-year based on average revenue gains and losses. Is your hotel experiencing growth, has business plateaued, or are you experiencing losses annually?

Keeping a close eye on your YOY profit and loss variance can help you see a clearer picture of the hotel’s financial success. In addition, monitoring the variance will show what you can expect the hotel’s financial performance to look like in coming year.

Hotel budgeting tips for labor expenses

Prior to the pandemic, hotels were spending approximately 50% of their annual budget on labor and staffing, according to Hotel Management.  As a result of the pandemic, many hoteliers are facing the highest labor and staffing costs they have ever experienced, prompting the need for close analysis of hotel labor costs, strategic budget allocation, and a bit of creativity.

4. Track staff labor productivity and performance.

Track the productivity of your labor force in relation to distinct positions, corresponding hours worked, salary, and employee satisfaction. How productive are your employees? How satisfied are your employees with their position?

Track changes in labor productivity and performance. Identify how trends correlate to changes in the hotel’s expenses or budget requirements. Incorporate productivity trends into your future hotel budgeting efforts to account for additional staffing needs during high-demand periods or other identified periods.

5. Prepare an annual staffing guide.

An annual staffing guide is a guide to company positions and salaries. It includes a list of fixed positions in the hotel and their corresponding salaries (fixed costs), as well as a formula that calculates the hotel’s variable positions, or wages for hourly/scheduled employees (variable costs).

Each year, update your staffing guide to include new positions and track salary changes. Adjust the variable staffing formula as necessary to improve productivity while accounting for optimal staffing needs.

6. Use hotel digital technology to cut labor expenses.

While technology can't replace what hospitality professionals are able to achieve working with guests one-on-one, undergoing a hotel digital transformation can reduce costs and supply additional help to hotels struggling with a labor shortage. Digital hotel kiosks, hotel mobile check-in apps, in-room menus, and digital room keys are just a few of the digital tech tools hotels can utilize to optimize hotel operations, aiding short-staffed hotels and working behind the scenes on your behalf.

Technology to help with your hotel budgeting needs

Tips for minimizing costs and expenses

There are various software and accounting systems available to help hoteliers ensure that they are sticking to their annual budget and keeping expenses in line. Here are some additional hotel budgeting tips you may not have considered trying that can help minimize hotel costs and expenses.

7. Budget for incentives.

Some hoteliers forget to include this line item in their budget and find themselves struggling to fill a hole of missing revenue needed to honor team member incentives. Ensure that expenses related to incentives for all departments are accounted for in your upcoming budget, especially if you promote incentive programs when hiring hotel staff. Treat any leftover revenue from unmet incentives as a surplus that can be reinvested in other areas of the budget, such as hotel staff training.

8. Include potential repairs, renovations, or other maintenance projects.

If your hotel has been patching a problem for years, it will need to be corrected eventually. Allocate budgeting expenses for unexpected hotel repairs, especially if weather patterns or other factors have a considerable influence in your area.

9. Carefully wash group room blocks.

If you have a swim group that books every year for a local tournament, you may notice that they consistently block 20 rooms each year, but only reserve fifteen or sixteen of those rooms. Sales directors who encounter this group business pattern may choose to contract a 20-room block for the swim group but only actually hold eighteen rooms in the block’s inventory. This process is known as “washing rooms.”

When hotels wash group rooms, they are anticipating cancellations, early departures, no-shows, and other factors that could influence hotel occupancy. Washing rooms is always a bit of a gamble, but sales directors and revenue managers use this strategy to maximize hotel revenue potential during high-demand periods and minimize the risk of eating the cost of unsold rooms.

Review group business

A hotel’s group business segment can have a significant impact on its annual budget. By holding unused rooms for too long, offering too-low group rates that inhibit reaching hotel ADR goals, or even anticipating group business that is not returning, hotel managers can easily make group-related mistakes that harm the bottom line.

Try these group-based hotel budgeting tactics to keep your hotel’s blocked business in line with budgeting needs.

10. Analyze group backlog.

Do you have a backlog of group rooms? How many tentative groups do you currently have, and how long have they been tentative? How many prospect groups are currently in the system? Does it look like there is real opportunity in the near future, or should your prospecting efforts be targeted elsewhere?

Carefully monitor and manage group room blocks throughout the year for accurate budgeting and reporting.

11. Compare YTD group performance.

Determine your group pickup, attrition rates, ADR, and revenue totals so far this year. Once you have a clear picture of where your group business stands year-to-date, compare your group business insights to the last three years of group business. Are you on track to meet, exceed, or fall behind previous totals?

Identifying annual trends in group business can help hotels budget better for future group business by adjusting group rates, identifying high-demand group periods where staffing expenses increased, and other details that will affect next season’s budget.

12. Review future group blocks.

How many group rooms are on the books for the rest of the year? What does your future group pickup pace look like? How many future groups are repeat groups? Did repeat groups reserve all of their blocked rooms last year?

Regularly review future group data to identify trends early, optimize rack rates, or make budget adjustments that maximize revenue and minimize potential hotel expenses related to group business.

Budget forecasting tips

Seasoned hotel revenue managers know that expenses are really only a small portion of a hotel’s budget work. Instead, they place a large amount of their focus on the future: Demand, market mix, occupancy percentages, and rate changes in the area. They look for changes in business trends, what competing hotels in the market are doing, and then create a budget informed by a variety of forecasting reports.

13. Review projected operating cash flow.

Confirm that your projected operating cash flow, the amount of revenue generated by standard hotel operations, is going to generate enough profit to keep the hotel operating until next season. If your operating cash flow projection is not high enough to sustain, the hotel will likely need an influx of investment or financing cash.

14. Subscribe to the STR report.

Hotels can choose to subscribe to STR on a weekly, monthly, or annual basis. Developed by Smith Travel Research, the STR report is one of the most useful tools in a hotel professional’s toolbox. A powerful benchmarking tool, STR compares your hotel’s performance against similar competing hotels in the area measuring occupancy, ADR, and RevPAR.

Ensure that your hotel is positioned properly to continue to gain share and not displace business. In addition, subscribing to the STR report allows hotels to look beyond the comp set and analyze the larger surrounding market.

15. Review historical data for future expense forecasting.

Look for expense trends in each department and for each line item on the budget. Pay attention to housekeeping costs, food and beverage expenses, front-desk staffing needs, fluctuations in electric bills, water usage, and other areas. Allow historical expense trends to influence your budget.

If housekeeping expenses have been higher in the first and third quarter the past three years, for example, anticipate the same trend next year. Allocate for more expenses in the first of third quarters and look for opportunities to cut costs.

Closely monitor your hotel’s performance throughout the year. Make adjustments as necessary to achieve your goals, and work with other hotel managers to achieve annual budget objectives for each department. At the end of the fiscal year, celebrate your hotel budgeting successes.

Bookmark this list of hotel budgeting tips for quick reference!

Strong hotel revenue management skills are vital for hotel professionals in charge of budgeting and financial monitoring. Brush up on hotel revenue management tips before digging into next season’s budget.

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Headshot of Cvent writer Kimberly Campbell

Kim Campbell

Kim is a full-time copy and content writer with many years of experience in the hospitality industry. She entered the hotel world in 2013 as a housekeeping team member and worked her way through various departments before being appointed to Director of Sales. Kim has championed numerous successful sales efforts, revenue strategies, and marketing campaigns — all of which landed her a spot on Hotel Management Magazine’s “Thirty Under 30” list. Don’t be fooled though; she’s not all business! An avid forest forager, post-apocalyptic fiction fan, and free-sample-fiend, Kim prides herself on being well-rounded.
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