As summer’s warm breezes and lush, green growth transform into the vibrant colors and crisp air of the fall season, another familiar season arrives in its wake: the often dreaded but always necessary Hotel Budget Season.
To develop an accurate and functional budget for 2019, hoteliers must take a holistic approach to the process. This involves starting with a big-picture view that includes your top company initiatives, along with a drill-down into the data to identify significant, sustainable cost-reduction opportunities in conjunction with hotel-wide profit optimization strategies. This is all then compiled into a neat package that guides you in capturing the greatest market share and revenue possible throughout the coming year.
The Big Picture: Successes, Challenges, & Future Objectives
The first step in drafting your budget for 2019 requires an evaluation of your 2018 performance – an in-depth analysis of historical data concerning your successes and challenges. What trends, guest segments, channels, or tactics produced the highest revenues and drove the largest number of conversions? Don’t simply make potentially costly assumptions or transfer line items from year to year simply because you’ve always done it that way.
Consider your financial priorities and business goals for 2019, and the primary obstacles you’ll encounter that impact them. Then thoroughly examine each area of your business – group sales, food and beverage (F&B), marketing – and explore how they contribute to your company revenue targets. Dig deep into the numbers and determine what exactly is required to meet your revenue goals. Your marketing budget should account for techniques to reach every area of your guest funnel, from those in the top-of-funnel inspiration phase, through research and planning, to building repeat business and loyalty.
Complete your big-picture view by combining data with insights derived from discussions with your front-line staff. Conversations between hotel management, sales, marketing, and guest-facing staff provide invaluable information concerning what guests are looking for, happy with, or complaining about.
Proactive vs. Reactive
“I believe that everyone chooses how to approach life. If you’re proactive, you focus on preparing. If you’re reactive, you end up focusing on repairing.” ~ John C. Maxwell
When it comes to preparing your budget, it may be tempting to take the shortcut of simply using last year’s budget and updating it. However, you’ll likely end up with a flurry of short-term “tactical” fixes and fragmented marketing ideas designed to create isolated bursts of revenue. This is a reactive approach, with your budget based solely off what happened in the past and not at all representative of what your business truly needs to move forward.
Your hotel budgeting plan should be a continuous, proactive process,1 not a reactive exercise. It should never be simply a Q4 event. Like a golfer who keeps score throughout the game, adjusting to improve performance after each hole, it’s important for hotel management to proactively work on budgets year-round. To create the most accurate budget for the following year, evaluate business performance weekly and monthly. Regularly update rolling forecasts2 and measure your performance in relation to those forecasts.
Long-term proactive budgets are driven from the top down. More strategic in nature, the proactive approach translates your company goals and objectives into action. It guides budget decisions in advance, and establishes how your hotel can expect to profit throughout the coming year. Further, proactive budget strategy includes accurate forecasting as an essential component.3 By utilizing a revenue management system (RMS) enhanced by the powerful analytics of a modern business intelligence platform, you can incorporate forecasting specifics such as occupancy, arrival and departure patterns, length of stay, and seasonality into your budget plan. These insights ensure you appropriately plan for labor costs and make the most of your hotel resources. You also zero in on which guest segments, ancillaries, and promotional campaigns produced the highest revenue. This places you in a much better position to allocate your resources in ways to help achieve your profit goals for 2019.
Budget for Profit Not Just Revenue
Revenue-generation strategy is a primary focus for hotel owners planning their 2019 budgets. It’s important to remember, however, that revenue per available room (RevPAR) only tells part of the profitability story. For true budget-planning success, don’t simply focus on increasing revenue, but profits.4 Is your hotel catering to the optimal mix of business to meet and exceed your financial expectations? Are you looking beyond room revenue to optimizing non-room revenue streams as well?
Here again an RMS and forecasting functionality play a role allowing you to identify ways to target your highest-value guest segments in 2019. An accurate demand forecast includes unconstrained demand, stay patterns, and booking pace, which directly impact your bottom line. If your property is forecasted for a period of high occupancy due to high unconstrained demand, for example, then a revenue manager can plan to sell on low-cost/high-rate channels to maximize profits. Alternatively, forecasted low-occupancy periods could trigger an increase in promotional campaigns across all online channels – and customized promotions for off-line customers – in order to produce incremental demand. In addition, demand forecasts allow you to anticipate the additional revenue that will be generated from other departments that are proportional to room occupancy, such as F&B, spa, and other ancillary services.
Take a Strategic Approach to Reducing Costs
Budgeting for profit means analyzing your operational costs in relation to revenues, including purchases of perishable and non-perishable goods. As an illustration, during projected low occupancy, a hotel can plan to decrease food purchases for its buffet offerings, and reduce labor expenses by scheduling less staff in housekeeping and F&B services. In addition, you should accurately track acquisition costs5 - costs incurred to acquire reservations – for your individual property and the industry at large. By tracking both you obtain a more transparent indication of your customer acquisition efficiency, as well as the direction its trending.
Many hotels will be deploying capital towards renovations in the coming year. Take a strategic approach to how you budget for your own hard and soft renovations. Projections of consistently high unconstrained demand may lead management to decide a major hotel expansion is called for. And in terms of soft renovations, a close examination of your guest segment trends and preferences will pay dividends in your budget planning success.
First Forecast of the Year
Your budget is truly your first forecast of the year, but no one sees into the future with 100 percent clarity. The twists and turns of this dynamic, competitive marketplace may make what seems crystal clear today, appear quite different tomorrow. A holistic budget strategy anticipates change. For optimal results invest in a flexible and robust technology solution6 that not only helps account for the multiple “what if” scenarios that will arise, but provides a distinct path toward creating operational efficiencies, improving performance, and increasing your profits – always guiding you in the direction of selling the right product, to the right customer, at the right time, at the right price, via the right channel.