How to Prepare Your Hotel Budget in 8 Steps

First things first: your budget relies on historical data, which you’ll want to have at your fingertips during the budgeting process. But hotel data isn’t only important during budget season; you should always have easy access to production data that you can segment by rate plan, room type, source, and guest profile. Ideally, you shouldn’t need to dig to find this data. If the data isn’t readily available in your PMS you will likely require a business intelligence solution or reporting and accounting software to get the data needed to prepare you annual budget and broader business plan. Frequent audits are also a good idea to ensure that production numbers are pulling correctly. For budgeting purposes, we recommend accessing this data through a dashboard (or even a big Excel file with pivot tables) so you can quickly find occupancy on a given date or guest segment share during a particular month, for example.

2- Ask Sales for Account-Level Projections

In order for your hotel team to remain on good terms after the budget preparation process, it’s important to ask for everyone’s input. Since the Sales department typically provides a big chunk of room night production, and their booking window skews longer than transient guests (for the most part), nailing down estimates for corporate business (business travelers) and groups is a good place to start your financial plan. The Sales team can provide estimates for room night production per account, by month if possible. The Sales managers know their clients best, and they’ll likely have a pulse on whether a given account will produce more or less than the previous year. This foundation will allow you to layer in a budget for transient guests more accurately.

3- Create a Demand Calendar with Daily Estimates

After getting a foundation from the Sales team, you can shift gears to think about hotel industry leisure demand. Building out a demand calendar is a great way to understand seasonal and market-specific check-in trends, and it will highlight pockets where there may be some opportunity to capture additional revenue before those need periods sneak up on you later. A best practice is to build a calendar in Excel, with each week as a row, and each column as a day of the week. Enter the projected occupancy in each day’s cell. A daily projection allows you to get granular, since one Friday in May might be significantly busier (or slower) than another Friday in May. Similarly, dates within the same week can see wild fluctuations in demand. For example, Memorial Day Weekend might be forecasted at 100% occupancy, but January 2 might be closer to 30%. Then, using conditional formatting, you can apply color codes to quickly pinpoint higher- and lower-demand periods.

4- Reference Compset Data from STR or Other Reliable Sources

All of the data we’ve looked at so far is specific to your hotel. But your competitive set’s performance is an important factor in your future performance. Are some hotels in your comp set growing faster than others? Is one hotel stealing share from the rest? We recommend studying at least two years of STR data showing the performance of your comp set hotels. By comparing year-over-year metrics, you can determine if competitor hotels are growing or shrinking their share. A hotel who has a negative year-over-year trend might signify more demand coming to your hotel, or it might signal rate decreases at that hotel, which might steal share away from your hotel.

5- Make Note of Area Events or Holidays

In addition to competitor data, you’ll want to incorporate local demand trends into your budget. Ensure your budget reflects market demand on holidays and during major events like conferences, sports games, graduations, concerts, and more. Your local Convention and Visitors Bureau is a good resource for this information. Even if you’ve worked in the market for decades, event schedules change, so it’s a good idea to check the local event calendar every year to ensure your budget reflects the most current demand drivers.

6- Shop your Compset

A good budget isn’t complete without a little sleuthing! Although you’ve already analyzed your compset’s STR reports, you should consider taking inspiration from their sale campaigns or marketing tactics. A few simple shops on their websites can clue you into what your competitors have planned for the year and provide inspiration for promotions of your own.  Typically the compset that a hotel manager selects will share a similar number of rooms and run similar hotel operations.  This is great for comparing apples to apples but you should expand your compset in this exercise to get more inspiration for your operating budget in the upcoming year.

7- Finalize the Budget

Phew! You’ve completed all your research and analysis, and now it’s time to cross your T’s and dot your I’s before submitting the final budget. Take some time to step back and ask yourself whether the numbers you came up with make sense. Does everything seem realistic, but still challenging?

While budget season typically happens once every year, you shouldn’t put away your budget preparation materials until next year. Revisiting your budget regularly will help you understand current performance and refine your budgeting strategy for future years. Some hoteliers even choose to use a rolling budget, in which, every month, they add a new month to their forecast so they always have a full 12- or 13-month forecast.

Ultimately, your budget strategy and process should be tailored to the specific needs of your hotel, so it might take some time to determine what works best. Still have questions about preparing your hotel budget? Let us know!