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| 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
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
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
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
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
For more on the topic of taking a holistic approach to your 2019 plans, join Kristi White for a webinar assessing “Are You Ready for 2019?” on 10/30 at 2PM EST. Click here to register. Sources: 1. Braun, Robert, and Global Hospitality Group. “Hotel Lawyer: Tips on Negotiating Your Annual Hotel Budget.” Hotel Law Blog, Global Hospitality Group, 12 Oct. 2017, hotellaw.jmbm.com/hotel-budget-tips.html. 2. Mest, Elliott. “10 Ways to Manage Expenses in 2018.” Hotel Management, 14 Feb. 2018, www.hotelmanagement.net/operate/10-ways-to-manage-expenses-2018. 3. Aghazadeh, Seved-Mahmoud, “Revenue Forecasting Models for Hotel Management.” The Journal of Business Forecasting, Flushing, Vol. 26. Issue 3 (Fall 2007): 33-37. search.proquest.com/openview/3f34c7f72d098b825231f99aed460ae8/1?pq-origsite=gscholar&cbl=28144 4. Enz, Cathy, et al. “Study Highlights Growth of Strategic Hotel Profit Management.” Admissions Statistics | Undergraduate Program | Cornell SHA, Cornell SC Johnson College of Business, 18 Apr. 2017, sha.cornell.edu/centers-institutes/chr/blog/2017/04/18/study-highlights-growth-of-strategic-hotel-profit-management. 5. Starkov, Max, and Mariana Safer. “Whitepaper Available: The Smart Hotelier’s Guide To 2018 Digital Marketing & Technology Budget Planning.” Hotel Internet Marketing | HeBS Digital | Hotel Website Design, HeBS Digital, 15 Sept. 2017, www.hebsdigital.com/blog/must-read-whitepaper-available-the-smart-hoteliers-guide-to-2018-digital-marketing-technology-budget-planning/. 6. Winata, Lanita, and Lokman Mia. “Information Technology and the Performance Effect of Managers’ Participation in Budgeting: Evidence from the Hotel Industry.” International Journal of Hospitality Management, Academic Press, 25 July 2004, www.sciencedirect.com/science/article/pii/S0278431904000362. About
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