Financial budgeting can make or break the hospitality industry. A business won't be able to make strategic decisions without a good financial budget. Refine your budgeting strategy and tailor it to the hotel's specific needs.
Keeping an eye on hotel performance metrics helps you improve hotel operations' efficiency, increase your revenue management in Hospitality, and help you make intelligent decisions.
In this blog, we will learn about-
- Importance of financial metrics to examine the overall performance of hotels,
- a walkthrough of budgeting strategies for managing your finances in hotels, and
- How technology can be a lifesaver option to increase the efficiency of hotel operations.
Understanding Financial Management Planning in Hospitality
It's equally important for you to get the hang of financial metrics in the hospitality industry. As hotels are labor-intensive businesses, it has become crucial for you to monitor their performance and see whether they are profitable.
Such metrics are related to a specific department or Finance department. By getting a hangover in revenue management software in hospitality, you can improve the efficiency of hotel operations and increase your hotel revenue.
Here are some important financial metrics that the hotel manager should track -
Occupancy rate
Your hotel occupancy rate is an important KPI for creating an effective hotel management strategy. Occupancy rate refers to the percentage of rooms occupied vs. the total number of available rooms.
Such rates change every year, so hoteliers must track these rates weekly, monthly, or yearly, whatever works best for you. Tracking such rates gives you clarity about your hotel and guests.
In addition, you can get clarity on how your property performs during various periods, such as whether it is more popular on weekends or during the holiday season.
Let's consider an example – If there are 30 rooms in a hotel and 8 rooms are filled up during a specific period, then the occupancy rate is 27%. (8/30*100).
More importantly, hoteliers can improve their occupancy rate by sending an e-mail to previous guests and creating enticing offers and packages.
Average daily rate (ADR)
ADR signifies the average revenue generated per room during a specific period. It is an important metric as it tells you about the room-specific revenue.
Such a metric does not provide a complete overview of the property's financial performance – it does not consider unsold rooms or revenue generated from other sources.
Higher ADR shows that guests are willing to pay higher rates. Thus, the hotel's profitability increases if more guests are ready to pay for a room.
ADR can be calculated using the following formulae-
Revenue per available room (RevPAR)
RevPAR represents the number of rooms sold and the revenue generated from such bookings. Hoteliers must recognize such a metric as such figures can give an idea of how well the hotel is performing and can track their hotel's performance against competitors.
A low RevPAR rate indicates that your room rates are too low, or the hotel is not effectively marketing its property.
You can calculate RevPAR using the following formulae-
Revenue per occupied room ( RevPoR)
RevPOR is concerned with revenue generated per available room. With this metric, hoteliers can measure the profitability of hotels.
This metric does not tell hoteliers how well the hotel is performing; instead, it gives you an idea of how well a hotel earns on average when a room is occupied.
RevPOR can be calculated as below-
Gross operating profit per available room
Such a metric assesses the profitability of a hotel, meaning how a hotel is performing. Hotels can evaluate their performance compared to the total number of rooms available.
Furthermore, hoteliers can get a profit breakdown per room and optimize their bookings to keep a positive cash flow.
Altogether, you can grow your hotel business because you understand where the revenue is coming from and where the revenue is going, so you can optimize resources and allocate them accordingly.
Budgeting Strategies for Hotels and Restaurants
Here are a few tips for managing finance in the hospitality industry-
Analyze historical data
One of the best budgeting strategies for hotels is to analyze historical data. You cannot create a hotel budget unless you have the necessary information on the previous budget and expenses related to hotels.
Access to hotel data is not only important; you should also have access to production data. Gather such numbers through your PMS, such as occupancy on a certain date or the percentage of guests who arrived during a specific month.
For Instance – By analyzing historical data, hoteliers know that there was a significant trend, such as food expenses increased significantly during the Christmas period. Such data helps you anticipate expenses before they occur in the future.
Create a Demand calendar
Creating a demand calendar is a goldmine for revenue managers as it shows how past events have impacted hotel demand.
With the help of the demand calendar, you can understand seasonal and market trends and earn more additional revenue before those periods arise.
The demand calendar looks like an actual one, proving to be an effective tool for hoteliers as the data tells hotel managers whether they should expect more or less revenue.
Consider a scenario where more customers arrive during the holiday season. Such a day will be highlighted in the demand calendar and let hotel managers know there will be a high demand during this season so they can increase hotel revenue.
Track staff performance
Creating a budget requires a thorough knowledge of the staff's performance and how productive they are. How satisfied are they with their current jobs?
When you keep track of staff performance, you can understand the relationship between salary and productivity.
Thus, you can forecast a better budget and maximize your employee value.
Compare year-to-year hotel revenue
Another budgeting strategy for financial management in hospitality is using financial reporting software to calculate the total revenue earned year-to-date.
Consider how much revenue your hotel brought in last year and compare it with the current year. Thus, you can make the budget forecast for the current year.
Utilize hotel digital technology
Many technological innovations are happening, and the hotel industry is not an exception.
Various technologies support hotel managers to streamline hotel operations, such as IoT, Cashless payments, AI, etc.
Hoteliers who are struggling with labor shortages can transform their hotel operations.
So, leveraging TECH can help hoteliers reduce costs and optimize their budgeting processes.
How can technology help hoteliers do financial planning in the hospitality industry?
Managing your hotel budget looks cumbersome sometimes. Don't worry. We got you.
There are various technologies that a hotelier can use, such as digital check-in, revenue management system, AI, big data analytics, Cloud hotel PMS, IoT, etc.
Here are a few ways you can leverage technology to increase your hotel revenue-
Streamlines your booking process
Leveraging technologies in your hotel operations such as Cloud PMS, booking engine, channel manager, etc. streamlines the booking process and makes it easier than ever.
Investing in PMS automates hotel operations and increases the front desk's efficiency.
Next, the channel manager updates inventories in real-time and sells your rooms across various OTAs.
Improves decision making
With appropriate tools, hotel managers will be able to set the right rates for rooms. In such a case, a revenue management system estimates demand trends, analyzes competitor rates, and generates rates that maximize revenue and profit for a hotelier.
It helps you up-sell and cross-sell
When maximizing hotel revenue, upselling and cross-selling matters the most.
To level up the game of upselling and cross-selling, you need to rely on data and access tools and technologies to tell you about guest preferences and purchase history.
Such insights help you serve customers who need your services, and you can sell more and generate huge profits.
Wrapping up
Undoubtedly, the hotel industry is becoming more competitive today, and preparing budgets is a routine task. This guide has covered everything you need to know about financial management in the hospitality industry.
So, it's time for hoteliers to rely on technology and break the process of manually creating to prepare budgets and analyze overall spending.
Author Bio
Shubham Ahuja is the Digital Marketing Executive at BOTSHOT, leveraging his extensive experience in Hotel Revenue Management Software. With a passion for digital marketing and a deep understanding of the unique challenges and opportunities in the hospitality sector, He performs extensive research on Hotel Operation Solutions, streamlining processes to enhance guest experiences and optimize operations. His expertise transforms hotels into efficient, guest-centric establishments.
