Hotel budget season: Expert guide for Revenue Managers

It may feel like last year’s hotel budget season was only yesterday. And before you know it, it’s time to review past performance, forecast, goal-set, and plan strategically all over again. 

Budget season is a critical and intensive period for revenue managers. Decisions made within this short window may determine your hotel’s success in the upcoming year.

Whether you’ve handled dozens of budget seasons or this is your first, this guide is for you. We’ll give you expert tips and best practices to help you get the most out of these three months. 

What is a hotel budget?

In a nutshell, a hotel budget is a financial plan or document that outlines your hotel’s projected revenue, expenses, and financial goals over a specific period. That period is typically one fiscal year. Essentially, it outlines what exactly your revenue goals are, and sets the roadmap for achieving those goals.

Let’s look at the components of a hotel budget:

Revenue projections

• Room revenue: Forecasted income from room sales, calculated based on expected occupancy rates and Average Daily Rate (ADR).

• Food and beverage revenue: Estimated income from restaurants, bars, room service, banquets, and events.

• Other revenue: Income from ancillary services such as spa, parking, laundry, and conference facilities.

Expense projections

• Operating expenses: Costs directly associated with the day-to-day operations, including wages, utilities, maintenance, and supplies.

• Cost of Goods Sold (COGS): Expenses for food and beverages, and other items sold to guests.

• Sales and marketing expenses: Budget allocated for promotional activities, advertising, and sales initiatives.

• Administrative expenses: General administrative costs, including salaries of administrative staff, office supplies, and legal fees.

• Fixed costs: Expenses that do not vary with occupancy levels, such as rent, insurance, and property taxes.

• Variable costs: Expenses that fluctuate with occupancy, like housekeeping supplies and laundry services.

Capital expenditures

• Property improvements: Budget for renovations, refurbishments, and upgrades to maintain or enhance the property.

• Equipment purchases: Allocations for new equipment or replacement of outdated or broken items.

Financial goals and KPIs 

• Revenue goals: Target figures for total revenue, room revenue, and revenue from other services.

• Profitability goals: Desired profit margins, net profit, and Gross Operating Profit (GOP).

• Key performance indicators (KPIs): Metrics such as occupancy rate, ADR, Revenue Per Available Room (RevPAR), and Average Length of Stay (ALOS).

Why is setting a hotel budget important?

Running a hotel on guesswork is a risky business.

That’s why your hotel budget is one of the most important documents you’ll create annually. It serves as your blueprint for managing your property’s financial resources and guides decision-making throughout the year for the strongest profitability and efficiency possible. 

The budget impacts various aspects of your hotel’s operations and overall success, including staffing levels, market adaptability, service quality, and more. 

When is the hotel budget season?

For many hotels, the budget season begins in August and runs for approximately three months.

Some hotels, however, may conduct more detailed budget planning and finalize in the last quarter of the year. The time it takes to compile and complete a budget usually depends on the size and complexity of your hotel. 

Factors that influence a hotel budget

Internal factors

• Occupancy rates: Find a baseline for forecasting future performance by analyzing past occupancy trends. This is especially effective if you get granular and break down this analysis by market segment. 

• Revenue metrics: Set realistic revenue targets using your historical ADR and RevPAR data.

Operational efficiency

• Cost management: How well you control costs (like utilities, labor, and supplies) impacts the budget.

• Staffing levels: Your staffing costs should align with expected occupancy and service requirements.

Capital expenditures

• Maintenance and upgrades: Budget for planned investments in property maintenance, renovations, and technological upgrades.

• Expansion plans: Allocate budget for any planned expansion or new facility projects.

Marketing and sales initiatives

• Promotional campaigns: Take into account the scope and scale of marketing campaigns to attract guests and how much it will cost.

• Sales strategies: Consider investments in sales efforts, such as partnerships with travel agencies or corporate clients.

Service offerings

• Additional services: Forecast and budget for revenue from food and beverage, spa, events, and other services.

• Quality and variety: The range and quality of services offered affect guest satisfaction and repeat business which impacts your budget.

External factors

Market conditions

• Economic trends: Travel and lodging demand is typically influenced by economic health, including inflation rates, interest rates, and consumer confidence.

• Competition: Your pricing strategies and occupancy rates are influenced by the presence and performance of competing hotels (your competitive set) in your area.

Travel and tourism trends

• Traveler preferences: Changes in traveler behavior and preferences, such as the rise of experiential travel or sustainability concerns, impacts demand.

• Global travel trends: Consider trends such as the popularity of certain destinations, international travel restrictions, or changes in airline routes.

Seasonality

• Peak and off-peak periods: Account for seasonal variations in travel patterns that affect occupancy rates and revenue.

• Special events: Local events, festivals, conferences, and holidays can boost demand and should be considered in revenue projections.

Technological advancements

• Commercial software: The adoption of new technologies can streamline operations and develop revenue strategies.

• Operational technologies: Budget for investments in technology for improved guest experiences (e.g., mobile check-ins, smart room controls).

Geopolitical factors

• Political stability: Political stability or instability in the region can impact traveler confidence and demand.

• International relations: Diplomatic relations and trade policies can affect international travel patterns.

Regulatory environment

• Local regulations: Compliance with local laws, such as labor laws, safety regulations, and environmental standards, can affect operational costs.

• Taxation policies: Factor in changes in tax policies, including property taxes, and tourism taxes, for example.

Steps to create a hotel budget as a Revenue Manager

Analyze your performance data

First things first: use metrics like occupancy rate, ADR, and RevPAR to assess your historical performance. Then, gather financial statements from various departments like F&B, spa, and events. 

This information will help you understand trends and patterns when it comes to past pricing performance and revenue efficiency. 

To expedite this process you can use a Business Intelligence (BI) solution. BI systems pull transactional information from your Property Management System (PMS), consolidating and displaying it in a user-friendly manner, so the analysis of your performance data is done in no time at all.

Analyze market conditions 

Get to know your competitive set. Assess their past performance as well as their pricing and promotional strategies. 

Next, turn your attention to the wider market. Use forward-looking search data to examine trends that will impact future travel demand in your market. You’ll also want to assess seasonality. What are your peak and off-peak periods? Are there any big events coming to town that you should capitalize on?

Set financial goals and objectives

Setting financial goals and objectives is essential and these will be based on the previous two steps. Define target revenue and profitability for rooms, F&B, and other services and set your KPIs accordingly. 

Your KPIs might include ADR, RevPAR, Gross Operating Profit (GOP), Gross Operating Profit Per Available Room (GOPPAR) and occupancy rate, for example. 

Forecast your revenue

Time to project your revenue using historical data, market analysis, and booking trends. This includes room revenue, F&B revenue, and ancillary revenue from services like spa, parking, and laundry. 

Once again, with a BI tool in place you can easily build and track your forecast, within the platform, rather than having to manually crawl through spreadsheets.

Budget for expenses

Next, budget for expenses. These might include operational expenses (e.g., labor costs, utilities, and maintenance), sales and marketing expenses, and administrative expenses (e.g., salaries, office supplies, legal fees).  

Consider capital expenditures

Your capital expenditures can take up a significant amount of the budget, so it’s important to account for them. Plan for regular maintenance, any necessary property upgrades, and any new expansion plans. 

Plan for multiple scenarios 

Things do go wrong, so plan for those unfortunate occurrences. Having best-case and worst-case scenarios and aligned contingency plans helps you prevent unnecessary headaches. 

Develop multiple budget scenarios to account for potential market changes or unexpected events. Then craft contingency plans for different levels of performance and external conditions.

Review and refine 

You’ve got the majority of your hotel budget down – congratulations, you’re almost there. But there’s still work to do. 

Before you implement your plan, it needs to be reviewed internally with stakeholders, adjusted, and then reviewed by senior management one final time. 

Implement and monitor 

Take a big sigh of relief because your budget has been implemented. Now it’s time to communicate the approved budget with all relevant departments. 

Going forward, this budget will be your roadmap. Throughout the year, you’ll need to monitor your performance against the budget monthly and provide regular reports on financial performance.

4 Creative hotel budgeting tips for revenue managers

1. Foster collaboration

The better your teams’ collaboration, the better your budget will be. That’s because by working together and having all of your data fed into one centralized commercial platform, you can surface new insights, uncover new revenue opportunities, develop innovative ideas and improve budget accuracy. 

Organize workshops or brainstorming sessions to encourage creative solutions for revenue generation and cost control. Involve employees at all levels to learn and apply their unique perspectives. 

Coordinate with:

• Sales and marketing, for example, to align on promotional strategies and sales targets. 

• Operations to understand cost structures and efficiency improvement opportunities.

• Finance to align on financial planning and reporting requirement

2. Monitor guest feedback and data

Use guest data from your PMS to create personalized offers and experiences that cater to individual preferences. This can increase guest loyalty and repeat business. Or you can let a BI tool do the heavy lifting for you by extracting and analyzing all the key information from your PMS, so the insights are there waiting for you, all you have to do is act on them.

3. Focus on cost control and efficiency 

Controlling costs and boosting efficiency throughout your hotel is a win-win situation. You’ll save time for your workforce and money. 

Implement energy-saving measures and technologies to reduce utility costs. Track energy usage and adjust operations to optimize efficiency.

Use predictive demand forecasts and occupancy data to anticipate when your property is likely to be busy to schedule staff more efficiently. This is a great way to balance your staffing levels without overstaffing. Cross-train employees to handle multiple roles during off-peak periods.

4. Prioritize ancillary revenue

Revenue management in hotels isn’t just about setting room rates and selling them, although that is essential. It’s also about earning as much ancillary revenue as possible. 

Ancillary revenue means the money you get from services or add-ons like parking, spa treatments, early check-in, a better view from the room and more. 

This feeds into a wider strategy of Total Revenue Management at your hotel - a forward-thinking approach to hotel revenue management, which looks to optimize all revenue streams, beyond just your rooms. 

Create attractive package deals that bundle room stays with ancillary services to increase overall revenue and enhance guest satisfaction.

Train staff to upsell and cross-sell services during the booking process and throughout the guest's stay. Implement technology that prompts guests with relevant offers based on their preferences.

Where to make your budget count: Optimizing your revenue with Lighthouse 

Making the right technology choices can mean the difference between a frustrating budgeting process and a simple and efficient one. 

Whether you’re thinking of bringing on a new technology or upgrading from an outdated, clunky legacy system to something faster and more user-friendly, here are key hospitality industry technologies worth investing in:

• Business Intelligence: BI tools integrate data from various sources (e.g., PMS, POS, CRM) to provide comprehensive reports and dashboards. This helps you gain insights into performance, identify trends, and make informed data driven decisions. Lighthouse BI automates the entire forecast and budget process, saving your team hours of time and providing solid financial foundations for the entire year.

• Predictive market intelligence: Market Insight leverages forward-looking search data, so you can more effectively forecast demand at your hotel.It can reveal the length of stays that guests may be interested in, as well as the intended travel dates, and the geographical location where the searches originate from.Not only does this allow for better planning and resource allocation but armed with insights you can create targeted, personalized marketing offers.

• Rate shopping intelligence: Getting your room rates right is still at the heart of any revenue management strategy. To dynamically set your rates in real-time you will need the help of pricing intelligence. Rate Insight gives you real-time access to your competitor’s past, current, and future rates with the most accurate data in the industry. It provides intelligence on your competitors’ pricing strategy by uniquely delivering granular insights on their rates, ranking, reputation, and OTB occupancy.

• Benchmarking: Benchmarking is vital as it provides context around your business performance. With Benchmark Insight by Lighthouse you can pinpoint exactly where you need to focus your efforts to have the biggest positive impact on your business. By monitoring and benchmarking your KPIs against your competitors, you can identify market shifts and make necessary strategy updates.

The Lighthouse commercial platform offers hoteliers a suite of market and business intelligence products, designed specifically for commercial teams to streamline and optimize their revenue strategy. Get in touch here if you would like to find out more.