Fixed and Variable Costs in hotels. May 19, Fixed Costs. Fixed costs are normally not effected by changes in occupancy or sales volume. They are said to have little direct relationship to the business volume because they do not change significantly when the number of sales increases or decreases.
Examples of Fixed costs are:. Variable Costs. Variable costs are clearly related to hotel occupancy and business volume.
As business volume or occupancy increases, variable costs will increase; as hotel occupancy decreases, variable costs should decrease as well. Examples of variable costs are:. Post a Comment. Because all VIP's guests are pre-registered, the person approving the VIP status also assumes responsibility for the guests credit status. Read more. The Guest Cycle in hotel. The Guest Cycle in hotel The hotel guest stay cycle can be divided into four main stages.
Within these four stages there are important task related to guest services and guest accounting. Front office employees must be aware of guest services and guest accounting activities at all stages of the guest stay. Front office staff can effectively serve the guest if they have a clear understanding of the flow of business in hotel.
Guest Cycle also represents a systematic approach to front office operations. Choice of the guest can be affected by many factors, including previous experiences with the hotel, advertisement, word of mouth referral by friends and colleagues, location, corporate, travel agent booking, hotel name, hotel loyalty program member etc.
When the hotel cannot accommodated a walk-in guest, the front office agent can make the situation a little easy for the guest by suggesting and providing directions to alternative hotels nearby.
The front office staff can even call other similar hotels and help the guest to make reservation. If there seems to be no alternative to turnin….The ultimate pricing strategy for your hotel business. Setting prices is inevitable in business. The right pricing is so imperative, it really is the difference between success and failure. Fortunately there are three fundamental pricing strategies you can learn to hone the best approach for your business. These are:. Cost-based pricing. This pricing strategy offers the simplest approach.
For your business to be successful you need to not only cover your costs, but make a profit in the process. To do this, you start by adding up all the costs of running your hotel.
Then depending on the profits you want to make, you add a markup on each room to take you to that goal. How to calculate your cost-based pricing. The approach is simple, but the list for calculating your costs can be extensive. You need to take into account your fixed and variable costs, and the direct and indirect costs of running your hotel.
These could include:. Variable costs are expenses that can change depending on the revenue you earn. Generally, the more guests you have the higher your variable costs will be. The profit you want to add on top will take you to your overall amount for the month. You then divide this figure by the number of guests or rooms you can rent and price accordingly. Pros and cons of cost-based pricing.
Customer-based pricing. The customer-based strategy is about pricing your rooms according to perceived value.Obviously, this is because renting guestrooms is the major source of revenue across all property types in the United States.
According to the edition of Trends in the Hotel Industry, rooms revenue averaged This metric exceeds 97 percent at limited-service and extended-stay hotels.Fixed Costs vs Variable Costs
Alternatively, rooms revenue comprises only Even more impressive than the contribution of rooms revenue to total revenue is the influence of the rooms department on hotel profitability. On average, the profits generated by the rooms department made up This ratio ranged from In short, as the rooms department goes, so goes the hotel.
To gain a better understanding of the profitability of hotel rooms departments, we examined the performance 1, properties that submitted data to our Trends survey each year from to This allows us to analyze changes in rooms department expenses and profits through the latest industry cycle. Labor Intensive Per the Uniform System of Accounts for the Lodging Industry USALIrepresentative expenses assigned directly to the rooms department include items such as labor costs, the cost to launder linens, guestroom supplies, reservation system expenses, travel agent commissions, and complimentary food and beverage.
By far the greatest expense within the department is labor. Personnel within the rooms department consist of room attendants, laundry workers, front desk clerks, bellmen, reservationists, and concierges.
Inthe combined cost of salaries, wages, and benefits for these positions equaled As expected, convention, resort, and full-service hotels have the highest percentage of labor costs measured against department revenue. These properties offer the most extensive levels of services and amenities, and therefore have the greatest staffing levels.
Conversely, extended-stay hotels achieve the lowest labor-to-revenue cost ratio because they only service guestrooms periodically and have lower volumes of check-ins and check-outs. Despite the extensive array of expenses and high dependency on labor, rooms departments are very profitable. The properties in our study sample averaged a department profit margin of This ranged from Unfortunately, total department expenses increased by a CAGR of 2.
Therefore, department profits grew at a CAGR of just 1. While labor is the largest expense within the rooms department, over the past eight years it has been the other rooms department expenses that have subdued the ability of management to increase profits.
During the past eight years, labor costs measured on a per available room basis increased at a CAGR of 2. This same pattern holds true when measuring these same items on a dollar-per-occupied-room basis.Housekeepers around the world are asked this question.
Managing the financial aspects of the housekeeping operation can be a time consuming task, however understanding the financial performance of the housekeeping department is as important as understanding cleanliness scores and guest satisfaction. In order to help housekeeping professionals hsk-knowledge.
By entering a few high level figures per month, the spreadsheet will calculate the main key performance indicator KPI : Total Cost per Rooms Sold. At the same time, the spreadsheet provides a breakdown of information to identify where the housekeeping department is over- or underperforming financially. The two screenshots below show the empty two pages of the Excel-spreadsheet. Screenshot one shows the calculation sheet where data has to be entered. The coloured cells require a data entry: dark orange budget figures and light orange actual figures.
Please click on the screenshots to enlarge the picture; continue reading below for more detailed information on how to use the spreadsheet. Get hold of the budget for the housekeeping department. The important figures that you need to know are the following:. Once you have the figures, you need to enter them into the dark orange fields in the spreadsheet for the relevant months. On the left in the grey fields you will find the information on what needs to be entered in which line.
You need to keep track of these costs during the month by keeping copies of the invoices. Ask the finance department to provide you with the data you need. At the end of the month you add up the acutal costs for the different areas based on your invoices:. Furthermore, you need to get the following figure from your Property Management System PMS or ask your finance department for the correct figure:.
Once you have these figures, you need to enter them into the light orange fields in the spreadsheet for the relevant month. See the screenshot above for an example of the first 2 lines of the spreadsheet: forecasted and acutal occupancy.
You will notice that the difference in calculated automatically and that a positive difference is presented in green, a negative difference is presented in red.
Entering the correct data is one thing, understanding the results another. Below is an example of a completed spreadsheet. The screenshots below show line by line what was entered and how the calculation works. Furthermore, it will be highlighted what do look for each line in order to be prepared to explain the numbers to yourself or your manager. The above screenshot shows the first part of the document. Budget data and actual figures were included for each line. The above screenshot shows the cost per room sold results.
Each of these lines is explained in detail below. The spreadsheet is designed to show the cost per month: January to December in one column each.Lately, I have spoken to several revenue managers who have told me how much their cost is to take a room—to make that last sale of the day. What I heard concerns me because it tells me some people do not understand the fixed vs. We only need to divide this number by the total rooms available—which is 83, on an annual basis. This gives us a good measure to understand what our pricing should be to generate an annualized profit using the current cost structure.
However, it does not tell us the real variable cost to take those last few rooms. What items will we need to utilize to take those last 10 rooms that are purely variable? To determine this we must first understand the nature of the fixed expenses. The fixed expenses in this hotel at this point are many. We are already running a house count of rooms and occupancy of All the costs for the following under this scenario are fixed.
In other words—and this is the pivot point—it will cost no additional dollars on any of the following items to take those last 10 rooms:. The chart clearly shows the individual costs for the variable items and the incremental profit from the sale of each room.
This boosts the NOP closer to 10 percent. When you think about your current selling policy as it relates to last-minute inventory, make sure you have a good handle on the real variable costs to sell those last-minute rooms. Know there is a balance between building the base, yielding the inventory in the largest demand period, and selling those last rooms more often.
If you would like a copy of any of the following send me an email at david hotelfinancialcoach.
CPOR - Cost per Occupied Room
Do you need a dynamic speaker with a unique and creative financial message for your next hospitality event? Are you thinking about your management team and what to engage them with this year?
Consider a full or half day hospitality financial leadership workshop. Contact David at Email: david hotelfinancialcoach. Your email address will not be published. Sharing is caring!Industry-specific and extensively researched technical data partially from exclusive partnerships. A paid subscription is required for full access.
You need a Premium Account for unlimited access. Additional Information. Show source. Show sources information Show publisher information. Average daily rate of hotels in the U. Sales revenue of selected leading hotel companies globally As a Premium user you get access to the detailed source references and background information about this statistic. As a Premium user you get access to background information and details about the release of this statistic.
In your browser settings you can configure or disable this, respectively, and can delete any already placed cookies. Please see our privacy statement for details about how we use data. Single Accounts Corporate Solutions Universities.
Popular Statistics Topics Markets Reports. Premium statistics. Read more. This figure was higher than the month before. What is average daily rate?Knowing the average, actual costs incurred per occupied guestroom enables a manager to make more prudent pricing and marketing decisions and to monitor expenses. Here are six variable costs to consider:. To most accurately calculate average labor expense per occupied guestroom, take the total labor plus benefits expense for a time period and divide it by the number of guestrooms serviced.
Keep in mind that you only calculate the housekeeping labor costs for employees involved in servicing a guestroom. If a guestroom is occupied, the bed and bath linens will need to be laundered after the guest checks out or after a specified number of days occupancy. Calculate the average laundry costs per occupied guestroom by adding up the labor, laundry chemical, and utility costs incurred and dividing by the number of guestrooms occupied for that period.
When guests occupy a room, they turn on the lights, watch TV, take hot showers, run the heat or air conditioning, recharge electronics, and more. Similarly, the room attendant uses electricity and water when cleaning the guestroom. Because energy consumption in guestrooms is not individually metered in the United States, the utility expense per occupied room will need to be estimated.
Based on occupancy levels, type of hotel, guest segmentation, geographic location, and brand requirements, most hotels plan to refurbish their guestrooms every four to seven years.
Allocate an average of 3 percent of the room rate generated toward a capital expenditure budget for room renovations. Say at 12 cents a KW. Motel is not free; it has commercial mortgage on it. Taxes, insurances, staff salary, maintenance plus most travelled steals things like remote controls, TV, keys and whatnot. Also utilities are charged at commercial rate. Laundry sheets comforts and whatnot. What is the standard or range of electricity consumption in KW for a resort and city hotel….
Fixed Costs and Variable Costs in hotels
Advice Operations Housekeeping. Running motel is not easy baby…. What is the standard or range of electricity consumption in KW for a resort and city hotel… Thanks. Please can I have a software on room expenses calculation. While calculating the Cost per available roomwhy we do not take FLP into consideration?
Fourteen hotel companies are among this year's Best Employers for Diversity, according to Forbes magazine. The list, which recognizes organizations for their commitment to Running a business in the hospitality industry is a tough task, and when pests are added to the equation, it can get even more Analysts at Lodging Econometrics recently reported the top five markets with the largest hotel construction pipelines for the third quarter of The number Over the past few years, more and more women seem to be climbing to the top ranks of the hotel industry.
Load more. This popup will close in:.