Hotel Revenue Management: Key Expenses Explained
Hotel Revenue Management: Understanding Key Expenses
- Room Sales
- Allowances: Revenue you stop earning.
Allowances are derived from revenue but deducted because the hotel stopped earning that revenue.
Why did the hotel stop earning that money? Often, it’s because the hotel spent more than budgeted due to:
Problems with service, incorrect charges, operational issues, or compensation for service failures.
Example: A guest arrives and the assigned room isn’t available. They are compensated with another room, a free dinner, and a spa massage. These are all deducted costs.
If the budget is higher than the current revenue, the hotel gains revenue.
- Salaries & Wages
- Employee Benefits: (Incentive programs, rewards). If less than budgeted, employees may not have been rewarded as expected, performed as expected, or incentive programs haven’t worked.
- Commissions: Working with an external company to simplify a process.
(OTAs = Online Travel Agencies; intermediaries between the client and the hotel) work on commission, a percentage based on the room rate.
If the hotel works with an OTA, this incurs a commission cost.
This is related to sales.
If sales increase and commissions grow, the sale is associated with the commission and made through the OTA (indirect channel).
If sales increase (more rooms sold) but the commission decreases (negative number), the sale was direct, not through an intermediary (OTA). The hotel sold directly to clients without using Booking.com, Expedia, etc.
- Contract Services: Services the hotel outsources.
For example: Laundry service, window cleaning, transportation, flower service.
Many VIPs often lead to floral arrangements in rooms, increasing costs.
- Guest Supplies: Items guests consume (room cards, shampoo, hotel maps, key holders).
How to control guest supplies? Place a box at reception with a sign: “Leave your keys here.” Recover and reuse plastic cards. To know if a measure works, set a timeframe and see if card costs decrease.
If card spending decreases over time, the decision worked and yielded positive results.
- Laundry & Dry Cleaning: Laundry service for customers. Increased usage may indicate higher hotel occupancy and vice versa.
Increased room sales correspond to increased occupancy, impacting laundry service consumption, resulting in an X% increase.
- Linen (pillowcases, sheets, towels, napkins, tablecloths): Items to dress a bed or table. Linen can be owned or rented. If rented (paid per piece) and linen expenses increase, more was needed. If owned and linen increases, it may be a laundry-related cost.
- Operating Supplies: Elements needed to carry out an operation (FO: pen and paper; HSK: cleaning elements, cleaning cart).
Operating costs can increase for several reasons:
- Improper use: Not knowing how to use a mop, reducing its lifespan, causing more frequent purchases.
- Improper use of washing chemicals.
- Returning room cards.
How can operating costs be reduced?
- Supervising the process (cleaning a room).
- Controlling.
- Identifying process deficiencies.
- Applying training on these deficiencies (proper use of chemicals).
- Reservations: Fewer reservations may be due to cancellations, more walk-ins, poorly managed overbooking, or no-shows.