Know thyself for budget success

Before you can budget for the year ahead, it is critical that you assess the year just gone, or just passing through. You cannot make forecasts without looking at the reality of your situation or without applying the knowledge you have picked up during the past year of operations.

This knowledge relates not only to the year you have enjoyed, but that which your competitors have enjoyed as well. This means taking a realistic view of where you are in the competitive set and understanding why you are where you are.

Key to this is self-knowledge. It is important to know not just where you sit within the set, but also the weight of net segments in your business mix. Some channels focus more on net rates, where the customer pays an agency direct and you get the part after commission, which can give you a false view of your ADR and could impact your Revenue Generation Index (RGI) results for the next year.

It is also important to look at the opportunities to work with others. If you are part of a group of hotels with the same owner or investor, there may be opposites to cut purchase costs, especially on the F&B side, where these synergies could mean significant cost savings. There are often opportunities across the team, both with a shared HR function, but also because working across a group, rather than a single hotel is an attractive career option to many seeking to build their experience in the sector and you may fish in a deeper pool of applicants as a result.

But the most important arena to ensure you are maximising is the loyalty programme.

Understanding the loyalty programme, if you are a member of one, can have a huge impact on the success of your property. It is very important to know the redemption strategy you will follow during the next year and the company’s plan for your redemption points status, as well as knowing whether other hotels under the same brand or parent company are due to open in your territory.

You need to know whether you are going to maintain your redemption point level, how much does it cost in points to stay at your property vs. the other hotels from the brand, what will be the new compensation for your loyalty member reservations, can you do anything about room configuration to control loyalty member volumes better? Are there any planned policy changes?

It may be, for example, you have to set aside 20% of your room inventory for loyalty members. So maybe you can change your room configuration setup where your standard room is 40%. Then you can decrease to  20% your standard room share in order to not have extra volume of loyalty member reservations at a lower rate on demand dates

Having a structured business plan with a PESTEL (external) analysis as well as internal analysis will help with negotiations. You must also take a strategic approach. What are the strategic choices that I have to do to achieve the numbers that I’m putting on my budget? How is it going to change supply? And how is it going to change demand? How many other keys are coming to the city?

The brand can be a good source of historical data on events and demand factors. For example, Formula One might be coming to town and you can compare how past events have affected rates.

In a similar vein, we would recommend doing TravelClick’s Agency360, which tracks 100% of travel agent bookings from all four major GDS providers: Sabre, Galileo and Amadeus. This helps you assess the correct rates, but also keep a close eye on accounts which have special rates – ones negotiated with large businesses, for example.

“The final point is relevant across all of the business and one which has come to the forefront in recent years: that of inflation. This will help you better understand and plan for operational costs, cost projections and purchasing power and understand not just the numbers, but their value.”

This content was originally published in Hotel Investment Today.