Better Budgeting Through Revenue Management
written by kumar subramanianon December 21, 2018

Budgeting is an activity which happens every year and takes a considerable amount of the team’s time. The basic aim of most budgets is to look at how much growth to aim for, what are the expenses, meet short and long term goals. In this post, we will look at budgeting from a revenue point of view.

 

The budgets act as a guide that provides the management with the standards, by which they can measure the success of the operation. A budget provides a financial framework within which all the department operates. The budget is also for financial planning and to upgrade the product and facilities of the hotel.

 

Revenue Management has an important role in budgeting activities. One of the essentials of budgeting is that it be started at the right time. Leaving it to the last minute shows that it is essentially an activity done for its sake. The right budgeting might take 2-3 months. It would be ideal to complete it before March so that everyone is aware of the goals and can plan for what to achieve in April.

 

Collecting accurate & enough data is an essential part of any budgeting activityPast performance on a segment basis, Business on books, Activity calendar for next year (Is there any large event happening) are all needed to reach an accurate forecast of next year’s revenue. You need to be aware of any expansion, activity plan of competition and also any new competition coming up in the market.

 

A hotel budget’s accuracy is affected by the effort made to gather market data. Budgeting requires predicting how the core markets the hotel serves will change over the upcoming year and the direction of the overall economy. Even though the budget process is a once-a-year task, gathering information about the hotel industry and the local economy is an ongoing process. This gives a clear idea of what the future may look like when you make assumptions for the key variables in the budget.

 

The budget needs to be segmented into achievable targets and a plan put in place for each segment.What are the fixed segment targets, expected growth and increase in pricing? Are you planning for a change in the business mix of your market segment? What are the marketing activities and cost to achieve plans for next year?

 

Are there any new segments you want to target? For this, we need to understand the segments we are present in and what is the market dynamics, new innovations etc. Are you planning to expand offerings to any new source segment? What is the plan and cost to target this? What should be the investment in online marketing which is essential in today’s digital world?

 

Pricing correctly will impact business and a right price can lead to exponential increase in the bottom line.

Some of the other factors that need to be considered are any change in technology, how it can be used or what is the impact of the same on your hotel. Rapid advancement in technology has radically changed the distribution landscape and also affected how hotels acquire new clients as well as retain existing ones. Budgeting is a complicated exercise, but if done rightly it will ensure that the hotel is in the right direction to achieve its long and short term goals.

 

Common Mistakes: Rushing the planning process can result in a budget that is a less useful management tool than it should be. Hotels have a tendency to build their expense budgets by simply taking last year’s numbers and adjusting them upward by an assumed percentage, such as 5 or 10 percent. A better approach is to build a completely new budget each year, with justification for each expenditure. This approach focuses management’s attention on constantly looking for ways to improve the hotel’s operation rather than being satisfied with how things have been done in the past. Marketing expenditures from the prior year should be scrutinized to make sure they contributed to generating revenues before they are included in this year’s budget.

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