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1
Identify your variable and fixed costs
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2
Determine your sales volume and revenue drivers
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3
Calculate your flexible budget
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4
Adjust your flexible budget as needed
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Here’s what else to consider
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A flexible budget is a tool that helps you adjust your hotel's expenses and revenues according to changes in occupancy, demand, and market conditions. Unlike a fixed budget, which is based on a single forecast, a flexible budget allows you to adapt to different scenarios and optimize your profitability. In this article, you will learn how to create a flexible budget for your hotel in four steps.
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1 Identify your variable and fixed costs
The first step is to identify which of your hotel's costs are variable and which are fixed. Variable costs are those that change depending on the level of activity, such as food and beverage, laundry, utilities, and commissions. Fixed costs are those that remain constant regardless of the activity, such as rent, salaries, insurance, and depreciation. You can use your historical data, industry benchmarks, and accounting reports to classify your costs and estimate their average values.
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2 Determine your sales volume and revenue drivers
The next step is to determine your sales volume and revenue drivers. Sales volume is the number of rooms sold or occupied in a given period. Revenue drivers are the factors that influence your average daily rate (ADR) and revenue per available room (RevPAR), such as seasonality, demand, competition, and pricing strategy. You can use your historical data, market research, and forecasting tools to project your sales volume and revenue drivers for different scenarios.
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3 Calculate your flexible budget
The third step is to calculate your flexible budget using a formula that relates your variable costs, fixed costs, sales volume, and revenue drivers. For example, you can use this formula:
Flexible budget = (Variable cost per room x Sales volume) + Fixed costs + (Revenue driver x Sales volume)
This formula will give you the total amount of expenses and revenues that you can expect for a given level of sales volume and revenue driver. You can then compare this amount with your actual results and analyze the variances.
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4 Adjust your flexible budget as needed
The final step is to adjust your flexible budget as needed based on the changing conditions and performance of your hotel. You can use your flexible budget as a guide to make decisions about your operations, marketing, and pricing. For example, you can increase or decrease your variable costs, such as staffing, supplies, and promotions, depending on your occupancy and demand. You can also adjust your revenue drivers, such as discounts, packages, and upselling, depending on your competition and market situation. By doing so, you can improve your efficiency and profitability.
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5 Here’s what else to consider
This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?
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