The Misunderstood Power of Capital Budgeting

Are you leveraging the power of this revenue generation tool?

By S. Lakshmi Narasimhan Founder, Ignite Insight LLC | June 03, 2018

Sustenance of businesses hinges on the important element of maintaining a consistent top line. In the hospitality industry, the saying goes: "No Top line, no Bottom Line." Top line or revenues as they are generically called are the lifeline of businesses. Whatever products you offer to your customers and the value proposition you bring to the table will influence if not exactly guarantee your revenue performance.

When revenues start to drop, the bottom line performance suffers significantly too. Owners while always obsessing about the bottom line are keen that revenue performance is consistently strong. After all, the Top line is the foundation on which bottom line is built.

Rooms Vs Food & Beverage

In the industry, rooms and food and beverage produce close to 90% of hotel revenues. Between rooms and food and beverage themselves, room revenues are generally between 2.5 to 3 times food and beverage revenues. This is built on the foundation of an Average Daily Rate in the Rooms department which is higher many times over than its counterpart, Average Check in the Food and Beverage department. Moreover, there is another important difference between the rooms and food and beverage revenues. Rooms revenues are generated with hotel long term assets while food and beverage revenues are generated using current assets.

Operations Budgeting

One of the key planning tools that a hotel business relies on is the budget. More specifically, the Operations Budgeting exercise is an annual one laying down the broad marketing and financial plan elements of the hotel. Operations Budgeting specifically forms the basis for estimation of revenues and expenses and the resultant profitability.

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Coming up in June 2019...

Sales & Marketing: Selling Experiences

There are innumerable strategies that Hotel Sales and Marketing Directors employ to find, engage and entice guests to their property, and those strategies are constantly evolving. A breakthrough technology, pioneering platform, or even a simple algorithm update can cause new trends to emerge and upend the best laid plans. Sales and marketing departments must remain agile so they can adapt to the ever changing digital landscape. As an example, the popularity of virtual reality is on the rise, as 360 interactive technologies become more mainstream. Chatbots and artificial intelligence are also poised to become the next big things, as they take guest personalization to a whole new level. But one sales and marketing trend that is currently resulting in major benefits for hotels is experiential marketing - the effort to deliver an experience to potential guests. Mainly this is accomplished through the creative use of video and images, and by utilizing what has become known as User Generated Content. By sharing actual personal content (videos and pictures) from satisfied guests who have experienced the delights of a property, prospective guests can more easily imagine themselves having the same experience. Similarly, Hotel Generated Content is equally important. Hotels are more than beds and effective video presentations can tell a compelling story - a story about what makes the hotel appealing and unique. A video walk-through of rooms is essential, as are video tours in different areas of a hotel. The goal is to highlight what makes the property exceptional, but also to show real people having real fun - an experience that prospective guests can have too. The June Hotel Business Review will report on some of these issues and strategies, and examine how some sales and marketing professionals are integrating them into their operations.