Youtube Video

Summary published at 10/19/2024

๐Ÿจ Revenue Management Basics for Hotels

๐Ÿ’ฐ The first step in revenue management is knowing your room costs. If you charge too little, you risk losing money.

๐Ÿจ Example: The Wagon Wheel Inn has 100 rooms priced between $50 and $100. The focus is on the cost of the most inexpensive room.

๐Ÿ“Š There are two types of costs:

  • Incremental Cost: Changes based on the number of rooms sold (e.g., $20 per room).
  • Burdened Cost: Total costs incurred regardless of room sales (e.g., $40 per room).

โšก Incremental Costs include utilities, breakfast, and housekeeping. For example, if a room is sold for $10, it may not cover the $20 incremental cost.

๐Ÿงน Burdened Costs include fixed expenses like salaries, insurance, and maintenance. These costs remain constant regardless of occupancy.

๐Ÿ“ˆ To calculate burdened costs, divide total expenses by the number of rooms sold. For instance, if total expenses are $400,000 and 10,000 rooms are sold, the burdened cost is $40.

๐Ÿ’ก Understanding these costs helps in pricing strategies. If your room rates are between $50 and $100, knowing your costs allows you to make informed decisions about discounts.

๐Ÿ“… Regularly assess your costs to avoid financial pitfalls. Selling rooms below the burdened cost can lead to losses.

๐Ÿ“ง For more insights on revenue management, contact me at ask@bransonman.com.

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