It is a well-known fact in the tourist sector that fall is the time of the favorite process known as budgeting. “The end of the season” is the period when analyses of planned figures (revenues and expenses), calculations of key performance indicators (KPI), final identifications of main goals for the upcoming season and their verifications, following thorough analyses, as well as the widely known “budget smoothing” commence.
In this text, we want to emphasize the importance of that budget and why we plan it, investing our time, knowledge, dedication and energy into that process.
At one of last year’s webinars, I was unpleasantly surprised by the fact that 42% of the participants were employed at establishments (in tourism and hotel services) that do not plan their budgets at all. My first instinct was to ask them how they knew what they wanted and which direction they were progressing in. Without a budget and some desired guidelines and frameworks, we let things develop independently and therefore we have no control over the situation. I can understand that the concept of a budget sounds slightly intimidating or even boring (dare I say it, numbers on paper), but when approaching budget planning adequately and in the accurate order, it results in a positive story that we will want to retell next season.
The Sales department has the first important role in the whole planning process. Everything starts with Sales. The main task of valuable colleagues is to provide accurate projections of the operational activities of the establishment, booked rooms, overnight stays, percentage of occupancy of capacities and, most importantly, the revenues. This whole part of the story is even better when we consider the figures according to market segments as well, because that way we have a better insight into the number of groups planned (alongside their dates), individual guests, agency guests (allotments) or guests who book their stays via OTA (online travel agencies). The revenue projected by the Sales department is divided into two components: revenue from accommodation and revenue from food and beverage services (board), and when we add these two revenues together, we obtain the total revenues for the board. A very important KPI of sales is the average daily rate of accommodation (ADR). That indicator clearly shows at what price we should be planning the sales of our accommodation capacities (be it monthly or annually). Of course, the average rate is not the same for all market segments, but the sales force plays a crucial role in generating revenue by combining different market segments and their shares in total overnight stays to create the best combination for our hotel, campground or tourist resort.
Overnight stays, booked rooms, occupancy of capacities, total revenues of boards, ADR/ABR, RevPar (Revenue per Available Person) can be compared to this year’s and last year’s results, but also to the indicators of the main competitors. In case we are not satisfied with the budgeted figures and numbers, we need to “smoothen” them until the final goal is achieved. Naturally, during the process of sales budget planning, there are numerous factors that need to be considered – the most current one is the impact of the coronavirus and the uncertainty it caused – and the sole comparison of results and indicators is not always simple, but it is important to have a logically arranged system where deviations can be accounted for and they add up.
Now that we have a sales budget, Operations takes on the next major role. However, we will delve into that in more detail in our next blog post “Budget – part 2”. Until next reading!
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