Effective Hotel Budgeting: How to Make a Hotel Budget Plan That Works

As a hotel industry professional, you want your staff happy, your guests satisfied, and your business profitable. If your hotel budget isn’t properly managed, you risk overspending and eroding profit. Deloitte Consulting research suggests that overspending on labor alone can consume a large share of a hotel’s budget. The same risk applies to other expense categories: food, marketing, and operations.

Effective budget planning helps hotel managers make informed decisions, allocate resources effectively, and improve profitability. This article explains how to create an effective hotel budget plan.

Why Is a Hotel Budget Important?

Creating a budget is critical because it provides a clear roadmap for financial planning and decision-making. A budget helps managers:

• Allocate resources effectively: Direct annual funding to areas with the highest return on investment.
• Make informed decisions: Determine how much to spend on operations and what to prioritize.
• Improve profitability: Plan for marketing, variable expenses, and other costs to maximize profit.

What Is a Hotel Budget Season?

A hotel budget season is the period when hotels plan and prepare the budget for the upcoming year. During this time, managers review past performance, set goals, and create a plan. Budget season typically starts a few months before the fiscal year-end and completes before the new year starts.

A proper budget season helps hotels plan for expected expenses and revenue, avoid overspending, and stay financially on track.

What Is Hotel Revenue Management?

Revenue management is the practice of optimizing income and profitability by maximizing occupancy and rates across revenue sources. The four pillars of hotel revenue management are:

1. Dynamic Pricing
   • Adjust rates based on seasonality, demand, and competition to match market conditions and optimize revenue in real time.
2. Forecasting
   • Use historical data and event calendars to predict future demand and inform inventory, staffing, and pricing decisions.
3. Channel Management
   • Optimize distribution channels (OTAs, direct bookings, travel agencies) to balance volume and pricing, and to control distribution costs.
4. Inventory Management
   • Manage room types, rates, and restrictions to ensure optimal availability and pricing mix to maximize overall revenue.

What Are Hotel Operating Expenses?

Operating expenses are the costs of running a hotel—salaries, utilities, maintenance, marketing, etc. They fall into two categories:

• Fixed costs: Expenses that remain constant regardless of occupancy (e.g., rent, property taxes).
• Variable costs: Expenses that vary with occupancy or revenue (e.g., labor, utilities, guest amenities).

To manage these effectively, identify and categorize expenses correctly. For example, rooms sold can help estimate housekeeping and energy costs. Monitor expenses regularly to identify opportunities for improvement.

What’s the Average Revenue in the Hospitality Industry?

Average revenue varies by location, hotel type, and season. According to STR, the U.S. 2021 averages were:

• Average Daily Rate (ADR): $110.95
• Occupancy: 50.2%
• Revenue per Available Room (RevPAR): $55.72

These figures vary widely—luxury hotels usually have higher ADRs and RevPARs, while budget hotels may have lower rates but higher occupancy.

Internal and External Factors That Affect a Hotel Budget

Several internal and external factors influence budget planning:

Occupancy Rates

Occupancy affects revenue, staffing, and inventory. Track occupancy to predict demand and adjust pricing and staffing.

Competition

Monitor competitors’ rates, promotions, and service offerings. Staying competitive may require rate adjustments or enhanced amenities.

Economic Conditions

Inflation, recession, and broader economic trends can affect demand and costs. Adjust pricing and expense strategies accordingly.

Types of Budgets in the Hospitality Industry

Common budgeting approaches include:

• Zero-Based Budgeting: Start from zero and justify every expense for the coming year. Useful for eliminating unnecessary costs.
• Incremental Budgeting: Use the current budget as a baseline and adjust for expected changes. Less time-consuming but can perpetuate inefficiencies.

Each method has advantages and trade-offs—zero-based budgeting drives cost scrutiny; incremental budgeting saves time.

Who Should Be Involved in the Budgeting Process?

An effective budget needs input from multiple stakeholders:

• Department heads: Provide department-level spending needs and revenue projections (e.g., sales, operations, F&B).
• Finance team: Analyze financial data, identify trends, and model scenarios.
• Executive leadership: Set strategy and approve the final budget.

Schedule regular meetings and maintain clear communication about goals and assumptions.

How to Create a Demand Calendar

A demand calendar forecasts expected demand by considering historical data, events, and seasonality. Steps to create one:

• Gather historical data: Occupancy, ADR, RevPAR, and other relevant metrics.
• Consider events and seasonality: Local events, conferences, holidays, and seasonal travel patterns.
• Use forecasting tools: Revenue management systems and forecasting software help improve accuracy.

A demand calendar supports pricing and staffing decisions aligned with expected demand.

How to Track Staff Productivity and Performance

Labor is often the largest operating expense. Track productivity and performance to optimize staffing:

• Set performance metrics: Examples include revenue per available room (RevPAR) per staff member or rooms serviced per housekeeper.
• Use time-tracking tools: Systems like QuickBooks Time or Kronos can help track hours accurately.
• Analyze staffing levels: Adjust staffing based on forecasted demand and historical productivity.

Tracking productivity helps reduce labor costs, improve efficiency, and support profitability.

Create a Hospitality Budget Plan (In 7 Steps)

Follow these steps to build a practical budget plan:

Step 1: Gather Data

Collect and segment operations data by guest profile, room type, rate plan, F&B performance, etc. Use this data to inform revenue projections and cost assumptions.

Step 2: Identify Revenue Streams

Engage sales, marketing, and rooms teams to quantify revenue by source (rooms, F&B, events, ancillary services). Consult your revenue manager for projections by stream.

Step 3: Analyze Expenses

Compare expenses to revenue streams and guest profiles. Identify areas to trim or optimize. Analyze both fixed and variable costs and seek efficiencies—especially in labor and utilities.

Step 4: Determine Capital Expenditures

Plan for renovations, equipment, and other capital projects. Estimate costs and prioritize projects by expected impact on revenue or guest satisfaction.

Step 5: Set Goals and Objectives

Define specific, measurable targets (e.g., occupancy, ADR, RevPAR, F&B sales growth). Align objectives with financial data and strategic priorities.

Step 6: Allocate Resources

Allocate budgeted funds to departments and projects based on priorities. Begin data collection early (e.g., September for many year-end planning cycles) to inform allocations.

Step 7: Review and Adjust

Regularly review the budget and adjust as needed. Revisit revenue plans and assumptions at least semi-annually, or more frequently during volatile periods.

Real-World Examples

• Marriott International: Uses zero-based budgeting to justify expenses and reduce unnecessary spending.
• Hilton Worldwide: Employs a data-driven approach, using revenue management tools and forecasting models to inform budgets.
• InterContinental Hotels Group (IHG): Applies a hybrid approach combining zero-based and incremental elements to prioritize spending based on ROI.

Stay on Top of Hotel Budgeting With an Operations Platform

Managing hotel operations and budgeting can be complex. Property management and operations platforms can streamline workflows, improve communication, and support data-driven decisions. Example capabilities to look for:

• Guest messaging and contactless communication
• Staff collaboration tools for internal coordination
• Housekeeping management and scheduling
• Integration with PMS and revenue management systems
• Mobile check-in, digital registration, and guest self-service features

Give guests the mobile-first experience they expect. Text the hotel, mobile check-in, digital registration cards, mobile keys, and branded digital guidebooks—all while your AI Assistant handles incoming calls when staff is helping other guests.

See why properties using HelloShift report 30% fewer guest complaints and 2x faster issue resolution. Book a personalized demo or start your free trial.