Cost Control Forecast Hospitality

Establishing an Activity Forecast

At the end of each year, establishing a forecast of activity for the coming year can be as imperative as it is uncertain. The process makes it possible to establish an activity forecast with eyes almost closed. The method dedicated to the hotel sector is established in three quick and concrete steps.

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A hotel forecast is divided into three parts:

The Top Line (Average Price, Occupancy Rate, Income Per Room)

The Bottom Line (Consumables, Social Security, Fixed Charges, Other Charges)

The End Line (Gross Operating Surplus)

To each establishment the joy of putting to music its forecast according to its operating account. Each hotelier determines his own lines of management of exploitation. Here, the large ensembles are determined.

Our focus is to easily find the right metrics in the right places and insert them in its own matrix.

Two approaches are commonly used to predict the future: the Top Down and Bottom Up approaches.

In Top Down, the reasoning is more like this:

Destination – City – Market – Hotel Establishment

With decisive statistics, we favour this most scientific method as soon as the choice is open to us.

On the basis of a critical volume of participants in the sector (10 participants from the same segment in relation to the market for example), the relevance of KPIs (Key Performance Indicators), and the history over several decades, the decision-making process is considerably facilitated.

The past has a high probability of heralding the future.

In Bottom Up, the reasoning is more like this :

Hotel Establishment – Market – City – Destination

If we have poor or even non-existent market information, or if the players collaborate little in collective intelligence, we resign ourselves to the Bottom Up strategy, whose extrapolation is more uncertain.

Through external observation of the prices and commercial strategies of competitors or those who are close to them, one can effortlessly deduce a price level and vaguely a rate of occupancy.

The Top Line: Performance Indicators

The three basic indicators are :

Occupancy rate (O.R.)

Average price (M.P.)

Income per room (RevPar)

The basis is the three strategic indicators.

In parallel, it is possible to refine your forecast via the number of rooms available, the number of rooms to rent, the PM HT and TTC, break down the turnover between accommodation, PDJ – F&B, extras…

But it is around the basic indicators that I advise you to gravitate. They are transverse to your entire sector, and the objective is to be able to compare yourself with them.

It is nowadays quite easy in France to have reliable Top Down information, based on market statistics.

🏙️ At the level of destinations (countries) and cities: by the Observatories.

🏨 At the neighborhood level: by the Markets Reports.

🛎️ At the level of direct competitors: by the Competitive Sets (CompSets).

It is possible to refer free of charge to INSEE statistics, but with three reservations:

The delay in returning the indicators (delay of one or even several months).

The reliability of the methodology: the sample of establishments is unstable from one year to the next, and the M.P. is not necessarily indicated.

The key indicator of the M.P. is not constantly reported.

These cold statistics allow for a quality compiled return of the tourism sector from one year to the next, without being the decisive tool for a reactive forecast from one year to the next.

Reliability of the methodology: The sample of institutions is unstable from year to year, and the M.P. is not necessarily reported.

The M.P. determinant indicator is not consistently reported.

These cold statistics allow for a quality compiled return of the tourism sector from one year to the next, without being the decisive tool for a reactive forecast from one year to the next.

My recommendation is to select private firms or tourism clusters/associations able to provide you with hot statistics on a daily basis.

At this stage, you are therefore called upon to compare the most representative samples of the market to which you belong: complete indicators, critical volume, appropriate segmentation.

In addition, the selection will be based on their methodology: punctuality of report delivery, reliability of collections. Thus the report will be as close as possible to your market.

If you have market information such as Observatory (city) or Markets (neighborhood, conurbation), you can already look forward to it. These statistics are generally free of charge, as they are financed by the tourist institutions that mandate them for your property.

If you can go as far as the comparison by a CompSet in most cases paying, I recommend you to invest in these reports customized to your establishment.

You will then have all the levels of observation, from the macro-market (the destination) to the micro-market (your competitors) through the intermediate market that is your neighborhood or town.

👉A lot of hotelkeepers asked me how to set up a good CompSet when I was working for MKG.

Some of them wanted, in the future, to move up-market. They were wondering about the relevance of comparing themselves to hotels in a higher category in their current market.

Their goal was to position themselves upwards by comparing themselves with better establishments than their own, before having made their move up-market.

A CompSet is a true mirror of your hotel. Select your most similar competitors in every respect (category, type, room volume, or even e-reputation).

The objective is to provide you with a benchmark to ensure that you can draw up a scientific and statistical activity forecast.

The objective is to stick to the reality of your future and your performance.

By the time, for example, you move up the range and all your improvements are delivered, you will be able to establish a brand new CompSet with your adapted high-end competitors.

👉Some hotelkeepers have also objected to me that CompSets are based on the past.

Why refer to the past performance of competitors when it is the future performance that is of interest?

Our answer is that the past is much more predictive than the future.

For metrics (excluding attacks), the volatility of the Paris market, with its complexities, multiple events and hazards, is estimated at 5% from one year to the next.

👉Some hotelkeepers believe that the Top Line of CompSets mixes oranges and carrots:

Average Net Price (especially with Expedia, wholesalers, Tour Operators) and Average Commissioned Price (especially with and most Online Travel Agencies).

The objection is well-founded, however the Average Price is always interesting to study in terms of annual and monthly variation (upward or downward trend). On the other hand, the estimated M.P. remains a market indicator, more than any other indicator.

It is the same for the Occupancy Rate which is not always restated in the same way according to the establishments (the methods of firm and pending reservations diverge, of withdrawal or addition of rooms under construction).

This scum makes the O.R. vary by a few points, but here again, an estimate exists in absolute value and in variation.

In synthesis, the CompSet is a slightly blurred photograph, which has the merit of drawing decisive contours for forecasting decisions.

A fragmented, crossed and parallel approach to reality is more instructive than no approach at all.

Case study

I am about to open a 4* hotel in the 20th district of Paris.

I wish to establish my business forecast over 5 years to provide to my bank and be able to base myself on a Competitive Set in order to reassure it and obtain my loan.

There is no equivalent to my offer yet in Belleville or Charonne. I opt for the option of two Competitive Sets that I could cross:

A first CompSet “Market” in which I list the demand pick up of the 20th district.

The report compiles the occupancy rates of the entire hotel market over the last five years.

This Market CompSet will provide a framework for my forecast Occupancy Rate (O.R.) management.

A second CompSet “Offer” in which I list the Average Prices (A.P.) of the 4 stars in a nearby district: 10, 11, 12, 19. over the last five years.

Thanks to this CompSet, I can be sure of visibility on my price policy and the evolutions of my M.P.

By cross-referencing these two CompSets reports, I combine the monitoring of my T.O and P.M. performance indicators, from which I will determine the monitoring of my Revenue per Room (RevPar).

The Bottom Line: Operating Expenses

In France, load metrics are statistically unexplored.

No firm reports the percentage weighting of fixed or variable social security charges for hotels, based on a reliable sample, except through spot audits. Personally, I find that this is where the Property Management System (P.M.S.) would offer added value and convenience.

Since we can’t use the Top Down method, we may require the Bottom Up method.

It is based on the compilation of the direct interrogation of your market (at least a dozen hotel employees ideally neighbors for a relevant sample, a few service providers with knowledge of the sector in the background).

The approach has the merit of being grass root, directly from Operations.

It has the disadvantage of being fragmented and erratic from one institution to another. Nevertheless, it is the only option at the moment.

The Bottom Line can be broken down as follows:

🥞 Consumable Purchases

Usual weight: Around 5% of the turnover.

Home products (Amenities, Spa…)

F&B products (Breakfast, Bar…)

Supplies and administrative support

Maintenance products

👷Social Charges

Usual weight: Around 30% of the turnover.

Gross salaries

Paid vacations

Bonuses, Incentives

Social security charges, URSAFF

Interim staff

🏢 Fixed Charges

Usual weight: Around 25% of the turnover.

These are the charges which, whatever your occupancy rate, will weigh on your operating account.

Rent (Usual weight : About 10% of the turnover)

Building maintenance (Elevator, Air conditioning, Heating, Various repairs)

Hardware Maintenance

Fee Management Software, Channel Manager, Website

Phone, router, web subscriptions…

Expert fees


Other Expenses (Variable, Tax, Financial)

Usual total weight: Around 20% of the turnover.

📈 Variable Loads

These are the expenses that impact your forecast based on your occupancy rate.

Energy (Water, electricity, gas, heating)


Ad hoc marketing (ads, P.R., community)

 Tax expenses


Visitor’s tax

Other Tax Expenses

💶 Financial expenses

Commissions on distribution intermediaries (OTAS, booking engine…)

Interest on loans

Bank commissions

The End Line: Gross Operating Surplus (GOES)

Usual weight : Around 25% of the turnover (30% = Champions !)

Your forecast is complete, you can pilot and correct your actions month after month.

You contain and account for your expenses, determined to reach the Top Line objectives based on your performance indicators.

The most important thing is to reach or even outperform the Top Line to reduce the weight of operating expenses.

Thanks to the forecast, you ensure visibility on your E.B.E. (Top Line & Bottom Line).

The E.B.E. on a monthly, quarterly and annual scale allows you to calculate the resource regularly drawn from the operating account.

The monthly, quarterly and annual E.B.E. makes it possible to regularly calculate the resource regularly drawn from the exploitation account.

It corresponds to the famous CASH FLOW of the establishment and will be reported in your intermediate management balance (I.M.B.).

The E.B.E is intended to maintain the production tool and to repay the equity and borrowed capital.

The E.B.E. is your ability, from your operations, to generate cash flow, whatever your financing policy or your depreciation allowance.

It isolates your operational performance and generates three K.P.I:

Profitability rate: E.B.E. / Turnover excluding VAT.

Gross rate of return: EBITDA / Capital employed.

Free Cash Flow: W.C.G. – Tax on operating income (in France, corporate tax 33%) + – Change in working capital requirements (WCR) – Investments.

In an upcoming article, we will discuss some techniques for “Benchmarking a Supplier or Service Provider effectively” 👋.

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