Room Revenue Analysis
Table A. Room Revenue Analysis – Month One.
|Month One results||Month One Variance Analysis|
|Budget||% of rooms rev.||CPOR (£)||Actual||% of rooms rev.||CPOR (£)||Value variance||% of rooms rev. variance||CPOR variance|
|Average Room Rate (£)||95.00||93.50||-1.50|
|Rooms Revenue £||220,210||233,563||13,353|
|Payroll Rooms Division (£)|
|Permanent staff – Salaries & wages||29,140||13.23%||30,015||12.85%||875||-0.38%|
|Casual staff wages||1,000||0.45%||1,200||0.51%||200||0.06%|
|Overtime pay – permanent staff||1,000||0.45%||1,210||0.52%||210||0.06%|
|Operating Expenses (£)|
|Staff Uniform & Dry Cleaning||1,050||0.45||1,500||0.60||450||0.15|
|Total operating expenses||11,781||5.08||13,244||5.30||1,463||0.22|
|Rooms commission (£)||4,200||1.91%||4,895||2.10%||695||0.19%|
|Total costs (£)||51,121||55,204||4,083|
|Net Profit (£)||169,089||76.79%||178,359||76.36%||9,270||-0.42%|
Purpose Statement and Utilised Tools
The purpose of the present report is to analyse the performance of Birmingham Tower Hotel using appropriate tools and provide recommendations for improvement of the current performance. The report assesses actual expenses and revenues using against the budgeted expenses and revenues using the percentage of rooms revenue ratio and cost per occupied room (CPOR) ratio. The report also provides variance analysis in the values and ratios. The percentage of rooms revenue helps to evaluate the adequacy of the cost of revenue by category. CPOR determines the efficiency of the property per sold room. Variance analysis is crucial for identifying if the managerial decisions were adequate to adjust actual against budgeted expenses. Detailed revenue analysis is provided in Table A on page 3 of the present report.
Outline of Crucial Findings
In Month One, Birmingham Tower Hotel managed to improve rooms revenue, net profit, and revenue per available room in comparison with the budgeted values. The effect was achieved by increasing the room occupancy from 77.27 per cent to 83.27 per cent. However, there are several areas of concern revealed by the ration analysis that should be noticed. First, the average room rate requires further analysis, as it decreased by £1.5.
Second, even though the variance in total payroll is favourable, it appears that management salaries were disproportionate with the changes in revenues. Third, total operating expenses were not adjusted properly considering the changes in occupancy, which may be a sign of poor control over variable costs. Finally, rooms commission was disproportionately high in comparison with the budgeted values. Poor performance in the mentioned areas led to decreased net profit performance in terms of the percentage of total sales.
Strategies for Improvement
Even though Birmingham Tower Hotel had improved performance in occupancy rates in comparison with the budgeted values in Month One, there may still be areas of improvement to reach a near 100% occupancy rate. The strategies for improvement in occupancy are listed below:
- The target audience needs to be analysed by surveying guests to develop the best strategies for catering and promotion;
- Even though it may negatively impact the average revenue per room, the hotel should seek to partner with corporations and local real estate agents;
- The hotel may benefit from creating a system of discounts for longer stay and loyalty to encourage the guests to stay longer and more often;
- The hotel management should invest in marketing the area around the hotel to attract tourists to the area in general;
- The marketing team of the hotel needs to engage in building the online community to let the potential customers get the feel of the hotel and ask their questions with ease.
According to the analysis, Birmingham Tower Hotel increased its revenues in Month One in comparison with the budgeted amounts. However, the primary reason for the increase in revenues was the rise in occupancy rates, while the average room rate decreased by £1.5. While increasing the occupancy rate remains the central strategy for increasing revenues, there are some other strategies that should be considered:
- The reasons for decreased average room rate should be analysed and addressed to ensure efficiency;
- The hotel should analyse its audience to provide a unique experience for its guests;
- The marketing team should consistently collect feedback from guests and create new services that may be desired by the customers;
- The hotel management needs to encourage customers to make a direct booking, as using online booking websites is associated with increased commission.
Reduction of Costs
The analysis revealed that the most desirable area of improvement is the reduction of costs. All the problems with disproportionate growth of costs were outlined earlier in the present report. Thus, all the strategies for reducing the costs will be aimed at addressing these issues:
- It may be considered desirable to adjust the variable part of managerial salaries to ensure that the associated costs are proportional to the changes in revenue;
- The hotel needs to revisit its policy on staff uniform and dry-cleaning spending, as it is currently not tied to the revenue amount;
- The hotel should promote electronic document flow to reduce paper costs;
- Encouragement to reuse towels should be placed in all rooms to decrease the costs associated with guest supplies;
- Birmingham Tower Hotel needs to renegotiate its deals with booking services and encourage direct booking by offering discounts.
While all the strategies provided above are viable for decreasing costs, the management team should make the adjustments carefully to ensure that employee and customer satisfaction is not affected.
Budget for Month Two
Table B. Projected Budget for Month Two.
|Month One Actual Performance||Month Two Budgeted Amounts|
|Average Room Rate (£)||93.50||95.00|
|Rooms Revenue £||233,563||240,160|
|Payroll Rooms Division (£)|
|Permanent staff – Salaries & wages||30,015||29,865|
|Casual staff wages||1,200||1,194|
|Overtime pay – permanent staff||1,210||1,204|
|Operating Expenses (£)|
|Staff Uniform & Dry Cleaning||1,500||1,374|
|Total operating expenses||13,244||12,486|
|Rooms commission (£)||4,895||4,871|
|Total costs (£)||55,204||54,236|
|Net Profit (£)||178,359||185,924|