One question I'm often asked is if I miss working in hotels versus working with hotels. My typical response is, “Yes! Very much, but I don’t miss budget season, that’s for sure.” It’s been more than five years since my last budget season and I still remember the time and energy investment like it was yesterday.
Planning for 2024 will likely be the most “normal” budget season since the onset of the pandemic in 2020, so it’s a prime opportunity to adjust our processes for this critical work. Now the industry is firmly rooted in the recovery era, there are new obstacles to overcome when it comes to planning, not the least of which are staffing changes. Over the last several years, there’s been a great deal of transition in commercial roles, and many organizations are facing budget season with team members who are new to hospitality, new to their roles, newly promoted, new to market, or a combination thereof.
Another key shift will be to benchmark and plan for performance versus the prior year, instead of using 2019 as a baseline. There have been many changes to the way guests book, when and what they book, and through which channels. Comparing or judging performance against 2019 no longer is an effective way to understand if a hotel is successful or may need to adjust its strategies for the upcoming year.
One thing that hasn’t changed since the pre-pandemic budget seasons is the lack of time; in fact, it’s likely gotten worse for most people in most organizations. There’s now more to do, more to manage, and more to keep up with than ever before — and committing time to outdated, inefficient, and ineffective processes for budget planning doesn’t make sense.
The Old Way Budget season rolls around. Where do you start? Digging up last year’s marketing plan and budget files is typically the first task. Often, that’s followed by marveling at the time invested in putting it together while also accepting all that hard work didn’t mean much after January 1.
Four of the most common challenges with legacy budget season practices are:
- Seemingly endless revisions
- Key stakeholders’ unclear early revisions expectations regarding growth
- Lack of attention to alignment with spending and resource until much later in the process
- Expected growth is generalized instead of specific to actual existing or future opportunities
Take a few minutes to think about your last budget season experience and apply the “Start, Stop, Keep Doing” method. What will you start doing? Stop doing? Keep doing? This is a great collaborative exercise, too. Use it with your team before you embark on the next stage of your budget planning process, or at the beginning, if you haven’t started yet.
THE EVOLUTION
The number of changes in our industry over the last several years would fill pages. These three are most important to budget planning, especially for 2024:
BETTER GRASP OF OPPORTUNITIES:
Commercial strategy teams now have access to data insights and resources that help them proactively identify actual opportunities that exist for their hotel or portfolio of hotels and understand their projected future performance. This shift toward proactively identifying an opportunity’s value and impact gives the team the best chance to build a realistically achievable budget. Success- ful commercial strategy teams can no longer plan for a random change in percentage growth overall, or by segment. It’s critical that true opportunities to improve revenue performance and profitability drive the planning process.
MORE SPECIFIC COMPARISONS:
Another important addition to the toolbox for budget season is the ability to compare industry-wide performance trends in the U.S. to your hotel’s or market’s performance trends. Comparing to national averages isn’t ideal, so it’s best to use comparisons that include the market, submarket, market type, or hotel type. It’s more effective to compare a midscale hotel in a rural area to other midscale hotels in rural areas.
SHIFTING PERFORMANCE TRENDS:
These are also critical to take into account for 2024 and beyond. Three to focus on are:
LOYALTY DEMAND SHARES:
In 2022, loyalty demand share across the U.S. hit 49.6%, and is 52.1% through Q1 2023. This means more than half the total number of guests have a loyalty membership number associated with their reservation. These guests primarily book through brand.com, and the percentage of bookings coming through brand.com has grown from 21.2% in 2019 to 24.1% in 2022. The trend continues upward, with brand.com coming in at 26.3% contribution through Q1 2023.
AVERAGE LENGTH OF STAY:
This measure has increased over the last two years, growing from 1.9 nights to 2.1 nights at the end of 2022, with the trendcontinuing into the first quarter of 2023. This increase may not seem significant; however, the lengthening of stays impacts everything from staffing to cost of acquisition, as there are fewer bookings driving more room nights resulting in fewer check-ins and checkouts. Of course, the hope is that guests are also spending more while at the hotel in restaurants, spas, and other outlets.
DAY OF WEEK PATTERNS:
Along with a longer length of stay, you should also consider a shift in day of week booking patterns as you plan ahead. Thursdays through Sundays are now the highest performing days of the week. While there will be some leveling out through 2023, this shift is likely permanent as travelers continue to enjoy the flexibility of work from anywhere or hybrid positions. The increase in RevPAR performance Thursday through Sunday has been, and is expected to be, driven by increases in average daily rate (ADR), although occupancy has also rebounded in the last several months over these days of the week compared to 2019 and year-over-year.
The Way Forward
Thinking about the earlier exercise and our “Start, Stop, Keep” model, here are ways to make your 2024 budget season the best yet.
What else would you add to these lists? Fill in the blank spots with things that are specific to your property.
Facing the Challenge of Change Management
Change is hard, so it’s also important to plan for challenges that will arise as you put new processes in place. The benefit will be worth it, as your budget plan will become more achievable and realistic. It will also drive innovation by encouraging commercial strategy teams and organizations to think outside the box and explore new ideas and solutions. These changes will also lead to increased productivity and profitability by optimizing processes and identifying more efficient ways of pursuing opportunities.
