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okay I want to teach you some basics of revenue management for hotels the first thing you need to know in regards to revenue management is how much your room costs if you're going to put someone in there and you don't charge them enough you'll end up losing money and you won't know until the end of the year so let's make up a fake hotel let's go ahead and call this one the wagon wheel in to make math easy it has 100 rooms the rooms range from $50 to $100 now typically in revenue management we talk about the cost of a row we talk about the cost of the most inexpensive room it's usually the basic room maybe it has two queen beds and maybe it's just a king and it's the same price and that's usually what you have the most of so we talk about prices of rooms we know if there are suites or rooms with jacuzzis in them then they're going to cost more okay the cost there are two different types of costs there's a type of cost that changes based on the number of rows so let's say that this is $20 it just makes easy math this is the practical cost that's not what it's called technically it's called the incremental I'm not so worried that everybody knows the terminology but you need to understand the idea this is the cost to put someone in a room in the lodging industry we say heads in beds which is catchy okay so you already paid in for someone to be at the front desk you already got the lights on for the sign it's 11 o'clock at night someone comes in and says look you've got a empty room nobody's going to come by it I've got ten bucks for ya $10 is $10 more than you had ad that rooms just going to sit empty the most expensive cost to a hotel is rooms that sit empty because they're already there and once the night passes then you can't resell that room because that time has gone away so is it a good idea to go ahead and put an additional ten dollars in your pocket this is what you need to consider for the incremental when you put someone in a room what cost are they going to use up what is it going to cost you well let me put it this way they're going to walk in and turn on the light so you get electricity they're gonna watch the TV there's some more electricity they're going to turn on the faucet to brush their teeth each person you're probably typically going to two to three people on average each one's going to flush the toilet so many times so that's water I suspect each person will take a shower bath once a day they're going to turn on the heater maybe the air conditioning for the summer something else it gets a little technical but there also is wear and tear how can you figure that um for instance let's say you buy a bed uh the math doesn't work out but I just want to make it easy let's say you buy a bed it cost $1,000 and after a thousand nights of use then it's all used up squished up and you got to go buy another one that means every time someone sleeps on it each night that it slept on it uses up a dollar a dollar value so you've got your bed people can only walk on the carpet so many times you're going to have to get some new carpet they might spill something on it the more often you put someone in there you've got that um even a toilet seat it can only be set on so many times so it's probably not a huge number but there it is wear and tear and things need to be replaced this is the big one there are two big ones one of the is breakfast the vast majority of hotels are going to do breakfast and by the time you break it down even if it's a fairly basic continental breakfast it adds up to dollars per person so if you're taking that person's $10 bill you've got a feed and breakfast the other biggie probably the biggest one is housekeeping and then I'm going to go ahead and separate laundry it is possible to figure out how much it costs to wash a pillowcase to wash sheets to wash different sizes of towels and when you add that up based on the average number of people in a room then it can get expensive fast so I already said that we're going to assume for our hotel that it costs $20 to put someone in a room so how how would we figure this you're going to get the only place you're going to get the cost of utilities and housekeeping we got the housekeeping goods because they're going to be using toilet cleaner and glass cleaner for the mirrors so that gets used up so we keeping Goods and personnel there are people that clean the rooms then you get that cost and you divide it by the total number of rooms sold for whatever time period it's really good I really like to do it for a year but you can even do it by month it would even be more accurate but I'm looking for a bird's eye view so I know it costs me 20 bucks to put someone in so if somebody comes to the desk and they say hey that rooms sitting empty the day is almost over here's 20 bucks let us said we're not going to make any money we're just going to be spinning our wheels inside no that's not a good deal okay for the wagon wheel and we're going to say that these costs we go and check all of our receipts from the bills we paid is two hundred thousand dollars divided by the ten thousand rooms that we sold and that tells us when we celebrate there's a twenty dollar incremental cost they say okay well that's how much it costs to put someone in a room so we're done that is the cost that you're going to use all year long it's practical it's a daily from one minute to the net from one day to the next but then when you get to the end of a mantra end of the year whenever you're figuring is there's one that's actually more important it's just not practical that you can use everyday there are costs that are incurred whether you sell one room or hundred rooms and I'm thinking for a specific day okay now this is this is a spoiler alert but um we're going to call this $40 again I'm just looking for easy math the these are necessarily real numbers that work out this is the actual cost now that's not what it's called technically it's burdened see if I can spell it this is the burden cost it's the real total cost and you say well what else are we leaving out I alluded to earlier but check this out we've got the electricity for the hotel sign if you have no one in your room that light's still on if you have one room sold that lights so on if you have a hundred sold so that's already going to be a cost this is the big one your Night Auditor that's the person that stays overnight for most hotels are 24 hours at least have someone at the front in case there's an emergency here just to make sure everyone's safe on property you got your front desk staff when they are there throughout the day and they're taking phone calls in there checking guests then you're paying them hourly wage and they are there whether they sitting there sitting there twiddling their thumbs or if they're actually working and selling a row so you want to sell rooms to help offset that the manager is going to get their salary even things like here comes breakfast again breakfast agenda that person is going to be there and we serve a breakfast and getting X dollar X number of dollars an hour so if you sell another room it's going to help offset that cost you've got insurance you got to pay that no matter what the pool someone's going to come every morning they're going to use the same amount of chemicals in the little tester and they're going to make sure it's at the correct levels and that purse you get you're paying person to come and do that whether there's one room soul or all 100 rooms sold he had to repair the parking lot and that is a cost that's incurred whether people are in rooms or not let's do that's pretty good list you get the idea there so the first thing you need to know how you can figure how you can figure this as the burdened cost is if you look at all your expenses I'm saying even if you bought new carpet for your hotel things that came up that maybe you were a little strange even if you if you had to treat six rooms for bedbugs take all of your expenses and divide by the total number of rooms sold for whatever time period you're looking for okay well you know where I'm going here but let's say you look at all of your expenses for the hotel for the entire year and it's $400,000 and again you know you sold ten thousand roofs we figure it's $40 this is important to know because if your rooms typically are running fifty to a hundred dollars you need to know when you're getting down to that fifty that if you need to keep housekeepers employed and give them steady work so that you don't lose them if you need to keep other things going that you can dip to the fifty maybe even to the 45 maybe if it's just a short span of time to $40 just to keep heads and vents you also can can know that if someone walks up to your desk and they say look that room sitting up date we're just looking for the first hotel to give us a deal you know that you could sell it for $30 in it it's going to help it's going to be more than this 20 you'll be up ten bucks that $10 will help offset this so this is the one you want to be using all day every day but also know in the back of your mind if you're not consistently getting over this then you're going to be having great sales and selling rooms for $30 after you pay fees to everybody who helps you get that room and all your marketing costs and then you're going to be out of business and a lot of times this happens in hotels don't know to the end of the year so I'm going to be posting some other videos you can check me out at branson mancom you can hit me up on my email I'm going to put it on here for you and you can ask me whatever you like and I'll be happy to help you out ask at branson mancom and i'll be having some more videos to show you some more about revenue management and some tricks I've learned I can show you how to bring in more revenue while selling fewer rooms which means the profit just goes through the roof so stay tuned for that and thanks so much for checking out my video