Understanding the Main Operating Costs of Your New Bed and Breakfast
Like with any other business, understanding the bottom line of your new bed and breakfast will help you to understand whether you are making a loss or profit from it and adjust your business practices accordingly. However, the catch is that not many new B&B owners really understand the top line. It is therefore hard to guess as to what their bottom line is.
Operating expenses for B&Bs
Your time as a B&B owner will be well spent trying to understand what your expenses are. All operating expenses for B&Bs can be broadly categorized as either variable or fixed costs.
- Fixed costs
These are the costs that don’t change. These costs are not dependent on any changes in the B&B such as the number of rooms rented or guests staying at the B&B. These costs include:
- Mortgage payments
- Taxes
- Insurance
- Utilities
- Telephone bills
- Web hosting bills and many others
Compared to many other businesses, B&Bs are considered high fixed cost businesses. (tweet this) Therefore in order for the B& B to survive, it must have revenue that can cover the fixed costs.
- Variable costs
These are costs that change depending on the revenue earned by the B&B. They include expenses on things like:
- Food
- Cleaning
- Supplies e.g. soap, shampoo, detergent, etc.
The more guests a B&B has the higher their variable costs will be.
Importance of Understanding Your Expenses
While understanding the financial part of running a B&B may seem boring to you, it is actually quite important. It will make it easy for you to see exactly how much profit you’ll make for any number of guests visiting in a given period.
For example:
If the fixed costs (i.e. mortgage, taxes, insurance, utilities, phone and internet, online listings, etc.) come to a total of $5000, then you will have to get at least $5000 in revenue from your guest rooms before you can begin to cover your variable costs.
Next, you will need to consider your variable costs. If for example food costs $20 per guest, supplies $5 per guest and cleaning is $10 per guest then your total variable cost per guest would be $35.
When you add your fixed expenses to your variable expenses per guest you get a total of $5035. This means that if you have revenue of over $5035 per month, you will have made a profit.
Main operating costs
Now that you have understood how your expenses affect your profits and your targets, it is time to understand the main operating costs for your new B&B. Understanding these costs will help you identify key areas where you can cut back on expenses and increase your profit margins without compromising the quality of service you offer to your guests.
Labor
If you’re running a B&B that employs staff other than yourself you ought to know that labor in the service industry takes up 47% of the operating costs.
This is often one of the toughest elements to deal with when running a B&B. You want to offer your guests a quality experience. You therefore don’t want to be caught short-staffed and have disgruntled guests who have to wait for a long time to get service. However, you also don’t want to waste money paying staff to sit around because they are being underutilized. You have to find a way of striking that elusive balance.
You can reduce labor related costs through optimal labor scheduling. (tweet this) This means that you will have to learn how to forecast demand for guest rooms and determine the level of staff you need for any given period.
Being able to predict the number of guests expected in a given period will help you determine the areas of staffing that will be most affected by a given number of guests staying at the hotel. For example, during peak seasons you will need a larger number of housekeeping staff as well as restaurant staff.
The demand for the rooms is not the only factor to consider. You also need to consider factors such as the segments in which the demand is coming from. For example a higher paying guest would prefer to stay in a suite that is probably larger and more elaborately furnished than other rooms. Such a room would take more time to clean. You would therefore need extra housekeeping staff in order to complete cleaning of rooms in good time.
Utilities
According to EnergyStar.gov hotels and inns spend approximately 6% of their operational budget on utilities. Energy consumption in B&Bs is attributed to lighting, heating and use of other electronics.
According to a study carried out by EnergyStar.gov, hotels can reduce their costs significantly by simply reducing the energy consumed by 10%.You can do this for your B&B by:
- Carrying out an energy audit of your B&B. This doesn’t have to cost a lot. In fact, there are many organizations that offer energy audits at no fee. These audits help you to determine exactly how energy is being consumed and identify areas where you can save on costs.
- Swap your thermostat for night and occupancy sensor thermostat. These enable you to only heat those rooms that are occupied and therefore reduce costs of heating.
- Ensure that your insulation is intact to prevent heat losses.
Property maintenance costs
Maintenance costs are all those expenses that are neither food nor cleaning supplies related costs. They include all the expenses related to activities that are required to ensure that the B&B facility is able to continue running. Maintenance costs for a B&B property are hard to classify. They are neither variable costs nor fixed costs. For example, wear and tear on a property that is busy is much higher; however, wear and tear will still occur even when guests are few and far between.
One way of saving money on maintenance is to ensure that it is carried out regularly. Deferring maintenance for too long will only increase the amount of money you have to spend on it. For example, you should ensure that the filters in your HVAC system are replaced regularly. An old, damaged or clogged filter can reduce the efficiency of the system by 10%. This will result in an increase in your expenses for cooling and heating. It also costs more to fix a system that has been damaged due to overcompensation.
Marketing Costs
Marketing is a necessary expense when it comes to a B&B. You need to get word out about your existence so as to attract guests to your establishment. Marketing can take many forms including, social media marketing, online ads, road signs, ads in newspapers or radio and many more.
One way of reducing the costs of marketing is by taking advantage of free online marketing opportunities. Use social media to engage with your target audience. Create a blog to write about fun things about your B&B, its surroundings and things to do while staying there. You can also encourage guests to leave comments or write reviews on websites such as Trip Advisor so as to encourage other guests to visit your B&B when they are in the area.
These are the main costs associated with running a B&B. Understanding them will help you reduce your operating expenses. Reduced expenses and increased productivity can only result in improved profit margins.
Are you a B&B owner? How do you ensure that your B&B remains profitable? We would be glad to hear that in the comments section below!
Image: Wonderlane
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