Have you got what it takes to run your own hospitality business? In the second video in a 12-part Business Masterclass series, we step behind the scenes of James’s Essex-based hotel to talk about room rates, running costs and more.
Using the price he charges guests to spend a night at his 35-room hotel as an example, he explores every element that takes a percentage of revenue – from maintenance to marketing. In fact, many of the costs that need to be covered before James’s hotel makes a profit are applicable to all businesses, such as staffing, stock, taxation and utilities.
Understand your running costs and create extra revenue
It’s essential to keep track of running costs, James notes, especially when some can increase significantly over a short period of time. For example, almost four in 10 (39%) UK businesses reported that the price of goods and services was higher in January 2023 compared to December 2022 [1].
James explains how understanding your costs can empower you to manage them more efficiently, perhaps by looking for ways to cut your small business costs year-round. Or, you might look at how you can generate more revenue while maintaining the same costs. James took the opportunity to create additional revenue by hosting functions, events and conferences at his hotel. Drawing on his personal experience, James also suggests looking at economies of scale, by adding extra rooms that are serviced by just a few more staff members.
“It’s all about driving you from a 10% net profit to a 20% net profit,” he says, “which is just a much better place to be as it allows you to invest in your business.” That’s where it’s useful to use a formula to monitor your profit margin in order to identify and scale the most lucrative areas of your business.
Finally, you’ll also want to look at your running costs when setting a pricing strategy that suits your needs and, on that subject, James leaves us with one piece of advice. “You really have two choices, you can either compete on price or you can compete on experience. As an SME owner, it’s always better to compete on experience as you get a much more loyal customer who always wants to come back to you, who shouts about you and recommends you. Then you’ll have a much better business.”
Find more of James Sinclair’s Business Class videos here.
Sources
[1] Money, The effect of cost of living on UK business statistics, 2023
