Breakeven
Since the guestroom
is the primary source of revenue, it will be the unit of analysis. As highlighted in the table below, the hotel
will have to sell 13,220 rooms to break even in its first year of operation,
254 on a weekly basis and 37 rooms on a daily basis, at the average daily rate
of $140.00.
Table 7: Breakeven analysis
|
Number
of Guestrooms
|
100
|
|
|
Average
Rate
|
$
140.00
|
|
|
Variable
Costs Per Room
|
$
33.20
|
|
|
|
|
|
|
Fixed
Costs
|
Total
|
Fixed
Component
|
|
Rooms
|
824,000.00
|
494,400.00
|
|
Administrative
& General
|
302,000.00
|
211,400.00
|
|
Information
System
|
36,000.00
|
32,400.00
|
|
Security
|
36,000.00
|
28,800.00
|
|
Marketing
|
270,000.00
|
189,000.00
|
|
Property
Operations & Maintenance
|
198,000.00
|
138,600.00
|
|
Energy
Costs
|
137,000.00
|
123,300.00
|
|
Property
Tax
|
133,000.00
|
133,000.00
|
|
Insurance
|
61,000.00
|
61,000.00
|
|
|
|
|
|
TOTAL
|
$1,997,000.00
|
1,411,900.00
|
|
|
|
|
|
Number
of Rooms Required to Breakeven
|
13,220
|
|
|
Breakeven
rooms = (Fixed costs)/(Selling price-Variable cost)
=($1,411,900.00)/($140.00-$33.20)
=13,220 rooms
|
||
Looks like 36% occupancy is required to breakeven, which seems like a pretty good number. The reality of this kind of project, however, is that you have massive up front investment costs, so the breakeven analysis is a little bit flawed in this case. Really, it seems like payback analysis would be more appropriate, as in how long will it take to repay the cost to build (and carry the debt). The difference being that one is a balance sheet measure and the other is more of an income statement measure.
ReplyDeleteAfter a $1.4 million investment - you are reaching break even within the first year of running your venture. That's a pretty good pay back. I think during your high season you could expect to do better than the 36% occupancy, but you also have the counter. Maybe you could do something in your marketing plan to counter the slow season and reach break even much faster. Good work.
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