Cost Analysis And Marketing Proposal For Increased Hotel Occupancy


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The objective of this analysis is to highlight the various cost drivers and differentiate them in accordance with their underlying behaviour.

  • Housekeeping Staff – It is essential to note that there are four full time employees along with 6 casual staff. For the four full time, the cost would be categorised as fixed costs since every week, they would serve on 5 days. With regards to the casual staff, the costs would be variable to the extent that it is driven by the occupancy level of the hotel. However, it is noteworthy that every incremental customer may not have an impact on the housekeeping staff as it has features of both fixed and variable costs. But the occupancy is the main diver of this cost as the number of staff required tend to be proportional to the guests present.
  • Electricity Expenses: Electricity cost is also a function of the occupancy rate and thus would be variable for that extent. However, unless a given threshold of occupancy is not breached, the electricity cost would remain constant. Also, the electricity expense does not seem to be impacted by the individual usage of a particular customer.
  • Water Expenses: Water expenses are also a function of the occupancy rate and thus would be variable for that extent. However, unless a given threshold of occupancy is not breached, the water expenses would remain constant. Also, the water expense does not seem to be impacted by the individual usage of a particular customer.
  • Internet – It is apparent that irrespective of the occupancy rate, the daily internet expense remains the same i.e. $ 15. Hence, it would be considered a fixed cost which does not alter with the number of guests or their individual usage.
  • Rent for the premises – It is apparent that irrespective of the occupancy rate, the daily rent expense remains the same i.e. $ 80. This is on expected lines considering the rent for the premises would need to be paid irrespective whether occupied or not.
  • Advertisement – Currently, the advertisement expense on a daily basis remains the same and does not alter. This implies that it would be categorised as a fixed cost only.
  • Insurance – The daily insurance cost is $ 8 which remains fixed irrespective of the occupancy and hence would be classified as a fixed cost.
  • Average Laundry expenses – These are linked with the occupancy rate since as there is an increase in the occupancy rate, these expenses also tend to change. Hence, these would be categorised as variable cost.
  • Netflix Subscription – The daily Netflix subscription cost is $3 which remains the same irrespective of the occupancy rate. This is because subscription would be taken in advance and the cost is not dependent on whether the guest is available or not.

From the above discussion, the various cost drivers and their nature is as captured in the tabular format indicated below.

Variable cost drivers

Fixed Cost Drivers

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Housekeeping (Casual Staff)

Housekeeping (Full Time Staff)



Water Expenses

Rent for the Premises

Laundry Expenses



Netflix Subscription


The objective of this task is to highlight potential ideas where the revenue could be maximised for the hotel while the cost can simultaneously been reduced. However, based on the analysis of the data given it is apparent that there are two major sources in which the overall profitability of the operations can be improved. One is through the improvement of revenues which typically would require betterment of occupancy rates especially on weekdays along with charging extra on weekends. Another source of increasing profits is by lowering the housekeeping costs which is the major cost. Some of these recommendations in this regards are highlighted below.

  • One strategy that can enable the hotel to enhance revenue is increase a congestion surcharge on weekends to all consumers. This surcharge should be nominal only so that it does not act as a deterrent and hence does not impact the booking. Additionally, in order to maximise revenues, this congestion surcharge can be made variable based on the booking. For instance, for the first 50% bookings on weekend ensure that there is no surcharge and then this surcharge can incrementally increase as the bookings tend to enhance. This would provide incentive for those who would tend to make reservations early and simultaneously allow the hotel to derive incremental reveue from those having to make reservations in emergencies. Therefore, this would lead to incremental revenue with no extra costs and hence provide a boost to the profitability of the business.
  • For reducing the cost, one particular measure that would be useful would be to cut down on the casual staff especially on Wednesday and Thursday where currently the staff costs incurred is the case as on weekends even though the occupancy level is only 75%. Hence, it makes sense for the hotel to have only 5 causal staff on these two days instead of the 6 currently working which would enable cutting down of the operating expenses and thereby provide a kick to the overall profits generated.
  • Another way in which the hotel can potentially rationalise cost is through the house keeping expense rationalisation. It is currently witnessed that the cost associated with casual staff is 50% higher than that associated with full time employees. Further, considering the current demand which is quite robust, the hotel can easily shift to 6 -7 full time employees and instead cut down on the casual employees. Also, the number of casual employees can be increased for weekends when the occupancy rates are higher. In this tactic, the week offs that are provided to the full time staff can be rotated in weekdays so that on weekend the full strength of staff if available. This strategy would definitely enable the hotel in lowering the costs without hurting the revenues and thereby lead to higher profits being generated.
  • Further, in order to boast profitability, discounts should be given but these should be limited only to Monday and Tuesday. Also, bulk deals should be encouraged with hefty discount. Free complementary services such as laundry may be added so as to attract the guests. This is because on these two days the occupancy rates are quite poor. If there is any significant improvement in the occupancy through this discount, then despite the increase in variable cost, eventually the profits would go up.


The marketing proposal is that the occupancy gap seen between weekdays and weekend can be bridged by giving a flat discount of 20% on the booking price.

In order to evaluate this proposal, it would be essential that for the days i.e. Monday to Thursday, the price of the booking would be cut by 20% so that the occupancy is increased to 100%. However, it is essential to note that the variables costs would also be impacted by this including the staff requirement as the total guests who will stay in the hotel on weekdays would increase leading to higher costs.

The revised projections are highlighted below.

The various changes made in order to derive the above results are highlighted below.

  • The booking price has been decreased by 20% for Monday to Thursday and hence the occupancy gap has been closed as reflected above since occupancy rate on all seven days is 100%. This clears augers well for the hotel and provides a boost to the overall revenues.
  • Variable expenses such as electricity, water, laundry expenses have been increased and made equal to the weekend levels when 100% occupancy is witnessed.
  • Further, incremental staff would also be required on Monday and Tuesday since the full time staff are on leave and hence 2 additional casual staff members have been hired for these two days only. The staff costs for the other days remain un-impacted. Full time staff has not been hired despite lower costs as then these full time staff would have to be given work five days a week which would result in incremental costs and hence lower the overall profits.

The impact of the marketing proposal can be understood by comparing the profit figure for Monday to Thursday in the current state with that in the original data when the occupancy gap still persists.


Original Profit ($)

Revised Profit ($)













Total Profits



Based on the above profit matrix, it is apparent that significant improvement has been observed for Monday and Tuesday where there is more than 50% drop in losses. This was on expected lines considering the jump in occupancy to 100% from the existing 50%. However, the impact on Wednesday and Thursday under the revised scheme is negative since the increase in revenue is marginal whereas the increase in variable costs is more significant, thus leading to the drop in profits. However, on the cumulative basis, it can be observed that is a decrease in the losses by about 50% owing to the proposal suggested. Hence, the marketing proposal should be accepted.