Fixed Costs and Variable Costs in hotels

The terms Variable costs and fixed costs in hotel operation is used to distinguish between those costs that have  direct relationship to Hotel occupancy  and those that has no relation to occupancy and business .

Fixed Costs: Fixed costs are normally not effected by changes in occupancy or sales volume. They are said to have little direct relationship to the business volume because they do not change significantly when the number of sales increases or decreases.

The term fixed should never be taken to mean static or unchanging,but merely to indicate that any changes that may occur in such costs are related only indirectly or distantly to changes in volume.

Examples of Fixed costs are:

  • Land, Building Taxes to government.

  • Wages to employees.

  • Hotel employees health premium.

  • Out sourced services contracted for fixed amount in a month eg:- security services.

  • Yearly maintenance contract fees ( AMC ) for all equipments, machineries and Hotel Management software's.

  • Fixed internet, telephone plans.

  • Advertising cost.

  • Yearly external auditing cost.

  • Payroll.

  • Provision.

  • In house moves / satellite TV.

  • Music entertainment.

  • Reservation expenses.

  • Subscription - Newspaper, magazine etc.

  • Human resources.

  • Sales & marketing.

  • Interest on loan.

  • Other fixed charges etc.

Variable Costs: Variable costs are clearly related to hotel occupancy and business volume. As business volume or occupancy increases, variable costs will increase; as hotel occupancy decreases, variable costs should decrease as well. 

Examples of variable costs are: