How much to charge, can be the make or break decision between success and failure for all businesses whether large or small. Charge too much and your customer will go elsewhere, too little and you enter the slippery slope to becoming a busy fool.
Many look to the existing markets, what does everyone else charge, this is a good starting point, however you are not comparing like for like, your business will not be the same.
Some look at how to offer their services cheaper, and if you want your efforts to be recognised for the white labeled unbranded tin of baked beans, then this is the path for you.
Without writing a book on the subject, as this post was intended as a quick read, successful businesses will look first at the bottom line.
We run a Self Catering Business for guests from our family farm and have been building our business since 2006, prior to this I worked in team development and had responsibility for securing project funding and programme delivery. This experience became invaluable and gave me the tools to apply ‘Full Cost Recovery’ modelling to our own business. Now just a farmer, finding a way to do what we love, so we never have to work again.
Full Cost Recovery:
- What do you provide?
- How much does what you provide cost?
Whilst this might sound simple the devil really is in the detail:
What do we provide? A farm Stay from 3 properties each sleeping 6 people, length of stay 1 week, weekend midweek bookings, quality provision, typically aimed at families, quiet rural location, well placed for Stratford upon Avon, Warwick Castle. Each property also has a hot tub which can be added to each stay.
What does our provision cost? here you may have to make some assumptions for simplicity. We worked on a typical 1 week stay for 6 people and then considered our costs:
- annual advertising or % commission from 3rd party
- Front end booking admin (Time)
- Following COVID-19 PPE & Cleaning Materials
- 3 sets of bed linen & towels to wash (Time)
- Cleaning cost per changeover
- Time spent with guests during their stay, meet & greet, talking through what is available locally where are the sheep, can we feed the chickens will all have a cost and if ignored can impact significantly on your bottom line.
Fixed Costs
- Water
- Heating: oil, Biomass wood pellet, Gas
- Electricity
- Mortgage/rent/loan
- Salary
- Pension contributions
- NI contributions
- Accountancy fees
- Business Rates
- Insurance
- Web design, SEO and annual site fees
- Telephone including mobile
- Bank charges
Each of these lists are not definitive, however, will kick start the process of costing out your service.
Variables
3 properties X 52 weeks in the year, but how many actual weeks even at 80% occupancy this straight away reduces your opportunity to 41 weeks out of the 52. From our own experience, 80% occupancy will be hard to achieve and should not be a 1st-year expectation. Time spent on getting this right, however, will give you a true cost.
Your fixed costs can then be calculated by taking the annual cost then dividing by the number of weeks available let us work on a 55% occupancy for this example:
Annual water bill £506
52 weeks X 55% = 28.6 weeks X 3 properties = 85.8weeks (we live on site so make the assumption that our own water use is a true cost to the business)
So the cost of water for a 1 week stay is £506/85.8 =£5.89
A spreadsheet will allow you to play with these figures and adjust them as your business grows or costs change.
Hidden Costs
If you know your business well, and you should do, there should really be no hidden costs, ‘Buy 2 nights get the third for free’ does not fool me and nor should you think your customer will buy it either. You may choose to offer something that does not make a profit but that is very different. from a box of 100 free keyrings that cost your company £65+vat @ £13 in real terms is £0.78 per keyring.
Critically don’t forget Wear and Tear costs, these are not unknown. how many times can a bottom sheet be used and washed and how many times can this sheet be used before a guest gets fake tan on the sheet rendering it to only be used in the workshop?
What is the realistic lifespan of a fridge before the door shelf gets broken beyond repair? In our experience this can be 3 years or a week.
Since COVID-19 Our costs for chemicals, PPE and Time have all increased, this cost is not hidden 2 cleaning staff will use 3 pairs of gloves, 1 face mask each per property changeover and use £worth of Chemical per clean.
This post was written to act as a guide in calculating the true cost behind hospitality, we know that many businesses are struggling right now, and it would be easy to lower prices as a short term fix, this however tempting is not sustainable and will not build in the margins to allow for future growth.
If however you read this article and fancy staying on a Farm even if only to escape for a little while then the following link should help you: Accommodation Options
See how our business is Growing its way through the other side of COVID-19 and the safeguarding measures we have put in for both Guests and our Staff Team: COVID-19
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