Overheads are the ongoing costs of running a business, regardless of how much you sell or services you provide. Rent, utilities, insurance, admin salaries and maintenance fees are all overheads. Unlike direct costs which vary with the number of guests or rooms you have, overheads are relatively fixed.
In hospitality, understanding and managing overheads is key to profitability. These costs can hurt your bottom line especially during slow periods when revenue goes down but overheads stay the same. By keeping an eye on these costs you can make informed decisions on pricing, staffing and overall business strategy.
Let’s say you’re a restaurant manager named Sarah. You notice your monthly electricity bill is high even during slow periods. You decide to invest in energy efficient lighting and appliances. This will cost you upfront but will reduce your overhead in the long run. You also implement a policy of turning off unnecessary equipment during off peak hours. By managing these expenses better Sarah can keep her menu prices competitive and still make a profit. By managing these costs actively, Sarah can weather the seasons and stay financially healthy.