Variable cost is a business expense that varies with production or sales. In hospitality, these costs change with how busy your business is. They are things like food ingredients, housekeeping supplies and hourly wages. Unlike fixed costs which are the same regardless of business volume, variable costs go up or down with the number of customers served or rooms occupied.
Knowing your variable costs is key for hospitality managers. It helps you make informed decisions on pricing, staffing and inventory. By tracking these costs you can adjust your operations to stay profitable in both busy and slow periods. For example, you might reduce staff hours during off-peak times to lower labour costs or adjust your menu offerings based on the cost of ingredients.
Let’s say you run a busy restaurant. During the summer season, you notice your food costs (a variable cost) have gone up. You review your records and see you are using more expensive ingredients because of higher customer demand. To maintain your profit margins, you decide to slightly increase the prices of your most popular dishes and introduce some new menu items with lower-cost ingredients. This strategy will balance your variable costs with your revenue and keep your restaurant profitable during peak times.