Fixed Costs and Variable Costs

Hostel Fixed Costs and Variable Costs

Total costs of an operation is divided into 2 types.

Fixed Costs : Compulsory Commitments regardless of any fluctuation of sales. No significant changes to costs when sales increase or decrease.

Examples of Fixed costs are:

  • Staff wages
  • Income Taxes
  • Land/ Building taxes
  • Building Maintenance fees
  • Premise Rental
  • Permits
  • Yearly auditing fees
  • Accounting fees
  • Company Secretary Fees
  • Outsourced services – i.e Security, Food and Beverage, Laundry
  • Fixed internet and phone bill
  • Fixed TV cable entertainment fees
  • Monthly/ Yearly Subscriptions
  • Interests on loans
  • Other fixed costs

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:

  • OTA (Online Travel Agent) booking fees. i.e Booking.com, Agoda, Hostel world Fees (Comparing OTA effectiveness and commisions)
  • Guest room amenities and consumables
  • Breakfast costs
  • Any beverage or snacks at the common area
  • Stationary used in front desk
  • Washing liquids/ Softeners and misc for laundry
  •  Petrol and subsidies for staff
  • Telephone usage
  • Sales and Marketing
  • Flowers and decorations

Both types of costs will contribute to the total cost of the operation. Reducing any costs without affecting the quality of the service or rooms will be your ultimate challenge.
Generally before doing any purchasing, or signing any contract with a supply company, it is best to do a market survey to compare prices, quality and reliability of the company. With this comparison chart, you can compare and make a decision. Bear in mind, that the final decision will not only be based on costs, but the overall rating. You would want a breakfast delivery service to be delicious, quality and affordable. What Breakfast To Serve?

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