Top-down vs. bottom-up budgeting
A hotel budget is not a forecast. A forecast is a prediction; a budget is a commitment. When ownership signs the budget in October for the following year, they are not endorsing your best guess — they are accepting a number you have agreed to deliver, and against which the GM, the regional team, and you will be measured for 12 months. The single most consequential decision in operator-level revenue work is how that number gets built.
There are two methods. I have used both, often on the same property, and they break down in completely different ways.
Top-down — the owner sets the target
Top-down starts with a return requirement. Ownership owns the asset at a basis of, say, €48M, has €34M of debt at 6.4%, and needs €4.1M of NOI to clear debt service and deliver an 8% cash-on-cash return on the €14M equity slice. Working back through opex, fixed cost, F&B contribution and other GOP departments, the room department needs to produce €6.8M of GOP, which at a 78% room-GOP margin means €8.7M of rooms revenue. Divide by 87,600 available roomnights at a 240-key resort and you have an annual RevPAR target of €99.
Top-down is clean, defensible to a board, and traces directly back to the investment thesis. Its weakness is that it ignores the property. A €99 RevPAR target may be 14% above what your comp set will tolerate. The owner does not know that yet. You will be the one explaining the gap in March.
Bottom-up — the property builds the number
Bottom-up starts at the rate calendar. For each of the next 365 days you forecast roomnights by segment (transient leisure, transient corporate, group, wholesale, contracted), apply a segment-weighted ADR, and roll up to weekly and monthly RevPAR. The total emerges from 365 line-level decisions, each grounded in pace data, comp-set context, and known events.
Bottom-up is honest, defensible to operations, and produces a number you can actually deliver. Its weakness is that it ignores the owner. A bottom-up €91 RevPAR is realistic, but if the asset needs €99 to service debt, "realistic" is the wrong word — it means the property is structurally short and the owner has a problem nobody in operations has named.
What I do at every property
I build both, in parallel, in the same spreadsheet. The bottom-up number is the floor — what the property will deliver if we execute well against the market we actually have. The top-down number is the ceiling — what ownership needs to clear their investment thesis. The gap between them is the conversation. If the gap is under 4%, we negotiate a budget close to the midpoint and commit. If the gap is 4-10%, we identify two or three specific structural moves (segment mix shift, new direct-channel spend, a renovation case) that close it. If the gap is over 10%, we tell the owner before October that the asset is mispriced and the conversation moves from budget to refinance or repositioning.
The budget is not where you find out the asset is in trouble. The budget is where you confirm the conversation you had with the owner three months earlier.