Many factors contribute to the
. They are not limited to increasing revenue and reservations. Rather, a thorough investigation of cost-cutting strategies for hotels and appropriate expense management are also crucial to your success. success of the hospitality business
Cost reduction in hotels, like in any other industry, helps maintain optimal expenses and, of course, limits spending on unnecessary activities.
Cleaning, maintenance, personnel, customer support, utilities the list of hotel operating expenses is exhaustive. It can be difficult to keep track of all the expenses incurred while operating a hotel or other lodging establishment.
Manually juggling all of these while ensuring that you have sufficient incoming revenue to cover these expenses can be distressing, if not overwhelming, at times. Managing your hotel's operating costs can be difficult, but the good news is that it doesn't have to be. There are a number of strategies and instruments that can facilitate the management of hotel operating costs.
With some effort and perhaps a little assistance, you can make managing your hotel’s operating costs much simpler. You will experience less tension and have more time to concentrate on making your hotel the best it can be. Reducing hotel business expenses can help you spend more on other aspects and new strategies.
Let’s see what hotel business expenses and hotel operating expenses are. How much does it cost to run a hotel? How to calculate operating budget?
What is included in hotel operating costs? Types of Operating Expenses
There are two types of hotel operating expenses, also known as operating costs. Below are the details:
Fixed Operating Costs
In hotel operations, sales volume and occupancy levels have little impact on fixed expenses. This means that they do not change significantly, whether your hotel is thriving or floundering. Fixed costs are frequently conflated with unchanging or static expenses. However, they may alter over time, but their impact on day-to-day operations is minimal.
Variable Operating Costs
Variable costs fluctuate based on the level of productivity, as they are directly proportional to business volume and hotel occupancy. When occupancy increases, operating expenses will also increase, and vice versa. In order to keep costs under control and maintain operational effectiveness, hoteliers must make daily decisions. It is essential to remember that variable costs can determine the success or failure of a hotel. If daily hotel business expenses are excessive, it will be difficult for the business to break even. However, monitoring variable expenses can improve financial health and maximize productivity.
Calculate hotel operating costs/ Hotel Operating Cost Formula Let's look at what makes up the cost of running a hotel. The operating cost formula below will help you figure out how costs affect sales and profit. You can count them by the day, the month, or the year. Cost per occupied room (CPOR)
is a measure of the total hotel expenses incurred by a hotel as a result of a single guest's occupancy of a room. The higher the cost per occupied room, the less profit a hotel may expect to gain from each guest. CPOR CPOR = Total Rooms Costs/Total Rooms Sold Cost per available room (CostPAR)
CostPAR is similar to CPOR in that it assesses the average cost of servicing all rooms at the facility rather than just those that are currently being used. The number of vacant rooms remains generally constant despite daily fluctuations in occupancy.
CPAR = Total Rooms Costs/Total Available Room Nights Gross operating profit per available room (GOPPAR)
The average gross operating profit divided by the total number of rooms in a hotel yields GOPPAR, or gross operating profit per available room.
GOPPAR = GOP/Total Available Room Nights Labour per available room (LPAR)
A hotel's LPAR, or labour cost per available room, is the sum total of all employee wages and benefits divided by the total number of guest rooms.
LPAR = Total Labor/Total Available Room Nights Also for your information, - Between 2021 and 2022, the total labour cost per occupied room increased by over 26%, according to research. This substantial increase in operating expenses must be accounted for in order to protect your bottom line. Read more about the hospitality industry at Operato.com. Guest acquisition costs (GAC)
GAC stands for "guest acquisition costs," or the money spent to bring in new guests for a hotel. Sales and marketing costs, transaction fees, and agency commissions all fall into this category. In most cases, the profitability of selling rooms increases as acquisition costs decrease.
GAC = Total Acquisition Costs / Room Revenue x 100 10 ways hotels can reduce their operating costs
The success of a hotel depends on the level of service it provides to its guests. However, there is a huge issue with reducing hotel expenses without compromising service quality. To what extent may running costs be kept down while providing for the hotel's long-term success?
While there is no one right way to streamline operations and cut the average cost of a hotel, the following are some important considerations:
1. Streamline F&B to reduce waste
Standardising restaurant and banquet hall menus to save time spent in the kitchen is one way to
. This facilitates the sharing of ingredients and preparation time between event attendees, whose menu selections vary across venues. A fully automated F&B system might boost productivity and morale for catering companies that serve at events like banquets. The implementation of such a system might lead to a measurable rise in sales. Chefs may avoid making too much food by checking the daily menu requirements in the event management software and printing out preparation papers. boost F&B efficiency 2. Embrace technology to automate processes
When compared to their manual processes, automated procedures consistently give superior results. Furthermore, numerous online resources and pieces of software exist to streamline the procedures involved in safeguarding your property. You can find an app that integrates with just about everything in the Marketplace, and a good
could help you lower typical hotel expenditures and increase staff efficiency. hotel property management system 3. Reduce fixed operating costs
Examine your regular expenses to see if there is anything you can cut out of your budget. Next, think about why you stopped using it and decide whether to start using it again or seek a new solution. After paying for a service on a consistent basis for a while, it's easy to become acclimated to the cost. By comparing prices, you may find a far better deal or acquire bargaining power to get your current service provider to drop their rates. The cost of labor must include overtime compensation.
4. Make use of hotel floor space
To cut down on expenses without sacrificing productivity, hotels should make the most of their available space. To begin, the hotel's layout and design may be improved by looking for new ways to make better use of existing space. As a result, it's possible that some furniture may need to be moved around in rooms or common spaces. Hotels might possibly improve revenue-generating areas without incurring additional costs by making better use of the space they already have. The use of adaptable and multipurpose spaces can further expand the scope of possible uses, turning one location into several distinct ones according to the needs of the moment.
5. Bring down energy bills by going green on energy and maintenance. In addition to improving your hotel's image, turning green may also bring in more environmentally concerned customers and pave the way for a brighter future. Hotels may significantly cut their energy use and expenditures by adopting eco-friendly practises. Alternative strategies include replacing incandescent bulbs with LED lights, which use far less Going green is a great way for hotels to save money energy and last significantly longer. By automatically turning off lights and lowering temperatures in unoccupied areas, energy use may be further optimised through the installation of occupancy sensors and smart thermostats. 6. Practise preventive maintenance
On average, approximately
of a hotel's annual revenue is allocated to maintenance. 5%
A well maintained system uses less energy, lasts longer, and has a lower risk of catastrophic failure. System failures and other maintenance problems are not only uncomfortable for guests but also expensive for the hotel. Create a plan and stick to it to keep your building's machinery in good working order. Filters should be changed every one to six months, fans, bearings, belts, and the region around the air intake should be checked every six months; leaks should be checked once a year; and dampers should be cleaned and tested once a year.
7. Focus on customer loyalty
Having loyal customers is
, whether the going is good or not. Repeat customers are the lifeblood of every business, and customer loyalty is the key to building that steady stream of revenue month after month and year after year. Customers who have shopped with you before are more likely to make a large financial investment in your company. Customers retained at five times the cost of customers acquired can help firms weather economic storms. crucial to the success of any business 8. Retain employees
The success of any business depends on its
. Today's competitive market requires hotels and other organisations to make investments in people strategies that will help them attract and keep the best employees. Smaller companies and nonprofits often have a harder time competing for great talent than their bigger counterparts due to limited resources. To be competitive with larger companies, pay isn't the sole factor in employee retention; perks are also crucial. Employee turnover can be reduced by providing a range of perks tailored to the individual requirements of staff members. ability to attract and keep competent workers 9. Look into your taxes and insurance
Check if your property assessment numbers are surprisingly excessive, if yes, you may want to check your property assessment or look into more affordable insurance options in your area. Set up reminders to work through the aforementioned recommendations, and implement the changes that make sense for your hotel portfolio. Having up -to -date insurance can save you from so many problems in the future. Also, be efficient with your taxes, claim all available deductions and benefits, and pay your taxes on time to avoid penalties.
10. Negotiate with suppliers
Keep in mind that you're trying to cut costs. No further action is required. That's why asking for a price cut won't come across as rude. In fact, they may more easily offer you a price cut in exchange for a long-term contract than it would be to recruit a replacement regular customer. If they are unwilling to accept your revised offer, you may wish to look elsewhere for a more advantageous one.
The importance of cost optimisation does not justify cutting customer service. A hotel's bottom line will take a hit if guests feel they were treated poorly.
Therefore, it is crucial for the staff and the General Manager to know the hotel's operations like the back of their hands in order to immediately identify areas where the average hotel cost can be cut. It is important to have a look at the breakdown of hotel operating costs and hotel P&L to keep it under control. The hotel's operations could suffer if judgements are made without this information. Some good
hotel tips and tricks can help you reach new heights and satisfy guests all at once.
Therefore, when you think about the best strategies, keep a sense of equilibrium in mind. Hotel operations can be streamlined and profitability increased with some innovative thinking.