Common Causes of High Hotel Operating Costs

Some of the biggest operating costs for hotels are labor, utilities, customer acquisition and marketing, as well as overall property management and maintenance. All of these are essential to running a successful hotel, yet can seriously impact a property’s bottom line.

In today’s competitive hospitality landscape, hotel managers often feel pressure to cut operating costs in order to increase profit. But when it comes to things like staffing and property management, there’s only so low you can go before negatively impacting guests’ experiences—and that’s also going to affect profit margins.

Understanding High Hotel Operating Costs

The key is thinking about analyzing and managing your hotel’s operating costs, rather than engaging in quick “cost-cutting” measures like decreasing staff or purchasing cheaper supplies. The best way to do that is to not just look at which operating costs are the highest, but to understand why.

Labor Costs

Labor costs are always going to be a large percentage of your hotel’s operating costs, that’s just the way it is. However, a common cause of higher than necessary costs is a lack of understanding of when and where that staff is needed.

Most hotels have a certain seasonality, even if it’s not as drastic a shift as you’ll find at ski lodges or beach-front properties. By examining the occupancy rates at your own hotel, you can likely determine when higher staffing is necessary and when you can probably get by with more of a skeleton crew.

Cross-training staff is a great way to ensure that you can lower staffing at those times and still have all necessary skill-sets covered in case of emergency.

Customer Acquisition

Marketing is another area where hotels can over-spend. If you’re spending a large piece of your budget on customer acquisition without using your current customer base to your advantage, you’re missing out on a major opportunity.
Online hotel reviews are currency in today’s market, and maximizing their positive effect can be a relatively inexpensive way to market your property with a potentially huge return on investment.

Utilities

Another common cause of high hotel operating costs is a failure to analyze utility usage. The Internet of Things has made it possible for hotels to actually measure and adjust energy and water usage by monitoring everything from unoccupied room temperature to the amount of water used cleaning linens.

Taking advantage of that technology is no longer a luxury in the hotel business—it’s a competitive necessity. According to the 2016 Lodging Survey by the American Hotel & Lodging Association, in-room energy management sensors are being used in almost half of hotels now, while whole building energy management systems have been implemented in 77% of luxury hotels and 59% of upper-upscale hotels.

For many hotels, it’s hard to even know where to begin when evaluating laundry costs. The cost of operating an on-premise laundry is based on two lines of a P&L statement—labor and chemical costs, in addition to the initial investment in equipment. Hotels typically overlook analysis of other costs in laundry, like water, and energy, which when looked at more closely, can add thousands of dollars to your bottom line.

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