NOI (Net Operating Income)

What is the definition of NOI in the hotel industry?

NOI stands for Net Operating Income, which is a measure of a hotel's performance and profitability. 

Net Operating Income can vary widely from market to market and should be judged against other comparable properties in a hotel’s compset. 

What is the hotel NOI formula?

NOI is calculated by subtracting all operating expenses, such as property taxes, insurance and maintenance, from the hotel's gross operating income. NOI is a key metric used by investors and owners to assess the financial health of a hotel.

The Net Income Operating formula is: NOI = Gross Operating Income - Operating Expenses

For example, assume a hotel has total revenue of $1 million from renting rooms, selling food and beverages, and other services. The operating expenses associated with running the hotel are $600,000. The NOI for the hotel would be $400,000, which is calculated by subtracting the operating expenses from the total revenue ($1 million - $600,000 = $400,000).

How do you increase hotel net operating income?

NOI is an important metric to track because it is a key indicator of the property’s financial health and performance. By tracking NOI, operators and investors can determine the profitability of a property, compare it to other properties, and make informed decisions about investing in the property or making operational changes.

Examples of how NOI can be improved include: 

  1. Reducing operating expenses: operators and investors can pursue ways to reduce operating costs, such as renegotiating contracts with vendors, switching to energy efficient lighting and appliances, and implementing automated processes. 
  2. Increasing occupancy rates: operators and investors can focus on marketing and promotional efforts to increase bookings and occupancy rates. 
  3. Increasing room rates: operators and investors can analyze market data to ensure they are pricing their rooms competitively and maximizing revenue. 

Increasing ancillary revenue: operators and investors can explore ways to increase revenue from sources other than room bookings, such as food and beverage sales, retail sales, and spa services. Digital Upsells solutions that present guests with special offers throughout the guest journey can be particularly useful in boosting ancillary revenue.

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