Dealing with operating costs is a necessary part of doing business in any industry. You can’t negotiate that away.
However, you don’t need to just accept high operating costs and low profit margins as a given.
Clever cost management allows you to minimize typical hotel operating expenses and keep more of your revenue. That increases your profitability and sets you up for long-term success.
Modern hotel technology can make an enormous difference here, so let’s look at the main costs your property faces and how tech can help you manage them.
What Are a Hotel's Typical Operating Costs?
In short, typical operating expenses are what it costs to keep your hotel running. This includes everything you spend on maintaining your property, paying staff and providing services.
Since that’s a broad definition, let’s take a closer look at how you can break down and analyze the different types of expenditures. First off, there are two important categories: fixed and variable costs.
The Difference Between Fixed & Variable Costs
Fixed costs are the same every month, regardless of demand or your level of occupancy. Often, they also represent sizable sums and can't easily be reduced.
Examples of fixed operating costs at a hotel:
Property taxes, insurance, etc. —These and other administrative fees will always be part of doing business.
Rent or mortgage —This is usually the highest single fixed cost every month.
Bills like cable, internet and phone — These are non-negotiable needs for both your staff and guests.
Salaries & other payroll-related expenses — Employee compensation is a major cost factor and can come close to 50% of total hotel costs depending on the type of property.
Franchise or management fees — If you’re working with a chain to implement certain standards and promote your hotel via their distribution network, these fees will come due monthly or quarterly.
Variable costs on the other hand change depending on your occupancy. It's also quite easy to optimize them.
Examples of variable operating costs at a hotel include:
Food and beverage costs — The more guests you provide food and beverage to, the higher your costs will be.
Wages for seasonal employees & short-time help — Additional staff hired for peak demand periods or large events.
Utilities — Water, electricity and gas usage rise along with occupancy. This could also change by season, e.g. if you need gas to heat during winter or run the A/C in summer.
Housekeeping supplies & laundry costs — These expenditures rise with each room you sell.
Marketing costs — Marketing expenses are often higher during low-demand periods when you need to work harder to attract reservations.
Third-party travel site commission costs — For every booking you get via OTAs and other third-party sites, your commission payments increase.
Hotel tech stack — The more tools you use, the more you have to spend. Outdated legacy systems can be especially costly to maintain.
How Tech Solutions Can Help Reduce Hotel Operating costs
From the list above, you can see that every department has cost-saving potential. For quick wins, look at reducing your variable costs first since optimizing fixed costs often requires a large investment of time and money.
There are many approaches to reducing expenses such as training staff, refurbishments, updating workflows, and implementing innovative technology. While all are viable options, we'll focus on the cost-reducing power of tech tools in the next section. Let’s now look at which solutions can save you money and even improve your guest experience at the same time.
Guest Management Platform
Guest management platforms — like the one offered by Canary Technologies — saves time and costs by streamlining the entire guest journey with mobile-friendly tech tools — from pre-arrival through checkout.
An industry-leading guest management platform will offer a few key guest-facing technology products, including:
Automated guest messaging —Connect with guests at scale before, during and after their trip. Use automated messages to provide useful information, answer FAQs or request feedback after checkout. This reduces your team's workload and makes it easy for guests to find what they're looking for.
As you can see, leveraging technology to reshape your guest journey creates the chance to decrease costs in several ways. Streamlined operations save you time and reduce labor costs. At the same time, they enable you to provide a better, more personalized guest experience and increase ancillary revenue.
Property Management System
The PMS is the heart of your hotel operation. A modern property management system that’s intuitive and highly customizable can help you save significant amounts of cash simply by making your property easier to managemen. That's especially true for most of today's cloud-based platforms. On top of their operational benefits, modern PMS solutions don't charge set-up fees or maintenance costs. You'll only pay a monthly flat rate for your package. Finally, having a powerful PMS creates the base for a solid tech stack that helps you drive more revenue and further streamline operations.
Where and how you sell your rooms has a significant impact on your profitability. Use the following tools to optimize your distribution and keep more of your revenue.
Central reservation system & channel manager — A channel manager pushes inventory and rate updates to all distribution channels automatically. A two-way connection with your CRS sends new bookings directly to your PMS and updates online availability immediately.
Revenue management system & business intelligence — Together, these systems help you quickly get reliable market and competitor data, so you can set the optimal rates for current demand levels. It also allows accurate forecasting, so you can schedule your team accordingly and optimize purchasing. That way you avoid overstaffing and reduce waste.
Booking engine — An absolute must, booking engines allow you to get commission-free direct bookings from your website. This solution also connects to your PMS and CRS so it can automatically show updated inventory and rates. Paired with a modern payment system, this creates an effortless booking process for guests and your staff.
In short, these tools help your reservations and revenue management department save valuable time, offer rooms at the optimal rates and generate more bookings. And even your front-of-house teams benefit because they can better plan their operations.
Engineering & Property Maintenance Systems
Implementing the following options requires a higher investment than the steps above but the ROI is worth it.
Modernized HVAC systems — Newer HVAC systems are more energy efficient, and some can even recycle warm air from the laundry or kitchens to heat water or rooms.
In-room technology — Occupancy sensors can dim or turn off lights and lower the AC or heating when the room is empty. This reduces energy costs and emissions.
Proactive maintenance — Monitoring energy consumption and system performance allows you to spot issues early and handle repairs before the problem becomes too difficult to solve. New tech solutions can even highlight where action is needed, so problems don't even get a chance to arise.
Today, technology offers many opportunities to reduce typical hotel operating expenses. The right tech tools can be especially effective in addressing the biggest cost factors hotels have to deal with — labor and resource use. Apart from that, many of solutions also create new opportunities to generate revenue and delight your guests.
Yes, it requires an initial investment of time and money to research and implement these solutions. However, a smart approach will improve your property's profitability in the long run.
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