Hotel costs: How to reduce expenses and boost revenue
What are hotel costs?
For hoteliers, hotel costs encompass everything from the cost of construction, to the cost of insurance, to the everyday operational costs of establishing, running and ultimately growing a hotel business.
For many hotel managers, hotel costs are a constant bugbear, requiring regular review and re-evaluation to avoid unnecessary and inefficient drain on the bottom line. As a result, understanding both the obvious – and more hidden – costs of running a hotel is crucial for success in an industry where competitiveness is defined by being able to do more with less.
This blog will investigate the myriad different hotel costs that all hoteliers should understand at a fundamental level, before delving into tips, tricks and techniques on how to cut those costs and stop them from sapping profits and stunting your hotel’s growth.
Table of contents
- 1. What are hotel costs?
- 2. Types of hotel costs
- 3. Understanding and controlling hotel operating costs
- 4. Typical hotel operating expenses list
- 5. Top 10 ways to save on hotel costs and maximise profits
- 6. Best practices for reducing hotel expenses online
- 7. How a premium hotel group can cut down costs and increase revenue
- 8. Reduce hotel costs and elevate your revenue with SiteMinder
Types of hotel costs
From the initial stages of construction to the day-to-day operations, each phase of a hotel’s lifecycle incurs specific expenses. By breaking down these costs, hoteliers can make informed decisions, allocate resources efficiently, and ensure the long-term sustainability of their establishment.
1. Hotel construction costs
The foundation of any hotel begins with its construction. These costs encompass everything from acquiring the land, architectural designs, and building permits to the actual construction materials, labour, and interior design. It’s not just about erecting a structure; it’s about creating an environment that resonates with the intended brand image and guest expectations. Factors such as location, size, and the luxury level of the hotel can significantly influence these costs. Additionally, considerations for eco-friendly materials or sustainable building practices might add to the initial investment but can offer long-term savings.
2. Hotel insurance costs
Protecting the hotel’s assets, staff, and guests is paramount, and that’s where insurance comes into play. Hotel insurance costs cover a range of policies, including property insurance, liability insurance, workers’ compensation, and business interruption insurance. Each policy is designed to safeguard the hotel from potential risks, be it natural disasters, guest accidents, or unforeseen business disruptions. The size of the hotel, its location, and the range of amenities offered can influence the premiums.
3. Hotel operating costs
Hotel operating costs encompass a wide array of expenses, from staff salaries, utility bills, and maintenance to marketing, guest amenities, and food & beverage supplies. These recurring costs are vital for the smooth functioning of the hotel and ensuring guest satisfaction. Effective management of these costs, through energy-saving initiatives or strategic vendor partnerships, for instance, can significantly impact the hotel’s bottom line.
Understanding and controlling hotel operating costs
While revenue generation often takes the spotlight, equally crucial is the understanding and control of hotel operating costs. These costs play a pivotal role in determining a hotel’s profitability. A clear grasp of these expenses not only ensures financial stability but also provides insights into areas of potential savings and efficiency.
Controlling operating costs doesn’t necessarily mean cutting corners or compromising on guest experience. Instead, it’s about smart management: allocating resources effectively, leveraging technology for automation, and continuously monitoring and adjusting in response to both internal and external factors.
By keeping a vigilant eye on these costs and understanding their nuances, hoteliers can strike a balance between offering top-notch guest experiences and ensuring a healthy bottom line. In an industry where margins can be tight, mastering the art of cost control can be the difference between thriving and merely surviving.
Typical hotel operating expenses list
Managing a hotel’s finances requires a keen understanding of both its revenue streams and its operating expenses. While the focus often lies on boosting revenue, a comprehensive grasp of the costs involved in running a hotel is equally crucial for profitability. Here’s a breakdown of some typical hotel operating expenses:
Staff costs
One of the most significant expenses for any hotel is its labour. Hotel labour costs encompass salaries, benefits, training, and even recruitment expenses. Whether it’s the front desk staff, housekeeping, or the management team, ensuring they are compensated fairly is vital for maintaining service quality and guest satisfaction.
Utilities
Hotel utility costs can be substantial, especially for larger establishments. These include expenses related to electricity, water, heating, and cooling. Given the 24/7 nature of hotel operations, the average hotel utility costs can be higher than other businesses, making energy-efficient practices essential.
Housekeeping Supplies
Beyond hotel room costs, which cover the basic amenities in each room, there are recurring expenses related to housekeeping supplies. This category includes cleaning agents, fresh linens, toiletries, and more. Hotel laundry costs, in particular, can add up quickly, especially in establishments that prioritise providing fresh linens daily to guests.
Maintenance and Repairs
Hotels must be in top condition to ensure guest satisfaction. This means regular maintenance checks and prompt repairs when something goes awry. Whether it’s fixing a leaky faucet in a guest room or addressing larger structural issues, maintenance and repair costs are inevitable. These expenses, while often seen as reactive, can be managed proactively through regular checks and preventive measures.
In addition, hotel room expenses can encompass a range of other costs, from in-room entertainment systems to mini bar restocking. By keeping a close eye on each of these expense categories and understanding their impact on the overall budget, hoteliers can make informed decisions, ensuring both guest satisfaction and financial health.
Top 10 ways to save on hotel costs and maximise profits
It’s a truism that a lot of small improvements can smooth the edges of a greater strategy and provide major results. At your hotel, you don’t always need to be thinking of the next big plan to drive revenue and deliver increased profits for the business.
Making sure current operations are as streamlined as possible, and every space is being utilised to its full capacity, is the first step you should take when considering how to make your business more successful.
Here are 10 things you can focus on to cut costs at your property and make profits easier to achieve.
1. Ensure your property management system is the best in the industry
If your property management system (PMS) isn’t cloud-based, you’re missing out on serious benefits. With an automated cloud-based system there’s no need for an IT expert to maintain or operate it and it will save you a lot of time, especially when integrated with your other technology systems. Upfront costs will also be reduced without the need for any physical hardware.
2. Make mobile operating a priority for your PMS
This will let all your staff operate more efficiently. For example, housekeeping can communicate directly with the front desk system from a mobile device and check which rooms need cleaning or servicing, and which ones are occupied.
3. Be flexible about the hours your staff work
Maintaining consistent set hours for staff may not be the best thing for your business. It could mean at certain times your hotel is overstaffed, and at others understaffed. Instead, try a more flexible shift-based approach that allows you to be agile and use staff when you most need them and for specific purposes.
4. Optimise role requirements
This comes back to efficiency again. It should be made clear to housekeeping what is expected of them. If a room has simply been used as a stopover it won’t require as much cleaning time or preparation as a room that has been occupied for a week. The same principle applies to how many people are in a room. By setting standards here, staff can get more done, more quickly.
5. Reduce your hotel’s marketing costs
Paid promotion isn’t always guaranteed to garner more results. Try auditing your approach to marketing and putting more effort into free channels and organic traffic. Create quality content and build social media followings as much as you can without investing a large budget. A lot of progress can be made on Facebook, Instagram, and Google without spending money.
6. Be detail oriented about running the hotel
Taking a greater interest in energy efficiency could have significant long-term benefits for your hotel. Think about introducing occupancy sensitive cooling and heating systems that adapt to when people are present in the room. Power-saving lights such as LEDs are another great option, as well as lights that are motion-sensitive. Saving on power is an easy fix and can make a positive difference to your bottom line.
7. Capitalise on the food and beverage department
This provides one of the main opportunities to save money and gain extra revenue. Firstly, take note of how much food you actually need. If plates are consistently coming back with food left on them, it’s likely – unless you’ve had complaints about quality – that your portion sizes could be reduced, and less stock be ordered over time. A smaller menu will also help with this. Quality over quantity is always preferable.
8. Save on fixtures and furniture
Many suppliers of interior features have packages and bulk deals you can take advantage of. While it may be tempting to get unique and custom designs done, the costs could outweigh the benefits. It’s something to carefully consider and may come down to who your target market is. For instance, business travellers may be less inclined to worry about discovering quirky or special hotel designs.
9. Find a use for under-utilised spaces
If there is space in your hotel that is serving no purpose other than to create breathing room, consider using it for revenue purposes. It doesn’t even have to be anything permanent. For example, every now and then you might get a pop-up masseuse in, or an exercise class, or a cooking class. This will encourage guests already at your hotel to spend a little more than either they or you expected them to.
10. Host events and functions
Similar to the last point, if you have the space to host special events you should do so. Get in contact with potential partners to put on seminars, workshops, weddings, or whatever else may seem relevant or appropriate for your property. This way, you’ll have a revenue source that is coming from outside the guests staying at your hotel.
Best practices for reducing hotel expenses online
With the rise of dominant online travel agencies and the ever-evolving dynamics of digital marketing, hoteliers often grapple with escalating distribution costs. Balancing between maximising online visibility and managing expenses is a delicate act. Below, you’ll find the best practices to effectively reduce your hotel’s online expenses without compromising on reach or reputation.
1. Don’t put all your eggs in one basket
Statistics from HSMAI show 76% of independent hotel room nights are reserved through OTAs, costing hotels billions in commissions every year.
In order to increase direct bookings, hotels need to think about their overall web presence, not just OTAs. By having an Internet booking engine (IBE) on your branded website and investing in social and mobile technologies to drive sales, you can reduce the amount spent on third-party commissions.
In particular, you should be looking to leverage the native capabilities of mobile and social platforms as a means of communicating with consumers, providing information and facilitating transactions – not just promoting last-minute deals.
In today’s competitive environment, it’s safe to assume that channels will get more expensive over time, so it’s critical to invest in the ones that offer you the most control in your marketing efforts and communication.
The key is to maximise and optimise your search, social, mobile, ad retargeting, email, and voice channels to attract and retain guests.
2. Grow your customer database
Developing and maintaining your customer database is one of the most important things you can do to nurture your customer relationships and create relevant conversations with guests.
For example, a hotel CRM (customer relationship management) system, in conjunction with your PMS or CRS, can help boost your bottom line by gathering guest data from social media profiles, and sending targeted communications and promotions.
It can also help create offers based on a customer’s behaviour and provide valuable metrics and insights which can help you measure the overall effectiveness of your hotel’s marketing campaigns.
3. Benchmark how effective you are
Are you getting the best ROI? Benchmarking where you stand in the market can give you a better idea of how well you’re performing. For example:
- How do your revenues and costs measure up to others?
- What are you paying for your marketing channels?
- Are your acquisition costs high or low?
In the quest to stay on top of what it’s costing you to acquire guests and to keep them, your data and analytics are powerful tools for generating insights into your digital ROI and helping you discover the best distribution channels for reaching your target market.
4. Seek your competitive advantage
With hotels sitting in an ever-changing and volatile distribution landscape, they must constantly seek to improve their position in their market. Using a variety of channels (social, mobile, website, email and search), hotels can reach out to customers with special promotions and discounts, value-add deals and other incentives such as free room upgrades to get customers to book directly and build loyalty.
For example, Danubius Hotels offers guests a free £15 voucher for each night booked directly, along with the best price guarantee.
While OTAs have their rightful place in any hotel distribution strategy, the key is to find a balanced approach to direct and indirect business.
In particular, hotels need to pay attention to where their guests are coming from and measure the effectiveness of each channel by setting specific performance objectives.
By staying one step ahead of the game, you can effectively reach your guests and retain them.
How a premium hotel group can cut down costs and increase revenue
Cutting costs and increasing revenue is crucial, but once a certain business scale is struck, it becomes incredibly difficult to maintain that upward trajectory—particularly when all the quick wins are won. What can the director of a premium hotel group do to achieve further gains and growth for their business, without getting bogged down by inefficient, manual processes?
How does a booking engine cut costs and increase revenue?
Practically every successful hotel business relies on cutting edge technology to maintain their edge in an increasingly digitised and competitive accommodation landscape. With complex portfolios made up of dozens or hundreds of different individual sites, manually inputting real-time availability across the dozens (or hundreds…) of booking channels quickly becomes cumbersome. Human resource is whittled away, time is spent on admin instead of growth, and financial performance stalls as the hotel fails to shift gears.
As a result, hotels turn to booking engines—solutions that automate the booking process, both from OTAs and more importantly the direct booking process. By insourcing booking management to smart technology, hotel staff are able to do more with less. More bookings, more happy guests, more revenue, and less paid hours spent on unnecessary busywork just to get simple information online.
Premium hotel groups are held to high expectations by their guests, so not just any booking engine will do the job effectively. Even a small error can have massive consequences – like double booking—that drains customer loyalty and kills any chance of rebooking or positive reviews. Premium hotels require premium processes—and that necessitates a premium engine driving the experience.
SiteMinder’s premium hotel booking engine
SiteMinder offers a booking engine that rated #1 within the industry, providing simultaneous and automatic updating of all rates and availability across hundreds of different OTAs, as well as a smooth, simple direct booking process that can be embedded easily into an existing or custom-made hotel website.
This minimises the amount of administrative time that needs to be spent updating the various booking channels, decreases operational costs and virtually eliminates the risk of overbooking rooms at exclusive properties.
Visit our case studies to read real-life examples of hotels using SiteMinder’s booking engine with great success.
Reduce hotel costs and elevate your revenue with SiteMinder
Controlling costs is as crucial as driving revenue. SiteMinder offers tools specifically designed to curtail unnecessary expenses while simultaneously enhancing revenue results. By implementing SiteMinder’s platform, you can achieve a leaner, more cost-effective model without compromising on guest experience or revenue potential.
- Streamlined Operational Efficiency. SiteMinder’s platform is designed to optimise hotel operations, reducing the overheads associated with manual processes and inefficiencies. Automated room inventory updates, centralised booking management, and integrated guest communications mean fewer errors, less wasted time, and a significant reduction in operational costs.
- Optimised Distribution with Lower Commission Costs. With SiteMinder’s channel management, you can tap into a vast network of booking platforms. By directing more traffic to direct booking channels and negotiating better commission rates with OTAs, SiteMinder helps you capture more revenue while simultaneously slashing commission expenses.
- Proactive Cost Analysis and Reporting. Knowledge is your first line of defence against rising costs. SiteMinder’s hotel business intelligence provides a clear view of your hotel’s expenditure patterns, allowing you to pinpoint areas of unnecessary spending. Whether it’s underperforming marketing campaigns, energy inefficiencies, or under-utilised assets, SiteMinder equips you with the data to make informed cost-saving decisions.
About SiteMinder
SiteMinder Limited (ASX:SDR) is the name behind SiteMinder, the world's leading hotel distribution and revenue platform, and Little Hotelier, an all-in-one hotel management software that makes the lives of small accommodation providers easier. The global company is headquartered in Sydney with offices in Bangalore, Bangkok, Barcelona, Berlin, Dallas, Galway, London, Manila and Mexico City. Through its technology and the largest partner ecosystem in the global hotel industry, SiteMinder generates more than 120 million reservations worth over US$50 billion in revenue for its hotel customers each year. For more information, visit siteminder.com.
