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Calculating Hotel Operating Costs - SabeeApp

Cleaning. Maintenance. Personnel. Customer Service. Utilities. The list of hotel operating costs can go on and on. Often, it can be hard to keep track of all the expenses incurred while running your hotel or other accommodation. Juggling all of these manually, while simultaneously ensuring that you have enough incoming revenue to pay for these expenditures, can be stressful, even overwhelming at times. 

What are hotel operating costs?

Hotel operational costs refer to the expenses incurred in the day-to-day running of a hotel's facilities and services. Monitoring and managing these operational costs efficiently is crucial for the financial sustainability and profitability of a hotel establishment.

While managing your hotel operating expenses can certainly be painful, we have some good news: it doesn’t have to be. There are a number of strategies and tools that you can employ to make managing operating costs an easier task. With a bit of effort, and perhaps a touch of help, you can make managing your operating costs a far easier task. In doing so, you’ll reduce stress, and give yourself more time to concentrate on making your hotel the best that it can be. 

Here, then, are just a few suggestions for how to better keep track of, and manage, your hotel’s operating costs. 

Get ahold of hotel operating costs: manage smarter, and better

What Are My Expenses? A Hotel Operating Costs Breakdown

Before delving too deeply into tools for better managing hotel operating expenses, it’s worthwhile to spend a moment looking at what, exactly, we’re talking about here. To begin, we should note that, in general, we can divide expenses into two categories: variable costs, and fixed costs. 

Variable Costs

Variable Costs, as the term implies, are expenses that change based on factors such as occupancy. In other words, these are costs that are incurred per room or per guest. They increase as your hotel’s occupancy increases, and go down when you have fewer people staying at your residence. 

Variable Costs can come in many forms. Here are just a few examples: 

  • Utilities (water, gas, electricity—heating, air-conditioning, etc.) 
  • Commission costs from third-party travels sites, such as OTAs 
  • Laundry and linen operations 
  • Hourly wages 
  • Food and beverage costs—room service, etc. 
  • Cost of housekeeping supplies 

hotel operating costs per department

Managing variable costs in a hotel, especially during fluctuations in occupancy, can be challenging. By extension, they can be difficult to budget for. In this instance, a tracking system that can help you analyze data, and find trends, can be very useful for locating inefficiencies and redundancies. A Property Management System (PMS), designed to centralize your data and management efforts, can help you locate trends, and budget, better. However, a PMS doesn't provide specific strategies for predicting and budgeting for variable costs. Implementing a robust forecasting model and utilizing historical data could be potential solutions to address this concern.


Fixed Costs

By contrast, fixed costs, are well, more or less fixed. These are stable, steady expenditures, that do not tend to increase or decrease. By definition, they stay roughly the same, year-round. When trying to figure out your average hotel operating costs, you can rely on fixed costs to remain steady. Your largest fixed cost, in addition to property taxes and other regular fees, are your year-round employees. These are workers who are employed at your hotel, regardless of low or high occupancy rates. In addition, other examples of fixed costs include: 

  • Employee healthcare costs
  • Internet, television, phone, and other steady, monthly bills 
  • The cost of property management software (PMS) 
  • The cost of external, contracted services, such as security, or landscaping 

Striking a balance between reducing costs and maintaining high guest satisfaction requires careful consideration. Hotels should focus on identifying cost-cutting measures that do not compromise the guest experience. For example, implementing energy-efficient technologies, optimizing staff scheduling, and negotiating better deals with suppliers are ways to reduce variable costs without sacrificing service quality. Regularly soliciting guest feedback and monitoring online reviews can also help hotels gauge the impact of cost-cutting measures on customer satisfaction, allowing them to make informed adjustments to their strategies.

Cross-Train a Team of Skilled, Loyal, Happy Employees 

As we’ve just mentioned, a major source of fixed hotel operating costs comes from your permanent staff. These are people who work for you, year-round. In order to increase their efficiency, and prevent waste, it’s not a bad idea to train them to perform multiple tasks. For example, there’s no reason why a doorman can’t also deliver room service, or a housekeeper can’t help with laundry. 

In addition to reducing your overhead, such cross-training benefits your employees as well. It familiarizes them with multiple aspects of the hospitality industry. What’s more, if they’re well-managed, employees can come to feel that they have a stake in your hotel. In turn, they will also be more motivated to provide the best guest experience that they can. 

hotel operating costs per room

Keeping Track: Make a Hotel Operating Expenses List 

While this should go without saying, it won’t help you much to know what expenses are, if you’re not actively keeping track of them! To that end, it’s important to keep careful track of both fixed and variable costs at all times, in order to ensure that you know exactly how much you’re spending, and where you’re spending it. And while such bookkeeping might be a pain to undertake manually, you should know that there are plenty of property management software, such as SabeeApp, that can streamline the process for you.  

In addition to keeping track of your total expenditures, it’s also worthwhile to pay attention to additional metrics that can help you get a sense of how your hotel is doing. For example, keeping track of hotel operating expenses per room can be highly advantageous in helping you manage your accommodations. Once you know how much it costs to keep each room tidy and well-maintained, you can set prices that will ensure that you actually make money, rather than losing it. 

The formula for this is known as the CPOR, or Cost per Occupied Room. The CPOR can provide you a very useful breakdown of your operating costs. Keeping track of your CPOR, and working to keep it low, can help you and your hotel grow and become more profitable. 

Keep an Eye on Energy Costs! 

In addition to keeping a careful track of your expenses and taking advantage of a property management system to locate and eliminate inefficiencies and redundancies, it’s important to keep an eye on energy bills. In a hotel operating expenses breakdown, many would be surprised to find just how big a chunk of expenditures is made up by paying for gas and electricity. 

Importantly, though, this is one sector where you can, by paying attention and being proactive, significantly reduce excess expenses. In the process, you’ll find that your overall hotel operating costs may go down quite noticeably. 

First and foremost, you can make sure you that your accommodations are taking advantage of the latest energy-saving tools and technologies available. For example, simply switching out old, incandescent bulbs for high-efficiency LED lights will significantly reduce your monthly electric bill. Likewise, installing timers or sensors on your hotel’s lights will save you quite a chunk of change—while people tend to forget to switch off the light, now they’ll simply turn off on their own.

You can also explore industry guidelines or consult with energy management experts to determine realistic targets for energy consumption reduction. Establishing clear benchmarks can help you assess performance and set meaningful goals for optimizing energy-related operating costs.

Additional strategies include installing solar panels (where feasible), and installing efficient, well-insulated windows. The first step, however, is simply paying attention, and being aware of what you have turned on, when it’s on, and how much it’s costing you.

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