Two things drive the success of hotels: Profitability and Guest Satisfaction. But can you have one without sacrificing the other?
We have previously discussed ways in which you can improve guest loyalty and retention. So today, we will look at reducing operating expenses in a way that increases profitability and aids in improving guest satisfaction.
There are two key metrics to keep an eye on when looking at reducing the operational expenses of your hotel.
Number one is the hotel operating expense per room (number of rooms / total expenses).
Number two is the hotel operating expense ratio (cost to operate vs. income brought in).
Keeping these two metrics as low as possible will ensure maxim profit per room.
But can it be done? And if so, how can it be done? Let’s have a look at how successful hoteliers are using general financial smarts and their property management systems to get closer to the sweet-spot.
1. Schedule Labor According to Booking Volume
One area for continuous improvement is to schedule your staff optimally.
Labor tends to be the most costly operating expense that hoteliers have and smart scheduling is the key to keeping those costs in line.
Start by forecasting a schedule to utilize your employees fully but not running them ragged so that things are neglected.
Use historical data to forecast when there are likely to be busy times and slow times and adjust the schedule accordingly. .
Schedules for hourly staff should never be fixed but should allow for variations in types or amounts of bookings.
In a study by Deloitte they found that on average overspend on labor costs can take up 50-60% of a company’s operational budget.
2. Set Specific MPR Standards for Specific Room Types
Setting your housekeeping staff’s MPR (minutes per room) standards is not a new concept for hoteliers. But not all rooms are created equal.
Stay-over rooms do not require the same amount of time spent on housekeeping as a due out room and luxury suites require longer times for cleaning than standard rooms.
Observe how long each housekeeper spends cleaning each room. How does this compare to your current standards? Now adjust the MPR standards of your hotel according to each specific room type.
By adjusting your MPR standards by room type, you will be able to cut costs and address any inefficiencies.
According to Hotel Effectiveness, a test hotel implemented MPR standards set by room type and reduced their housekeeping costs by over 7%.
3. Cross Train Your Staff
The cost of cross-training will easily be offset by the benefits you will see.
Not only does cross-training assist your labor management during times of heavy volume, but it also gives you coverage when you have call-ins or scheduled time off.
And, when one department has a lull, those staff can be utilized in another department so that there is no unproductive time on the clock. When vacations are scheduled, adequate coverage will not be a problem.
Staff that can multi-task also enhance the guest experience and therefore bumps up your guest service rating.
If staff can fill in at the front desk during peak check-in time or assist housekeeping to get rooms cleaned early, your guests will be better served and therefore, will remember their experience favorably.
Cross-training in similar jobs is easier on employees, and they often will more readily adapt. For example, a hostess in the restaurant may easily step into front desk check-ins, while someone who works back of the house may have an easier time in a position that isn’t guest-facing.
Work with your team to best address cross-training opportunities.
4. Implement a Labor Management System (LMS)
If you are serious about controlling your labor costs, a labor-management system (LMS) is a must.
An LMS will track and report critical operational data in near real-time to monitor progress against the planned objectives. This data includes every minute used to clean rooms (discussed above), fold laundry, and complete routine maintenance tasks.
With accurate data, hoteliers will know the status of their entire team at all times, and they can allocate resources intelligently to maximize productivity and bottom line.
5. Go Green
The International Journal of Hospitality Management has found that guests positively recognize a hotels’ environmental commitment, and this has a positive impact on guest satisfaction and loyalty.
Interestingly, there are ways you can go green, without “greenwashing” (the process of conveying a false impression about how a hotel’s practices are more environmentally sound) that can also reduce your total operational expenses.
Change out thermometers
According to the California Statewide Utility Codes and Standards Program, savings of between 12-14% in heating and cooling costs are average when installing an occupancy control thermostat.
Also, with only a five-degree setback, your rooms will still be comfortable and will save in the long run when unoccupied.
Opt for LEDs
LED lighting can save your hotel money in two ways when installed.
Energy usage is decreased by 75% or more, saving you on your utility bill while still offering the same brightness and clarity that you got with traditional incandescent bulbs.
In addition, LED bulbs can last up to 25x longer than traditional incandescent bulbs, offering savings on replacements.
And, as a bonus, you can reduce maintenance costs since the LED bulbs will not have to be changed out as often.
Hotel guests are more sophisticated in their understanding and awareness of environmental and social responsibility issues than ever before.
Therefore, guests expect hotels to proactively take steps to protect the environment and operate responsibly.
The American Hotel and Lodging Association estimates that one small card placed in every room asking guests to reuse towels can reduce laundry costs by as much as 18%.
Your towels and linens will also last longer, saving even more.
According to Stanford Magazine, utilizing a reuse policy can save approximately $6.50 per room per day for the average occupied room.
6. Preventative Maintenance
Repairs, as a result of neglect, are always more expensive than preventive maintenance. Therefore, avoid costly repairs and downtime by scheduling your preventative maintenance.
Repairs often require overtime, so not only does the hotel have to fork out CAPEX but labor costs as well.
This point does not need to be labored further. The key takeaway here is that to reduce your total operational expenses, you need to schedule regular preventive maintenance.
In one study, Jones Lang LaSalle partnered with a large telecommunications company. The team concluded that preventive maintenance not only pays for itself but results in an average 545% return on investment.
Outsourcing can reduce costs, increase efficiency and allow you to focus on your core business.
Outsourcing important but mundane activities makes it possible to refocus your in-house resources on the activities that increase profit without sacrificing the quality of the service your hotel provides.
If there is an area where your staff lack expertise, consider outsourcing to a specialist in that field. Think of tasks such as accounts, IT, hotel marketing strategies, or real estate investment.
Hoteliers often think of outsourcing as a purely cost-saving strategy, but it can also be used as a revenue generation strategy.
Outsourcing training to industry professionals to upskill your staff will positively impact your hotel as a whole. Here are some interesting statistics to back that up:
- 94% of staff agree to stay longer if the hotel invests in employee training.
- Hospitality businesses that offered more than four hours of orientation training had 20% less staff turnover.
- Hoteliers that invest in employee training gain 21% more profit.
8. Watch Your Expenses
Look over your expenses and cull any services or products that you are no longer using. Then, decide why you no longer use it, discontinue it, or shop around for comparable services or better prices.
If you have been paying for a service for a while, it is easy to get complacent about the charges.
Taking the time to do a comparison shop could save you substantially or give you a negotiating tool to lower your current cost with the vendor you are utilizing.
Check your labor costs for overtime charges. For example, if you have worked on scheduling your staff, cross-trained your employees, and set up a preventive maintenance program, and you still have overtime costs, analyze why this is happening and correct it.
9. Pay Your Bills On Time
Most vendors offer discounts if you pay your invoices within an allotted time. By paying within their terms or early, you can save thousands of dollars.
Most suppliers will offer 2-3% off the total invoice to get their money on time, and this adds up over the years if your suppliers don’t have this option try negotiating with them.
If you cannot pay within the ten or fifteen day discounted period, make sure you, at least, don’t pay late. Paying late usually results in a late fee or additional penalties.
Paying invoices early or within an early discount, period establishes trust and protects your hotel’s credit. The better your hotel’s credit score, the more welcoming you will find new suppliers and possibly even investors.
10. Embrace Technology
It is no surprise that technology is the second-biggest priority, after growth, for CEOs globally.
87% of CIOs believe digitally empowering their employees can drive at least 5% additional revenue growth over three years.
Technology is faster and has much greater accuracy than manual systems. In addition, there are dozens of online systems and software programs that can streamline the functions that keep your property running smoothly and effortlessly.
Employees working for hotels that make the necessary technology readily available and accessible report 17% less time spent on manual processes, a 16% increase in team collaboration, and 16% faster decision-making.
High-quality hotel property management systems can reduce your operational expenses and increase staff productivity and with a purpose built app store like the Marketplace, you can find an integration for just about anything. .
Reach out to protel hotesoftware and see how we can help you cut your operating expenses, leverage revenue opportunities, and reduce business expenses in general. Get a personalized demo today.