Hotel Profitability Made Simple | Hotel Marketing
October 6, 2020|Hotel Marketing
How is your business doing during the global pandemic? Is it profitable or not? If not, is it on the right track to recovery?
The best place to start in answering these questions would be your P&L statement. P&L is just a fancy way of saying profits and losses, which is determined by adding your total revenues subtracted by your total expenses. Whether the difference is positive or negative determines if you are profitable or not. How financially viable your hotel is will depend on how effective you are at managing your costs.
Your decision-makers are interested in the P&L statement for different reasons. Hotel owners look at it for their bottom line, the net income. Managers look at it for their key performance indicator, the gross operating profit (GOP). Lastly, investors look at it to know your hotel’s financial viability in the market to decide if it is a good purchase or not.
There are three key figures that decision-makers look for in your P&L statements. TRevPAR, or total revenue per available room, is the total revenue from all your operating departments divided by the total number of rooms in your hotel. GOPPAR, or gross operating profit per available room, is all your room revenue divided by the total number of rooms in your hotel. Lastly, LPAR, or labor per available room, is your total labor costs, including wages, salaries, pensions, and holiday pays, divided by the total number of rooms in your hotel.
Regularly compare your P&L statement to previous months or to like periods of the preceding years. Similarly, compare these figures to that of competing hotels in your market, or even to your projected budget. It provides a better insight than the raw data alone. It gives you a good benchmark of how well your business is doing based on past performance, competitor performance, and projected performance.
Let us try comparing two hotels. For example, Hotel A has on-site bars and restaurants, while Hotel B only offers room service.
Hotel A will have more F&B revenues than Hotel B. However, it will understandably rack up higher food and bar (F&B) costs as well. That means more labor costs for chefs and servers and more goods and supplies for drinking and dining options.
Hotel B, on the other hand, will have minimal F&B revenues, but it will have minimal labor costs as well. If it can maximize revenues from its room service without racking up its labor and supply expenses, it may end becoming more profitable than Hotel A.
Your expenses are crucial in determining your level of profitability. You can be making a lot of revenue, but if you also have a lot of expenses, you will end up with a thinner margin of profit. It all comes back into balancing labor costs to maintain efficiency without sacrificing your profitability.
If you need help in increasing your revenues during the global pandemic, or in setting up a revenue management strategy, call us at 888–999–8086 or email us at email@example.com.