Hotel Profitability for New Hotel Owners

Making a profit is the primary goal for new hotel owners. However, with high operational costs and guests’ high standards, maintaining consistent profitability can be challenging. Here are some essential tips and strategies that hotel owners should know to improve and sustain their hotel’s profitability in the long run.

1. Calculating Hotel Profitability

Calculating Gross Operating Profit (GOP) is crucial in evaluating a hotel’s profitability:

Gross Operating Profit (GOP) = Total Revenue - Total Operating Costs
Gross Profit Margin = (Gross Operating Profit / Total Revenue) x 100

These calculations provide a clear picture of the business’s profitability. Understanding these numbers allows hotel owners to make confident financial decisions, whether setting room rates, managing expenses, or planning future investments.

2. Sources of Hotel Revenue

Hotel revenue can be divided into three main categories:

Room Sales Revenue: The primary income generated from renting rooms to guests.
Food and Beverage Sales Revenue: Includes restaurants, bars, room service, and events.
Other Sources of Revenue: Such as equipment rentals, internet services, resort fees, and spa services.

Analyzing and monitoring these revenue sources will help hotel owners identify potential growth areas. Developing services and amenities that meet guests’ needs will help increase revenue in the long term.

3. Hotel Expenses

Hotel expenses are divided into fixed and variable costs, which must be managed appropriately:

Fixed Costs: Such as salaries, property fees, property taxes, and franchise fees.
Variable Costs: Such as hourly labor wages, utilities, marketing, and food and beverage inventory.

Managing expenses is crucial to increasing the hotel’s profit margin. Reducing unnecessary costs and improving resource efficiency will help the hotel maintain profitability, even during volatile market conditions.

4. Investing in Technology

Investing in the right technology can work wonders for a hotel’s profit margins. Whether it’s expanding the hotel’s reach, automating tasks, or providing easy access to insights into guest preferences and behavior, implementing modern technology can improve operational efficiency, reduce costs, and increase revenue. Here are the systems and tools hotels should consider investing in to elevate their business.

Revenue Management Software:

This software is a key tool that helps hotels effectively set room rates to stay competitive in the market. It analyzes market data, occupancy trends, and guest behavior to set prices that balance maintaining high occupancy and increasing Average Daily Rate (ADR). Investing in revenue management software can significantly boost profitability by optimizing resource use and maximizing room revenue.

Channel Manager:

Channel Manager enables hotels to manage bookings from multiple channels in one place, whether through the hotel’s own website or online travel agents (OTAs). This technology simplifies room inventory management, reduces the risk of overbooking, and increases revenue by reaching more travelers. Maintaining a diverse distribution channel is an effective way to attract new customers and maintain relationships with existing ones.

Direct Booking Engine:

A direct booking engine is essential for hotels looking to increase direct bookings, which typically have lower guest acquisition costs compared to bookings through OTAs. Making it easy and convenient to book rooms directly through the hotel’s website will attract more bookings. This technology also helps hotels maintain higher profit margins since there’s no need to pay third-party commissions. Additionally, integrating the booking engine with a Customer Relationship Management (CRM) system helps create a seamless and personalized experience for guests.

Property Management System (PMS):

A PMS is the backbone of efficient hotel operations, managing everything from room bookings, check-ins, check-outs, and guest data management to automating daily tasks such as scheduling housekeeping, processing guest requests, and issuing invoices. With a comprehensive PMS, hotels can provide faster and more efficient service, making guests more satisfied and likely to return.

Payment System:

A modern payment system is essential for improving the guest experience. Hotels should have systems that support digital and multi-channel payments, making payments easy and secure. Fast and hassle-free payments also increase the chances of attracting more bookings, especially from guests accustomed to mobile and online payments.

Customer Data Platform (CDP):

This system allows hotels to collect and analyze guest data from all touchpoints, both online and offline. Systematically stored and processed data enables hotels to create targeted marketing campaigns, personalize guest experiences, and improve services to better meet guest satisfaction. CDP also helps hotels analyze data to make better business decisions, increase guest loyalty, and boost overall revenue.

Investing in these technologies does more than just improve hotel operations; it’s also key to sustainable profit growth and competitiveness in a highly competitive market. Adopting modern technology systems will ensure your hotel is well-prepared to meet current and future challenges effectively.

Investing in technology may seem like a significant expense in the short term, but when considering the long-term benefits, it’s undoubtedly worthwhile. Modern technology not only improves operational efficiency but also increases revenue and reduces costs over time. One system that hotel operators should consider is CiMSO INNkeeper Hospitality ERP. This single software solution streamlines operations across all hotel departments, making them more efficient compared to fragmented software. Unlike fragmented systems, which often come with higher maintenance costs, CiMSO INNkeeper reduces long-term expenses and adds flexibility to hotel operations. This is a valuable investment in every aspect for hotel owners.

CiMSO supports customers in transitioning from fragmented legacy software systems to integrated ERP solutions. CiMSO also provides support and support for Successful implementation of the new system, where we have service standards under the ISO90003 quality management system and PRINCE II project management principles.