We’re still living in a period of economic uncertainty as the world cautiously starts to reopen.
Businesses in the hospitality sector are struggling to be profitable due to increased spending on cleanliness protocols, contactless tech, and labor to ensure safety and social distancing protocols are being enforced.
To make matters more frustrating, hotels are losing out on potential revenue because they’re unable to operate at 100% capacity due to travel restrictions and new capacity regulations. In order to survive the recession, properties need to start looking at how they can save money, stop wasteful practices, and find creative ways to generate revenue.
3 Strategies To Save Money And Increase Hotel Revenue
1 - Cut Down On Labor Cost
Labor is typically the highest variable cost for hotels, making up 40-50% of total operating expenses. It’s also one of the hardest costs to cut down on because hotels can be unpredictable at times and are built on providing customer service.
Hotels can lower their labor costs by cross-training their team. Some hotels may have already started implementing this practice because the pandemic forced massive layoffs throughout the industry. Hotels that remained open had to keep a skeleton staff and cross-train their staff to ensure guests received the same standard of service.
Cross-training not only increases a team's efficiency, it also improves their job satisfaction and decreases turnover. Front desk staff can be trained to help in the restaurant or manage the property’s social media. A concierge can also assist in the valet department or with banquet set-up and take-down. Cross-training a team works best when their secondary set of duties aligns with their goals or skill set.
Another way that hotels can also cut down on labor costs is by investing in technology that can help staff increase their productivity. This can include simple tech instalments like mobile check in or digital room keys that speed up the check-in process or larger investments like a robot concierge that can help fill shifts or assist staff during peak hours.
Finally, reducing your menu or closing off a portion of the restaurant during non-peak hours can limit the number of front of house and back of house staff necessary without sacrificing the expected level of service that the hospitality industry is known for.
2 - Save On Utility Costs
Energy spending makes up 6% of a hotel’s total operating costs. Hotel’s have an opportunity to become more energy efficient that will save them money in utility costs and slow down equipment depreciation. A win-win.
Most hoteliers are familiar with energy saving tactics like LED lights, smart windows, and energy star appliances. Below we discuss other strategies that hotels can implement today to save them money in the long run:
Government Subsidies And Certifications
There are so many certifications or subsidies that hotels can apply for to save money on energy. Websites like the Database of State Incentives for Renewables and Efficiency can help you find policies in your state that help you save money by being energy conscious.
Ozone Technology
Ozone technology is an advanced cleaning solution that can be used in many different departments within a hotel. It’s multi-functional because hotels can use it to sanitize and treat both the air and water.
Here are a few examples of how ozone can help hotels save energy and money:
- Use ozone generator to deodorize and sanitize the air and linens in a hotel room while decreasing the amount of chemicals and labor needed to clean a room.
- Install ozone machines in washrooms to prevent the growth of bacteria and mildew. This will decrease cleaning hours and increase the life of bathroom equipment.
- Integrate ozone laundry solutions into the washing machine. This decreases the amount of water used, the detergent requirements, and the temperature of the water. Ozone also reduces the chemical harm to linens increasing their life cycle. Clear Water Tech did a case study with Apple Farm Inn and Suites and “reduced the hotel’s operating costs by 40%”.
Energy Consultant
Hotels can hire an energy consultant to evaluate their current utility spending and provide them with strategies to save money. Energy consultants will review all your utility bills and will find any errors or opportunities for your property. They’re also well connected with energy companies and are able to find creative solutions for you.
For example replacing old room thermostats with energy efficient ones can save hotels thousands of dollars. An energy consultant will identify that as an opportunity and will help source an affordable supplier through their connections.
Finding unique solutions to reduce a hotel’s total energy output is a controllable and easy strategy for hotels to save money on utilities and labor.
3 - Unbundle Services And Generate Ancillary Revenue
The airline industry has always been a few steps ahead of the hospitality industry. They were first to adopt dynamic pricing strategies in 1978 during the deregulation of airline pricing. Hotels started adopting this model in the early 2000s. In the early 2000s airlines unbundled their standard ticket. Items like checked luggage, seat selection, and on-board food are no longer included with your ticket and are now ancillary revenue streams for the industry.
Hotels can easily adopt this business model and only charge guests for services used. Up-sell for services like daily housekeeping, clean towels, or gym access. Tune Hotels and Nomad Hotels have seen success with pick and pay pricing for guests. Guests can build their own room package based on their needs or remove any services included in the price to reduce their room rate.
Unbundling services not only generates ancillary revenue, it can also help hotels save money on labor. Housekeeping is one of the highest portions of a hotel’s labor cost. By not including room cleaning or towels daily, hotels can minimize the number of housekeeping staff needed and utilities used.
Unbundling does not come without its downfalls. Hotel guests have become accustomed to certain amenities and products being included with their room rate. Transparency is necessary at the time of booking. Hotels might still receive backlash for being perceived as cheap. Allow for a transition time while your guests become accustomed to the changes in your pricing model.
Hey, it’s 2020 and we all have learned how to pack a carry-on to maximize space without any additional costs. It just took a few years to get used to it!
Final Thoughts
Hotel profit margins are shrinking. Room occupancy is down while labor and supply costs are up to ensure the safety of hotel guests. By evaluating labor costs, utility costs and unbundling current products, hotels can find creative ways to cut down on operating expenses. These strategies will not only help properties survive the anticipated corona recession, but will also continue to save them money as the economy recovers and set them up for long term growth and success.
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