Ultimate Guide to Increasing Revenues by Reducing Costs at Your Hotel
We believe simple hacks just don't hack it. That's why we've compiled a list of real, actionable areas of your hospitality business that you can take action on today
Any one who has been in the lodging industry will agree, running a property is a business full of fees and expenses. The goal of any business owner is to increase revenues as much as possible. For a lodging business, there are basically three options:
- Increase bookings
- Raise prices
- Reduce costs
Needless to say, some of these options might not be possible. You could already be charging as much as your market will allow, and increasing bookings is a long game that we’ll discuss in another article.
On the other hand, reducing costs is something almost all property owners and managers can do. Chances are there are some low-hanging fruit ripe for the picking that you could implement in just a phone call or two.
That being said, it’s important to put the customer first. According to Gary Isenberg, president of asset & property management services at LW Hospitality Advisors, “We can’t just reduce expenses for the sake of reducing them; we need to maximize customer relationships.”
At InnTender we spend every waking hour thinking about how to help hospitality managers and owners make more money, so we compiled our years of experience into this in-depth guide.
We’ll cover several ways of reducing your expenses and give you actionable steps to take to reduce your costs and increase your revenues at your hotel, bed and breakfast, lodge, or motel.
Until robots can replace every function a human can do, the biggest expense for any hotel or lodging property by far is labor costs, accounting for an average of roughly 50% of total operating expenses, before deductions for management fees and non-operating income and expenses. Front desk kiosks can’t yet replace front- desk personnel, and we don’t live in the 60’s utopia of spray down interiors, so we still require housekeeping.
Considering that labor costs seem to be rising faster than annual revenue-per-avail- able-room growth rate1, how can a hotel keep labor costs under control so they can increase overall revenues?
Even though a hotel can’t operate without good employees and since the robot uprising hasn’t risen yet, there are still some opportunities to keep these costs under control.
Because payroll accounts for roughly half of a property’s expenses, small improvements can make a significant difference.
Gary Isenberg, president of asset & property management services at LW Hospitality Advisors, said “As an asset manager, every hotel we’ve looked at we’ve found new payroll efficiencies. The easiest opportunity would be housekeeping rooms production.”
Isenberg recommends reviewing housekeeping’s room turning payroll recorded vs scheduled. He suggests most often, hotel managers will see a discrepancy.
“If you ask 10 GMs what their rooms production looks like, they’ll say housekeepers flip 15 to 16 rooms per shift, spending 30 minutes in each room,” he said. “Often times it’s more like 13 rooms a shift. If you look at your processes and manage to get those numbers back up to 15, you will see significant savings over time.”
Of course these numbers could vary depending on the type of room, such as a stay- over versus a check-out or perhaps, a suite versus a double queen room.
As mentioned above, taking a look at your payroll inefficiencies may help uncover some opportunities to make your employees more productive, which can help you increase revenues.
There may also be tax credits you are eligible for. Consider the Work Opportunity Tax Credit (WOTC). If you hire veterans, ex-felons, summer youth employees, or any of the other types of employees listed on the IRS website, you may be eligible for a tax credit that reduces your year end tax debt.
As with anything having to do with taxes or the IRS, it can be a lot of work to complete the pre-screening, certification, and to claim the credit.
With InnTender’s payroll partner, this process is included at no additional cost. That means InnTender customers can potentially enjoy this tax credit without the heavy, upfront workload.
Since payroll is a huge portion of a property’s expenses, it represents a large risk to the organization. Because of this and the complexity with running payroll, many managers opt to use payroll services or hire an accountant.
Generally, for most lodging properties it’s much more affordable to hire a service or an accountant than to calculate and run payroll in-house, but it still represents an expense.
For hotels that decide to take this on themselves, it can require a significant investment of time, even for small teams.
If you’re operating a property that is still manually calculating and handling payroll, our first suggestion is to consider using a payroll service or asking their accountant.
For properties already outsourcing their payroll processes, there is still an opportunity to save even more through InnTender’s payroll partnership. InnTender customers who opt for payroll processing are assigned a payroll specialist with over 30 years of experience with payroll processing.
As if that wasn’t enough, InnTender’s payroll partner will also accept payroll liability which saves properties even more in expenses.
Hiring and Retention
Obviously the value of a good employee far outweighs the cost of a bad employee. When a good employee leaves, it can make a major impact on the company, so it’s important to keep good employees happy.
Not only can their departure affect moral, they can be expensive to replace.
A study estimated that replacing a non-management employee costs as much as 30% of the employee’s annual salary, whereas replacing a manager incurs almost 50% of the manager’s annual salary
High staff turnover is a problem many properties in the lodging industry face. In a study of multiple hotels in the United States researchers were able to show a strong association between high employee turnover and a decrease in hotel profits.
So how do you retain good employees? The short answer is by keeping employees happy. A study of employees in the hotel industry confirmed that happy employees who report job satisfaction are much more likely to stay.
What leads to job satisfaction? There’s no one silver bullet, but rather it’s a combination of feeling good at their job, like they’re part of a community, and reasonable expectations.
Firstly, Adequate job training can help with employees feeling good at their job. The study mentioned above showed that training was positively related to job satisfaction. We cover training in depth in the next section, so we won’t go into great detail here.
Secondly, another thing that can help employees feel like they’re good at their
job and understanding what’s expected of them is onboarding. Studies show that employees who participate in onboarding initiatives are much more likely to stay with a company after three years than those who receive no onboarding support as a new hire.
InnTender has partnered with a payroll provider to offer a full HR program and an employee onboarding program which can help your new employees get up to speed faster and help them stay happy at their job for longer.
Thirdly, Feedback is also a very important variable for developing happy employees. Knowing when they’re doing their job correctly and getting actionable feedback on how to improve makes employees much more effective and happier in their positions. When employers develop a shared care/shared promise that all employees buy into, there is no stopping just how powerful a team can be.
In today’s modern world, no business can run without the help of software. As Marc Andreessen said, “Software is eating the world”, and in the lodging industry, software is sitting at an all-you-can-eat buffet gorging itself on optimizing every tiny detail of the hospitality industry.
On the one hand software helps improve productivity of every employee, and is an absolute necessity to compete in today’s industry, whether we’re talking about a boutique motel or a large branded location.
On the other hand, even good software can be expensive and slowly chip away at your revenues.
Property Management System
Let’s look at your Property Management System (PMS) as an example.
Many property management systems cost between $3-5 dollars per room per month to start. That means even a basic, base-level installation of a standard PMS for a 50 room hotel could cost the hotelier $1,800 – $3,000 a year. For a property with 200 rooms, that could balloon to $7,200- $12,000 per year whether you’ve booked rooms or not.
That’s the equivalent of giving away 18 – 120 rooms every year. And that’s not including the added cost of add-ons and integrations!
If you’re a seasonal business, you have to pay this cost every month whether you have rooms booked or not. That means some months you’re starting in the hole and have to work even harder to break even.
So how do you save money on your PMS costs and reduce your expenses?
Fortunately for the managers in the hotel and lodging industry, there are companies that will partner with owners and managers to ensure they get paid first.
InnTender for example, only makes money when the rooms are booked. That means InnTender only makes money when you do. For a seasonal business, that can mean the difference between a white-knuckle, hand-wringing slow season and the reduced stress of being able to say “at least we don’t have to worry about our PMS cost”.
Find out more about InnTender’s pricing structure here.
Just like software is eating the world, so are credit cards eating commerce. Most hotels are opening their cash drawer less and less these days, and instead customers are handing over their plastic to be swiped or inserted.
While in many ways this simplifies accounting (no more counting cash drawers and cash drops) and reduces the chance for skimming from the drawer, properties don’t pay a processing fee when a customer pays in cash.
Credits cards on the other hand are a different story.
Since banks and merchant processors own the systems and act as a middle man, there are several fees the property ends up having to pay in order to accept credit cards. These fees can be charges like PCI compliance scans, gateway fees, and processing fees.
You even have to worry about high chargebacks and their associated fees.
Let’s talk about some of the biggest sources of credit-card-related expenses at your property.
Unless you’re in the credit card industry, you can be forgiven for knowing that PCI is important, but not knowing exactly what it stands for and how it affects you. PCI is short for PCI DSS, an acronym for Payment Card Industry Data Security Standard.
That mouthful of jargon is basically a set of industry standards for providers and merchants to make sure that cardholder data is protected when stored and transmitted.
How does that affect a property? Hotels, motels, bed and breakfasts, condo associations, and any other properties in the lodging industry that accept credit cards are required to adhere to the standards outlined in the PCI standards.
Isn’t that the responsibility of my credit card processing company? Yes, but only partly. There are still several aspects of PCI compliance that fall on the shoulders of lodging properties.
What if I ignore the standards? Adhering to PCI compliance seems expensive, but the alternative can be worse. If you’re found to be non-compliant, you could face significant penalties including lawsuits, audits, fines and even losing the ability
to process credit card payments. Any one of those could take down any lodging company.
Even worse, if you’re out of compliance, credit card companies won’t assist you with chargebacks. That makes every charge back a loss no matter how much. The cc company will always side with their customer and the hotel manager has little to no recourse. Almost every hotel manager we’ve spoken with experiences chargebacks for one reason or another.
If the worst case scenario happens and you suffer a breach, it can cost a hotel an average of $182 per compromised record. This does not include the cost of defending a potential lawsuit or fines for non-compliance from individual credit card brands.
“Visa has maintained that no compromised entity has yet been found to be in compliance with PCI DSS at the time of a breach.”
Keep in mind, even though your payment processor has to maintain PCI compliance, the liability for breaches still falls on the hotel. That means regardless of how compliant your providers are, your property has to be able to pass a PCI compliance audit.
So how do you reduce your expenses associated with being PCI compliant?
First, make sure you maintain compliance. The costs of a potential breach or fines for being out of compliance far outweigh the costs of making sure you’re compliant.
Secondly, Make sure your payment processor is compliant. You can search for them here: https://www.visa.com/splisting/searchGrsp.do. If they are not compliant, find a processor who is. There is no excuse for a company handling credit cards to let their compliance lapse.
InnTender makes this step easy because we maintain PCI compliance by processing credit cards out of scope. That means InnTender does not store or keep credit card numbers, which eliminates breach warranty.
Third, make sure you complete your PCI compliance audit on time. For small hotels and properties, a self assessment questionnaire will suffice. For medium and large hotels, it’s recommended the properties use a PCI audit firm.
InnTender customers have the annual audit provided at no charge through our payment processing partnership.
EMV & Chargebacks
One of the most persistent and expensive credit card frustrations for the hotel industry are chargebacks. Before EMV, the credit card companies usually sided with the customer over the hotel, even if the hotel knew the customer’s complaint was fraudulent.
How expensive are chargebacks? Let’s say a customer was staying in a room that cost $200 per night. When the guest checks out and pays, the hotel is charged a 3% processing fee (your fee might be higher or lower, these fees vary quite a lot). Once the guest leaves, if they call their credit card company and claim they didn’t actually stay there or dispute charges on their bill (like damage or loss caused by the guest), the hotel is now required to return the $100 per night charge (which you could have sold to another customer), plus you lose the 3% fee you’ve already paid, and to add insult to injury, you also have to pay a chargeback fee, usually around $25.
Typically, no matter what you do, there’s no way of definitively proving the guest is wrong.
That is unless you have a chip reader and EMV integration.
Without a chip reader, if the customer says they didn’t use the card, you’re liable for the chargeback. If you do use a chip, the bank will see the customer is there, so you have a much lower risk of incurring a chargeback. InnTender’s payment processor will even help dispute the chargeback on your behalf.
Clearly an EMV card reader is an absolute necessity for any modern hotel, but if you don’t already have one, how do you get setup?
Most property management systems not utilizing a gateway don’t offer EMV processing. The reason is because EMV processing requires direct connection to the credit card companies, which requires a major investment in programming each connection. That means even once they connect with Visa, they have to invest a lot more money just to connect with MasterCard, American Express, etc.
For PMS companies that have invested in EMV integration, they will want to recoup that investment, so of course they will charge you a gateway fee to use it. Usually you will also be charged a setup fee for credit card processing as well.
At InnTender, we believe customers shouldn’t be nickel and dimed for every feature, so we automatically offer EMV processing for every customer.
InnTender has teamed up with a direct credit card processor that uses no gateways, which eliminates gateway fees, and improves services through the use of a dedicated hotel specialist serving your hotel property. And to sweeten the deal, there’s also no setup fee for the credit card processing.
With InnTender’s payment processing partner, you have a dedicated US-based hotel specialist that can help you with everything you need.
These days processing fees are just a cost of doing business. These processing fees mean some small portion of every room charge ends up in someone else’s hands. Just like many tiny grains of sand can create a mountain, that seemingly small percentage can add up to a hill of cost at the end of the year.
Processing fees are typically a small portion of each credit card transaction. If you look at a single transaction, it can seem like very small, reasonable amount.
Processing fees might sound pretty minor, but they can add up fast. Even a small change in credit card processing fees can mean a difference of thousands of dollars per year.
Even though this is a minor expense in the grand scheme of things, at InnTender, we believe in helping the customer increase revenues and decrease costs as much as possible, so even if it’s small win, we’ll count it.
So how do you drop your fee?
One option is to call your credit card processor to negotiate a lower fee and/
or a reduction in surcharges. Alternatively, you can call around to other payment processors to try to find a better rate. Both options take time and more than likely, you have more important things to do.
Another thing to consider is whether your credit card processor has their own gateway, and whether they charge for it.
Luckily for you, at InnTender our payment processing partnership guarantees they will either meet or beat your current rate. Combined with InnTender’s no-cost PMS and you’re double dipping on the cost savings!
At InnTender we believe in helping lodging properties increase revenues. That core philosophy drives every decision we make, from our dedication to not nickel and dime our customers for every piece of functionality, to providing the best-in- industry support based in the United States.
InnTender’s PMS system helps property owners and managers manage their properties with intuitive software that doesn’t cost an arm and a leg.
In fact, we’re so dedicated to our philosophy, we believe we should only make money when you make money. That means we don’t charge per room per month like many other property management systems do.
Now you might be thinking “They must have almost no features in order to do that”, but we have one of the most feature-rich systems on the market today!
If you want to learn more, we’re happy to schedule a demo and answer any questions you might have.