Revenue vs. Profit: A Hard Lesson for New Hoteliers
Seeing your hotel fully booked and revenue flowing in feels great—but does that mean you're making a profit? Not necessarily. Many new hoteliers assume that high revenue equals success, only to be shocked when profit margins shrink. Let’s break down the key expenses that eat into your earnings and how to manage them effectively.
1. Cost of Goods Sold (COGS): The Hidden Hotel Expense
Every room night you sell comes with associated costs. In hospitality, this includes:
- Complimentary toiletries, linens, and cleaning supplies
- Breakfast and beverage costs for guests
- Laundry and housekeeping expenses
To keep COGS under control, negotiate better vendor contracts and track inventory meticulously to avoid waste.
2. Labor Costs: Your Largest Operational Expense
Your staff is the backbone of your hotel, but wages, benefits, and overtime add up quickly. Common labor costs include:
- Front desk and concierge salaries
- Housekeeping and maintenance wages
- Restaurant and bar staff payroll
Optimize labor expenses by scheduling efficiently, cross-training employees, and using smart technology to reduce unnecessary overtime.
3. Utilities: The Cost of Keeping Guests Comfortable
Electricity, water, and gas are necessary for providing a comfortable guest experience, but they can also be a silent profit killer. Consider implementing:
- Energy-efficient lighting and HVAC systems
- Smart thermostats in rooms
- Water-saving fixtures to reduce utility bills
4. Maintenance & Repairs: An Ongoing Investment
From HVAC breakdowns to plumbing issues, maintenance is an unavoidable cost in the hotel business. A proactive approach can save you money in the long run:
- Schedule routine inspections
- Use predictive maintenance software
- Invest in quality infrastructure to minimize frequent repairs
5. Marketing & Distribution: The Cost of Getting Bookings
Your hotel won’t fill itself—you need to attract guests through online travel agencies (OTAs), direct bookings, and advertising. Key marketing expenses include:
- OTA commission fees (like Expedia or Booking.com)
- Google and social media ads
- Website maintenance and booking software
Encouraging direct bookings through loyalty programs and email marketing can help reduce reliance on costly OTAs.
Boosting Profitability: Where to Start
Understanding expenses is step one; optimizing them is where profit growth happens. Here are three strategies to improve your bottom line:
- Automate Where Possible – Use property management systems (PMS) to streamline operations and reduce labor costs.
- Monitor KPIs Regularly – Track RevPAR (Revenue per Available Room), GOPPAR (Gross Operating Profit per Available Room), and labor cost percentages.
- Upsell & Cross-Sell Services – Increase per-guest spend by offering premium room upgrades, spa packages, or dining deals.
Final Thoughts: Revenue is Vanity, Profit is Sanity
Running a successful hotel isn’t just about generating revenue—it’s about controlling expenses and maximizing profitability. By keeping a close eye on costs like labor, utilities, and maintenance, you can ensure your hotel thrives long-term.
Contact us today for expert advice on optimizing your hotel’s expenses and boosting your bottom line.
