Hotel costs and how to save on hotel expenses | Little Hotelier (2024)

What are hotel costs?

Hotel costs are the expenses you incur while running your hotel. Usually, you can split your costs into two categories: fixed and variable.

Fixed hotel costs remain the same, no matter how many guests you have. For example, rent payments or property taxes.

Variable hotel costs ebb and flow with how busy your hotel is. For example, food and beverage costs or guest supplies.

The challenge of keeping costs under control is an ongoing one and it’s particularly difficult in competitive industries such as the small hotel industry. In this blog, we’ll cover some of the common costs your hotel will face and how to manage these to keep your business profitable.

Getting started: hotel cost control and analysis

In business, cost control is defined as “the practice of identifying and reducing business expenses to increase profits.”

To find all your costs, run through your credit card statements and other places where your spend is documented. If you’re using software with accounting or reporting functions, this should be easily accessible.

Next you want to run a quick analysis to see where you’re spending money and where you may need to cut back your spending.

With your list of expenses in front of you:

• Compare your expenses to your budgeted expenses: are you going over budget and, if so, which areas seem to be the problem areas?
• Categorise your expenses (labour, food and beverage, utilities, marketing, subscriptions, accounting, legal, insurance, maintenance and repairs, office expenses and other relevant areas) to get an understanding of where your money is going
• Classify costs as fixed or variable: fixed costs are those that remain the same regardless of business activity while variable costs go up and down with changes in business activity levels
• Find controllable hotel costs: the expenses that can be adjusted or influenced by a person are the ones you really want to focus on – for example, switching off lights can bring down electricity bills but your monthly accounting software fees are generally fixed
• Calculate return on investment to work out which expenses are justified by the amount of money they bring back into the business.

Common hotel expenses and operating costs

Sometimes, it can be hard to remember all the costs you have until you start listing them down. It’s important to ensure you don’t miss anything so you can plan and budget accordingly, as well as take actions to reduce your hotel costs.

Here’s a list of five common expenses that you might be facing to get you started before we move onto food and beverage cost control (which can be a big one):

1. Hotel insurance costs

Hotel insurance costs are a worthy expense, because they protect your business from a variety of threats such as natural disasters, vandalism, lawsuits, or staff injuries.

One study found that the average yearly insurance cost for a hotel was $784 per available room. This means for a small accommodation, your insurance costs could range from $1000 to $5000+ per year.

To help manage your hotel insurance costs, try:

• Shopping around to get a favourable quote
• Bundle your hotel insurance with any other insurance policies you need
• Focus on risk management to lower your insurance premiums

You should also review your coverage regularly to ensure you’re both adequately protected and that you are getting a good deal.

2. Hotel room costs

Your hotel room costs are also extremely important. The money you spend on your rooms goes towards keeping guests happy and satisfied with your service. Expenses will include supplies, laundry and linen, cleaning, maintenance and repairs, and in-room amenities.

On average, it might cost you $30-$50 per room night to make your rooms available and fit for sale.

You can manage room costs by:

• Negotiating favourable rates with suppliers
• Take measures to optimise energy use, staff efficiency, wastage
• Utilise technology to automate certain tasks to save time and money
• Track and monitor your room expenses regularly

3. Average hotel utility costs

Hotel utility costs keep the lights on – literally! Even for a small hotel though, paying for water, gas, and electricity can be quite expensive. Each year, utilities can account for 6% or more of your total expenses.

Average costs will be affected by your property’s size, location, types of amenities, and occupancy rates.

Try to keep utility costs down by implementing ‘green’ strategies, negotiating better rates with providers, and using renewable energy.

4. Hotel labour costs

Hotel labour costs might not be a huge factor for a small hotel – in fact maybe you’re an owner operator who only has to worry about yourself.

If you do have a small team of staff though, there are still ways to optimise labour costs:

• Make sure your staff levels are aligned with your occupancy levels to ensure you aren’t over-staffed on particular days.
• Keep an accurate and up-to-date housekeeping schedule
• Treat your staff well and pay them adequately, so you can retain them and prevent the need to re-hire and re-train all the time.

5. Hotel laundry costs

Hotel laundry costs are a constant expense for your property. Just like utilities, they can account for 5% or more of your yearly operating budget.

This can depend on how many rooms you have, the types of linens and fabrics you use, how frequently you require laundry services, and your utility costs themselves.

Here’s a few ways you can control laundry costs at your hotel:

• Utilise energy friendly washers and dryers
• Implement eco-friendly strategies to save on water
• Optimise your loads to reduce the amount of times you need to wash
• Use high quality linens and products to extend their lifespan

Hotel food and beverage cost control

A small restaurant or other food and drink offering can be a drawcard for guests, however the costs can quickly escalate.

Food and beverage cost control is one area that deserves special scrutiny. While some of the general areas mentioned above can help you cut costs, including looking at suppliers and labour costs, there are some additional ways to improve your food and beverage profits:

• Get the pour size precise for alcohol by training staff or using jiggers
• Reconsider portion sizes if meals are often praised but often left partly uneaten
• Design menus so some ingredients and prep work are shared among dishes
• Shrink the menu and go for quality over quantity
• Make sure the kitchen isn’t over-prepping or failing to efficiently store ingredients, leading to waste
• Consider whether a breakfast buffet would work more efficiently as a “grab and go” style breakfast menu
• Cut down the hours or room service if it’s becoming a drain on resources

Methods and techniques for cost control in the hotel industry

If it looks like things have gone from bad to worse after your analysis, don’t panic! There are plenty of ways you can start cutting costs, including:

• Outsourcing: moving tasks that are currently handled in-house to an external provider often cuts costs through economies of scale (and by lowering your labour costs)
• Focusing on efficiency: money could be seeping from your business simply because your processes are letting you down (or you’re not allocating and using resources to maximise profits)
• Bulk buying and other ways to reduce supply costs: negotiating a better deal across all your suppliers can add up to significant cost savings
• Finding errors and unused services: running an eye over your bills to find costly errors or services you simply don’t use or need anymore can deliver quick money-saving wins
• Focusing on small savings: remember that making small changes consistently can add up to big costs savings in the long run.

Hotel cost control procedures you can action at your hotel

Ready to take action and start saving money now? Here are some practical ideas to get you started:

1. Reach out and make some calls

Call around and get a few quotes for major expenses such as insurance. At the same time, check in with your vendors and ask if they offer loyalty incentives or have any better deals for bulk purchases.

2. Review how you manage staff

If you employ staff at your property, could you train them to complete tasks outside their role when they have downtime? Could you better forecast when you’ll need additional staff and when you won’t? Could additional staff training allow more flexibility in rostering? Cut down labour and other costs by tweaking the way you manage staff.

3. Keep staff happy

Lose a staff member and you lose their experience along with the time and energy you’ve put into welcoming and training them. There are plenty of ways to keep your people happy (and avoid the costs of having to train someone else) from setting clear goals to recognising achievements, providing a few perks and adding flexibility and work-life balance to the mix.

4. Optimise your front desk operations

Your front desk is the heart of your hotel, and focusing on improving your front desk operations can lead to a better guest experience and a more efficient hotel – adding up to significant cost savings.

5. Fix it before you have to replace it

It can be more cost effective to fix something rather than letting it go and eventually having to replace it. Boost your maintenance schedule and work out if this helps cut down on replacement costs.

6. Go green

Going green in even small ways will help save the environment and also save you dollars. Educate staff on turning off lights. Install efficient lighting. Encourage guests to reuse towels. When replacing appliances, buy with the best energy rating high on your priority list.

7. Re-allocate your marketing spend

Effective marketing is critical in the small hotel industry, but traditional marketing can take out a big chunk of your budget. Consider reducing your spend and channelling the money into digital marketing, which is often more affordable and has the potential for massive reach and results.

Tools to help control hotel operations costs

If you’re examining and managing your costs manually, using pen and paper or Excel spreadsheets, this time drain can also become expensive for your business – undoing your efforts to save hotel costs.

Investing in hotel technology and software can not only help you manage costs, it can improve efficiency and decision-making across your entire business and boost your guests’ experience. Imagine being able to:

• Connect your channel manager and booking engine
• Take direct bookings on your website
• Track and measure which online sales channels are generating the most bookings
• Manage reservations with a simple drag and drop calendar
• Organise and streamline housekeeping
• Use a mobile app to manage your property from anywhere
• Get more time back to spend in the business or simply doing what makes you happy.