10 Strategies for Improving Hotel Profit Margins

June 16th 2023

Maintaining healthy profit margins is crucial not just to survive in the competitive hospitality industry but also for the sustainability and healthy growth of your business.

Maintaining or improving profit margins demands a strategic approach to managing costs, optimizing efficiency, and maximizing revenue streams. These processes can be undertaken by owners and managers directly or handled through a partnership with an experienced hotel management company such as Prospera Hospitality.

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Why Are Profit Margins Important?

Profit margins do more than just keep your hotel afloat. In healthy business operations, profit is used to reinvest in the business. Investing in regular maintenance and relevant upgrades, such as technological innovations, can be a great way to sustainably grow your hotel. How much profit is needed depends on the size and type of hotel you're running. We'd be happy to talk to learn more about your property and its needs!

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How do I Boost My Hotel's Profit Margins?

To boost profit margins in hotels, there are two main areas to focus on: increasing income and reducing costs. This much seems clear, but how do you do that? Prospera Hospitality has worked with hotels for decades and learned various strategies to optimize operations, maximizing profit margins.

Increasing My Hotel's Income

The obvious step in improving profit is to increase your income. In a hotel, income comes from selling hotel rooms. But there are many more ways to make money with hotels. Some may require an initial investment, but all can generate great income streams once set up.

Ideas to increase your hotel's income:

Smart room occupancy
Room upgrades & upsales
Optimized guest experience
Alternative incomes
Clever marketing

Smart Room Occupancy

One of the main ways to calculate a hotel's revenue is by using the Revenue Per Available Room (RevPAR) strategy. This tactic measures how effectively hotels are making money from their available rooms. To calculate RevPAR, we use the hotel ADR (average daily rate) and the occupancy rate. This way, we can learn if rooms are sufficiently filled and strategically priced to generate profit.

Nowadays, there are handy tools to help you with occupancy forecasting and optimization, as well as dynamic room pricing. Integrated calculators can advise you on room rates to increase occupancy during the low season and maximize profit during the high season.

Room Upgrades & Other Upsales

Generate additional income through room upgrades, special services (early check-in, late check-out), and premium products.

Alternative Services

Other than making money with your hotel rooms and services, income can be generated via other venues. For instance, conference or meeting room rental, on-site bar and/or restaurant, spa, and more.

Happy Guests

Guests should be the main focus of any hotel. After all, they are the ones providing your income and are also the ones who can greatly affect your hotel's success. When we talk about happy guests, we don't just mean offering them the very basics of a hotel: a room to sleep. Guests can be turned into happy guests by offering them personalized experiences, thoughtful offers, and outstanding services. If you're lucky, a happy guest turns into a return visitor. But even if they don't, they can greatly boost your profit by leaving a positive review, recommending your hotel to others, and word-of-mouth.

Clever Marketing

Invest in a robust marketing strategy to position your hotel amongst its competitors. When used well, marketing can help hotels set up their brands, making it stand out from the competition and ideally, making it memorable. For example, the Marriott Hotel chain uses its distinguishable "M" for its branding, and its dark red brand color to create a consistent presence, both online and in person.

Reducing Overhead Costs in Hotels

The second step to boosting your hotel's profit is by reducing what you spend. Often, this can be done by streamlining your business operations. Implementing sustainable efforts to reduce usage (of water, food, electricity, etc.) can be a great cost-saver in the long term without sacrificing your guests' comfort.

Ideas to reduce your hotel expenses:

Streamline operations
Technology integration
Clever Investments
Negotiate vendor contracts
Invest in sustainability

Streamline Operations

Think of the areas where your hotel incurs the most expenses. For example, labor costs, electricity & water bills, and maintenance. These are areas where a lot of money can be saved. Labor costs can be reduced by smart scheduling and technological integrations. Electric and water bills can be reduced through sustainability initiatives. Maintenance costs can be decreased by investing in your property and materials.

Technology Integration

Improve the guest experience and optimize functionality without adding to your employees' workload. Technology can be a great help in payment processing, scheduling, forecasting, and whatnot. In addition, things like online check-in or apps to order room service can be a great way to make it easy for your guests to get what they need, while reducing labor intensity.

Clever Investments

Address minor issues early to prevent costly repairs and extend the lifespan of equipment and property assets. For example, seal a leaking window before significant water damage occurs, replace air conditioning units before they stop working (and possibly lead to unhappy guests), and use mattress encasements to extend the lifespan, comfort, and cleanliness of beds.

Negotiate Contracts

Maintain relationships and regularly talk to your vendors to ensure you get the best prices and deals. It's also advised to keep an eye on the market to spot better rates, if they become available. This can be quite a timely process, so don't hesitate to reach out to our team if you need a hand!

Invest in Sustainability

As mentioned earlier, sustainable practices are a great way to reduce operational expenses. Bonus: it can score some bonus points with your guests as well! Reduce your energy bill with smart lighting, thermostats, and other technologies. Install water-saving showerheads, faucets, and toilets to reduce your water bill. Cut food waste in restaurants by only buying what's needed, using the aforementioned technological integrations for accurate forecasting.

Let Us Help Boost Your Hotel Profit Margin

Prospera Hospitality has partnered with hotels across the US to implement these ten strategies and more. With our decades of experience and track record for success, we can help hotels of all sorts and sizes improve their profit margins and work toward sustainable growth. Reach out to our team via the form below. We'd love to learn more about your property!

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