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.

Sustaining or improving profit margins demands a strategic approach for 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.

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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. As a hotel management company, Prospera learns about a property’s unique needs to develop a customized profit margin strategy.

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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 revenue and reducing costs. So how do you do that? Prospera Hospitality has worked with hotels for decades and learned various strategies to optimize operations and maximize profit margins.

Increasing My Hotel's Revenue

The obvious step in improving profit is to increase your revenue. For a hotel, most revenue comes from selling hotel rooms, but there are many other potential sources of income. Some may require an initial investment, but all can generate great revenue streams once in place.

Opportunities to increase your hotel's revenue:

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

Smart Room Occupancy

One of the main ways a hotel evaluates its financial performance is by calculating Revenue Per Available Room (RevPAR). This metric indicates 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.

RevPar = Average Daily Rate x Occupancy Rate

There are many tools to help 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 & Services

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

Additional Hotel Amenities

In addition to room sales, hotels can generate revenue through on-site services and amenities, such as conference and meeting room rentals, wedding and event space rentals, bars, restaurants, and spas.

Offering additional services and amenities are great ways to impress your guests and boost your profits.

Happy Guests

Guests should be the main focus of any hotel. After all, they are the ones providing your income, and they can greatly impact 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.

One measure of success is when a happy guest turns into a return visitor. Even guests who don't return can greatly boost your profits, though. Leaving a positive review, recommending your hotel to others, and sharing positive experiences by word-of-mouth (or social media) are all ways that guests can influence your hotel sales. The happier your guests are with their stay, the more likely they are to recommend your hotel to others!

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. Brand recognition can go a long way when potential guests are searching for hotels, especially in competitive markets.

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.

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Ideas to reduce your hotel expenses:

Streamline operations
Technology integration
Wise 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 and 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. Specialized software and technology help make payment processing, scheduling, forecasting, and other hotel processes more efficient. Features like online check-in or apps for ordering room service can be a great way to improve the guest experience, making it easier for them to get what they need, while also reducing labor intensity.

Wise Property Investments

Address property maintenance issues early to prevent costly repairs and extend the lifespan of equipment and hotel 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 a time-consuming process, so don't hesitate to reach out to our team if you need a hand!

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Invest in Sustainability

Sustainable practices are a great way to reduce operational expenses. Plus, it can score you bonus points with your guests as well! Reduce your energy bill with smart lighting, thermostats, and other technologies. Install water-saving shower heads, faucets, and toilets to reduce your water bill. Cut food waste in restaurants by only buying what's needed, using technological integrations for accurate forecasting.

Let Us Help Boost Your Hotel Profit Margins

Prospera Hospitality has partnered with hotels across the U.S. to implement these strategies and improve profit margins. With our decades of experience and track record for success, we can help hotels of all 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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