Still, there's never zero cost. Even a closed hotel has expenses. So, too, do hotels operating at reduced capacity.
One of the areas that hoteliers should always be mindful of is utilities, which in the 11th edition of the Uniform System of Accounts for the Lodging Industry (USALI) are recorded in the Property & Maintenance schedule. Utilities include electricity, gas, propane, oil and water/sewer.
Utilities can have a massive impact on a hotel's profit. And even before the global pandemic tore through the hotel industry, those sneaky costs were growing rapidly. According to Energy Star, energy is the lodging industry's single fastest-growing operating cost. This means that many hoteliers are unwittingly flushing a growing amount of cash down the drain.
Simply put, hoteliers can't save what they aren't measuring. And so the right benchmarking strategy can flip the switch on utility costs.
The data on utilities is striking: On per-available-room basis, utility costs are down on a year-over-year basis for July, but substantially up on a per-occupied basis, illustrating how a dearth of rooms sold is impacting an otherwise fixed cost.
In this blog, we'll discuss how to set up a benchmarking 101 strategy for utilities in the hotel industry and drive more profit during uncertain financial times.
It's all too easy to let utility costs fade into the background. Most hoteliers are busy trying to reduce the economic damage of COVID-19. Plus, with so much emphasis on RevPAR, room occupancy and how much money is coming in, too many hoteliers let utility costs slip through the cracks.
Unfortunately, what many hoteliers don't realize is that it doesn't matter how much money rolls in if that cash is being siphoned off on the way to the bottom line.
That's why benchmarking utilities fits perfectly into a broader hotel performance strategy — one that focuses on operational efficiency and higher profit. By identifying those utility costs that are burning cash, hoteliers can increase operational efficiency. And that's the blueprint for a solid, leak-free pipeline from top-line revenue to bottom-line profit.
With this broader strategy in mind, here's how to set up and use a benchmarking 101 strategy for utilities:
Utilities affect every inch of a hotel or resort's operation. That means it's best to take a holistic approach to measuring utilities. It may be tempting to scan total utility costs and shoot for a lower number, but this approach won't necessarily tell the complete utility cost story. Here are some deeper metrics to include:
These metrics should be any hotel professional's guiding lights. As managers work to shrink utility costs, they can come back to these numbers to measure the full impact of moves.
With a firm grasp on overall utility costs, hoteliers can build out a plan to lower utility costs and increase profit. Remember, every cent of extra profit growth a hotelier carves out will help them claw back from crisis.
Here are a few characteristics to focus on when setting up a full utility benchmarking strategy:
Start by examining where energy could be better used on the property. Are physical sections of the hotel naturally protected from heat or the cold? How is sunlight affecting temperature? Subtle adjustments like adding shades or more insulation can have a big impact on daily utility costs.
When looking for places to save, dive into how spaces are being used. Are there areas that need 24-hour light or heat? Where can energy be limited? Remember, every small saving opportunity has the potential to add up quickly — especially in areas that operate 24/7.
Dive into utility bills, fuel logs and energy sources. Are there opportunities for alternative energy sources or smart lighting and HVAC systems? Again, because so many spaces remain lit up in the industry for long periods of time, this is an area where savings can pile up.
It's easy to leave a faucet running longer than needed or to waste water through ineffective design. In fact, Urban Land points out one case wherein faucet aerators cut a hotel company's water consumption by 91,000 gallons in a single year. Everything from replacing showerheads to leaving a simple reminder for guests or employees to monitor water usage can reduce water waste.
Furthermore, cleaning protocols brought upon by the pandemic have actually led water consumption to rise, in areas like laundry, resulting in water bills that are as much as 30% higher than they were pre-pandemic. Understanding these costs is the first step toward containing them.
The bottom line when it comes to utility benchmarking is this: It's easy to waste what you don't notice. Every time a light is left on or an empty room is left cooling down, that's money lost. In the current climate, hoteliers simply can't afford to overlook these cash sinkholes.
The right utility benchmarking strategy will shine a light on these less obvious costs, and illuminate a path towards profit long after COVID-19 is gone. And when paired with broader hotel benchmarking data, hotel pros can turn off high costs and flip the on switch for higher profits.
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David Eisen is Director of Hotel Intelligence and Customer Solutions for HotStats, a monthly profit-and-loss data benchmarking service. He is responsible for business development activity in the Americas and developing marketing strategies to drive HotStats’ brand awareness. Prior to joining HotStats, David served as Editor-in- Chief of the Questex Hospitality Group, which includes Hotel Management magazine. His responsibilities included overseeing content direction for the magazine and website, and leading content creation for events and conferences under the Questex umbrella. Prior to Questex, he was hotel editor at Business Travel News. David has a master's degree in hospitality industry studies from New York University’s Jonathan M. Tisch Center for Hospitality and Tourism. He frequently participates on panels and roundtable discussions on myriad global hospitality industry trends and topics.
Director of Hotel Intelligence and Customer Solutions for HotStats