Don’t let labor costs ruin your profitability

0

by Del Ross

Labor expenses are on the rise for the third straight year in 2019. Worker scarcity, regulations, and other market conditions are pushing hotel wages up with no end in sight, and overtime levels plus contractor usage are soaring. As a result, for most hotels, labor expenses are growing five times faster than RevPAR, reducing operation profits and income each month. Combined with rising interest rates and the always-growing cost of distribution, hotel profitability has never been more at risk, and this is all happening during a good economic cycle.

Wages are controlled by the market. Beyond using wage comparison tools (LobbyLights.com, for example) to ensure that your hotels’ wages are aligned with those of your competitors, there is little you can do about hourly rates. Fortunately, every hotel can take steps to dramatically reduce overall labor costs without sacrificing service quality or the guest experience. A recent study by the Blackstone Group found that use of labor management techniques can deliver expense reductions of 4 percent to 12 percent for almost any hotel.

“A limited-service hotel should see labor savings of 4-6 percent,” says Michael Escalante, the independent labor management consultant who performed the analysis for Blackstone. “Full-service hotels can save more than twice this amount.”

There are three basic steps to reducing total labor costs:

  • Create labor standards: Use the staffing guidelines that connect hotel’s positions and key business drivers
  • Connect schedules to labor plans: Match up the labor standards with operational forecast to produce actionable schedule plans for every department and position
  • Hold teams accountable: Communicate labor plans and measure real-time performance to obtain optimum performance

Labor Standards

Most positions in a hotel are “variable,” meaning that they are linked to a volume-based driver such as arrivals, departures, restaurant covers, and so on. The staffing rules, or “standards,” for these roles can be documented as a straightforward math equation. For example, the check-in process takes about four minutes and checkout takes about a minute and a half. If you’re expecting 25 guest arrivals and 20 departures during a given period of time, you know that you need 130 minutes of front desk labor (25*4 + 20*1.5 = 130) to cover that interval. Creating a similar standard for each staff position – housekeeping, shuttle drivers, restaurant servers, etc. – will make it perfectly clear how much labor is needed within a specific period of time.

Labor Plans and Schedules

With labor standards in place, match the standards up to daily, weekly, or monthly forecasts to produce labor plans. These plans will outline labor requirements for each hour of each day for every department in the hotel. Labor plans become the scheduling template. Managers will save a lot of time by simply assigning team member names to these schedule templates, and every schedule addresses exactly what labor is needed. A best practice for this kind of “smart scheduling” is to also track the cumulative and forecasted hours per employee, enabling managers to track overtime risk in advance and make adjustments so that the required hours are distributed among team members in the most effective way possible.

Team-Level Accountability

Every hotel has a labor budget, but budgets aren’t plans, and they aren’t meant to serve as a guide to scheduling. Labor plans are actionable and measurable – in advance. A well-run hotel will require every manager to check in to their labor performance vs. plan every single day, making adjustments when necessary and annotating the reasons for any exceptions or variances to the plan. “What gets measured, gets managed” is as true for labor management as it is for everything else. In a typical hotel, only the owner and perhaps the regional or general manager track profit performance on a daily basis. By making labor management a part of each manager’s daily process, the entire leadership team will be linked to gross operating profit (GOP) and net operating income (NOI), aligning everyone’s interests and activities to the priorities of the owner.

Making It Real

Some hotels use homegrown spreadsheets for labor management. Others put everything on whiteboards in the back office or break room. These methods work, but for most hotels, it’s easier and more cost effective to use specialized technology to implement labor management. For example, Hotel Effectiveness provides labor management technology to more than 3,000 hotels, and for most clients, the inexpensive solution delivers measurable cost savings that are more than eight times the price of the service.

Whether you use Hotel Effectiveness or your own in-house tool, it’s crucial to begin implementing labor management solutions today and to begin enjoying reduced labor expenses right away.

Del Ross is the chief revenue officer for Hotel Effectiveness, a labor-management software provider. For more information, visit www.hoteleffectiveness.com.

Share.

Leave A Reply