Cost-effective saving and spending strategies heading into 2025
When it comes to maximizing a hotel’s revenue stream, there essentially are two approaches – spending to make money and implementing effective cost-saving methods – that continue to stand the test of time. Here, we take a look at both sides of this coin in a two-part examination.
INCREMENTAL SAVINGS THROUGH BETTER TECHNOLOGY
Take a pause and look at the macros for a moment, and you’ll realize that labor issues – both shortages and rising pay rates – will be systemic contentions in the foreseeable future. Yes, the pandemic did a doozy on the total number of available workers in hospitality and tarnished its reputation for young recruits, but it’s hardly the only factor. To name a few: the rise of remote work and its incentives versus on-property jobs, diminishing total workforce numbers among Gen Z, and changes in immigration characteristics – all beyond your control.
Whatever the secular trends, if you know labor will be a constant challenge, one arena where you can compensate to stabilize and grow GOP, NOI, or whichever other key measure you want to optimize is through adept use of technology. While there are many other areas where you can save – reducing headcount or via procurement, for example – recent advances in hotel tech now enable properties to ramp up efficiencies within every department so every associate or manager can do more with less.
To answer how technology can help you save money, some general points include:
1 Increasing team productivity through the automation of repetitive tasks.
2 Encouraging direct bookings to lower customer acquisition costs along with greater total throughput via more flexible payment methods.
3 Using pattern recognition to derive actionable insights for labor scheduling, recruiting, supply chain, reporting, or energy management.
Of course, as a caveat, this depends on what influences you as the owner or operator have over your tech architecture vs. what resides at the brand or corporate level. But even if you are largely hands-off from the system or feature selection, the powers that be are also constantly evaluating how various technologies can help you derive incrementally more labor efficiencies. In fact, they likely already have some great recently rolled-out solutions that need only your inquiry and resources for on-premises implementation and training.
It’s important to emphasize here that extra resources – as in some CapEx for setup, some additional OpEx, and your team’s time – will likely be needed to oil the tech engine that will drive your hotel’s operational efficiency. Therein, the theme for both saving and spending strategies becomes apparent: Sometimes, you have to spend a little more to make a lot more.
FORTUNE FAVORS THE BOLD
This requires boldness and a clear vision of how embracing technology will save over the long run. To stay within the three aforementioned areas of focus, this perhaps-counterintuitive approach can be articulated by looking at housekeeping through the lens of tech enhancements. By only looking at financial statements, this operation represents a huge line item – often the biggest for many properties – so the reaction may be to look for ways to immediately curtail direct costs.
But because labor is the most common bottleneck, it behooves you to keep morale in good form because the hidden replacement costs for high turnover – more overtime, recruitment, sign-on bonuses, shadowing, loss of leadership – will far outweigh shortterm gains in margin. Therefore, it’s a matter of using tech smartly, such as optimizing room cleaning orders to save supervisors time and satisfy guests via rush room functions as well as to enable individual housekeeper preferences like seniority or flexible shifts. Facilitating these types of optimizations may require a modern housekeeping tool at an additional monthly subscription or updating a currently-in-use module, which necessitates quality assurance of data interfaces and retraining.
Next, you can combine housekeeping optimization systems with labor analysis tools that can reveal ways to further reduce overtime pay through enhancements to flexible team scheduling or by looking at day-over-day requirements for stayover vs. cleanout cleans. Again, this may involve another monthly per-room software fee and resources for onboarding. Still, overall, the break-even point on these investments will be quite agreeable once you compare the tech costs to savings on other line items.
This principle of spending on technology for orders of magnitudes of savings in other areas over the long run can be illustrated by customer acquisition costs. For midscale, economy, and selectservice brands, the OTAs and their often-cantankerous commissions will forever be a prominent distribution channel. Even still, a concerted effort of incrementally deploying better technology across the entire guest journey will help with direct booking incentives or packages, algorithmic revenue management, and more personalized loyalty offers. Especially for on-premises operators, centralized guest data can enhance service delivery, heightening GSS and TripAdvisor scores to give you an edge in local market buyer comparisons.
No two hotels are the same, so the suggestions here must be individualized regarding which specific vendors or parts of the customer journey should be prioritized for an upgrade. Nevertheless, the overall point is embracing technology and giving it more resources will ultimately save on the bottom line, in this case, by lowering third-party acquisition costs to boost net revenues and profitability.
PROPERTY DIFFERENTIATION THROUGH INCREMENTAL SPENDING
When you pull on the string that is the motto of “Sometimes you have to spend a little more to make a lot more,” you realize a profound difference between being a cost-efficient operator and a cost-effective one. The former is pecuniary; the latter is still keenly aware of cost controls but allows for flexibility in new mandates with the potential for a serious upside once fully oiled and embedded in the day-to-day business.
That flexibility will allow on-property and above-property teams the bandwidth to explore programming that will result in property differentiation from the comp set or, as it’s commonly called, the reason to visit. Even for purely heads-in-beds flags in the economy or limited-service spectrum, having key amenities in the rooms or facilities onsite will add serious value in many ways that cannot necessarily be counted as a direct line-by-line comparison on financial statements.
So the benefits of spending more on amenities and facilities are clear, here’s what to expect:
1 Higher confidence in commanding above-market ADRs and more direct booking revenue share as leisure transient or corporate guests specifically seek out your brand.
2 You can package your bespoke facilities and ancillary revenue centers and upsell rooms or suites replete with amenities, which again can be used to induce more direct reservations.
3 You will win more group blocks with a greater overall contract value, as you have the facilities and features to support more dynamic and experiential meetings and events.
4 Heightened product awareness and passive marketing through improved guest satisfaction and word of mouth from locals, increasing brand equity over time.
The most important word to remember from those four key benefits is “experiential.” Increasingly, across all hotel categories, guests want more value for their time and are willing to spend a premium to maximize their time. Location and price will always be top drivers for bookings, but incrementally rolling out that X-factor will, over the long run, elicit far healthier returns to the bottom line than can be replicated by simply being a more scrupulous, cost-efficient operator. To be clear, engaging in these sorts of experiential offerings requires CapEx; it’s a marathon, not a sprint, and it requires owners and operators with a boldness of vision to execute.
Here are some examples of that reason to visit so you can get a picture:
- Reinvigorating the lobby with a vibrant new design, third place (work from anywhere) seating areas, a café, a lobby bar, or live music in the evenings creates a social scene that will draw in locals and create very positive buzz.
- Remodeling the main restaurant so it’s an inviting, trendy space but also suitable for breakfast, lunch, and dinner service (and direct booking packages), as well as off-hours dining – evermore important with the remote work microsegment.
- Remodel your meeting spaces so they aren’t just a conference center with ballrooms and breakout rooms, but perhaps add some areas for micro-meetings or evening games, which are now popular amongst millennial and Gen Z attendees.
- Also, on the experiential side, we want to become a turnkey activities provider by developing exclusive partnerships with local attractions and transportation networks.
- Investigating your options about guest and employee wellness programming, representing a huge growth area with numerous applications that now exist outside of a spa facility, all of which can either boost ancillaries or team morale to prevent churn.
- Supporting local artists, charities, causes, or sustainability efforts is a noble action, sure, but these will ultimately endear both guests and staff to your property, with the latter resulting in less turnover (and lower hidden replacement costs) over the long run.
These are, but a few ideas and much creativity can be had. The point underlying all of these is they take effort – time and money – to properly establish. For those operators already at full tilt, it’s tough to justify these sorts of investments, and yet they are mandatory lest the property become a slave to market rate commoditization and overly reliant on third-party distribution that eats away at net revenues.
The core of any CapEx project starts with a bold vision and realizing that spending more is necessary to make a lot more.
Together, (left) and are the world’s most published hospitality writing team, with more than a decade’s worth of material online. As the partners of Hotel Mogel Consulting Ltd., Larry focuses on the hotel operations and marketing, while Adam specializes in technology and wellness. Their experience encompasses properties around North America and Europe, with a focus on independent properties of all sizes. Their work includes seven books, the latest focused on increasing profits from wine sales in an environment of tight labor markets. You can reach them at [email protected] to discuss your business challenges or to book speaking engagements.
