Hotel Profitability Improvement To Do List

Hotel Profitability Improvement To Do List

Click Here to Download the full Hotel Profitability Improvement Checklist

Stacked Coins representing Hotel Profitability Improvement

Market Dynamics

This Hotel Profitability Improvement Plan is about understanding what is going on in your marketplace.  In order to grow revenue, we need to first know what opportunities exist.  These steps are designed to help you create a process where you will track the right information about your business, gather information about your competitors and demand generators. You can take this and turn that data into actions to help put you make plans for improving in any economy.

Competitive Position

The key to Hotel Profitability Improvement is often in their approach to managing this issue.  All hotels look at the STAR Report, but highly profitable hotels use it as more than a report card.  True Competitive Positioning involves taking the market data you have gathered and determining how you stack up compared to your competitors in each segment.   This is the foundation for deciding how much you can grow, what pieces of business to go after, what changes you need to make in your product, and how you will sell against each competitor.

Staffing and amenities

One of the ways to create sustainable growth in revenue is to use your market and competitive position data. With this data you can determine what additional services and amenities you may want to add in order to acquire new business from your competition, or is becoming needed in order slow losses of existing business.

Guest Experience

Up to this point we have dealt with figuring out what travelers to our area want in a hotel, what they are willing to pay, what we offer compared to the competition, and how we should compete.  Guest Experience is, of course, the measure of how good a job we do of delivering our product.   All hotels, no matter how good, receive negative comments.  Hotels with high guest satisfaction understand how to manage expectations, deliver great service and most importantly deal with negative comments.

Rate placement

Determining what rates to sell each note is definitely a component of Rate Placement and Hotel Profitability Improvement, but it extends beyond that.  Highly profitable hotels have detailed plans to manage all of their rates.  They vary rates by booking channel and market segment, based on their overall goals.  They set rates according to what they are trying to accomplish, not how many rooms they are trying to sell.  Sales and marketing programs determine their rooms volume strategy, and the rates they list are reflective of their overall revenue strategy.  Regardless of whether they are upscale or midscale, they use negotiated volume sources to fill a base number of rooms, and the use of mass distribution sources (OTS’s) to sell their remaining rooms.  Rate is not their only means of driving demand.

Room Sales

All hotels sell rooms.  High-profit hotels plan out their room sales, not just take a wait and see what happens attitude.  These hotels track when their busy and slow times occur.  Furthermore, they track it by day of the week, time of year, and market segment.  If their base rooms come from business travelers, then they turn off, or heavily restrict, discount business at times of the year when corporate travelers are plentiful, and open those channels backup when they know corporate travelers will not be coming.  This allows them to maximize rates when demand for highly rated business is peaking, and minimize revenue loss, by taking enough low rated business to cover their minimum cost in low demand.

Service and Expense

Few hotels have significant overstaffing or overspending.  It does often occur during peak revenue times when there is enough revenue to cover up for a lack of solid scheduling and cost controls.   Highly profitable hotels track and understand the variability of profit at different occupancy points.  They open and close discount channels not just as rooms sold go up and down, but also as they find themselves at points where the next several rooms sold do not add expense, allowing for more profit from even s discount rate.  Managers of these hotels also understand that good expense management comes not from cutting expenses, but from managing the relationship between revenue and expense.

Next Steps

Want to learn more about Hotel Profitability Improvement and similar topics? Check out the rest of our Blog and Learn More or Sign Up for GROW, our free Profitability Growth Tools!

20 Ways to Optimize Your Labor Cost

20 Ways to Optimize Your Labor Cost

Ready to Optimize Labor Cost at your property? Follow our steps and you’ll be on your way! Download the full checklist here!

Cleaning Crew Labor Cost

Create Standards

Determine for each position what drives the need for more hours. Consult CIA’s “Positions and Drivers” list for ideas. The goal is to develop guidelines that allow you to prevent under or overstaffing as a result of scheduling habits.

How this Helps

Increases guest satisfaction by preventing understaffing due to down revenue.

Increases profit by eliminating unnecessary over staffing at times of high revenue.

Identify Minimum Labor Cost

Calculate the fewest hours and accompanying cost (multiply the hours for each position * the average rate of pay for that position) for a single day. Remember to include one day of salary for any managers.
This number can now be used to determine the minimum amount of revenue needed to make a profit, the maximum of rooms it can service, and the resulting average rate.

How this Helps

This is a critical number to understanding how to truly improve profit. You cannot reduce this cost further, without damaging guest satisfaction. Therefore time needs to be invested in planning how to stay as close to the minimum revenue point as possible.
This value can be used to help set needed revenue management goals, and look for ways to future dates below the minimum revenue needed.

Calculate Minimum Revenue

Take the minimum payroll cost you determined above and divide it by the payroll cost you wish to run. For instance, if I want to run a worst case 30% labor cost, and have a minimum daily payroll of $1000; the formula would be 1000 / .30. This would result in minimum revenue of $3333.
If you then determine how many rooms you could service with the minimum staffing (before needing to add more desk clerks, room attendants, etc.), you can then determine a targeted rate.

How this Helps

This calculation can help you determine what labor cost (and resulting profit) you are going to run at your lowest point.
If in our example minimum staffing would support 10 rooms, then the rate needed to hit the target would be $333.33 ($3333 / 10). As it is not likely that you can hit this rate, you would adjust it to a rate you are likely to hit. Using that resulting revenue, you would learn the true cost you will run at low occupancy.
This forms the basis for revenue management goals, as plans must be developed to avoid these levels. By knowing the number of days that you will be at low levels, you can then determine how many high-level days, and at what cost %, will be needed to offset low days.

Identify Labor Coast Leap Points

Using the standards, you can plot out how much labor you will have at every point of occupancy.
With that completed, you are looking for various points of occupancy, where you can sell a certain number of rooms without having to add any additional payroll, and conversely identifying where you might add a full shift

How this Helps

Most managers do not bring employees in for “splinter shifts” or less than 8 hours. Some states have labor laws defining the minimum amount of time that an employee must be paid for if called into work. If employees are scheduled in this fashion frequently it will lead to greater turnover.
If you are not going to go to a true “per room standard, you will have periods where the next 5 -6 rooms you sell will not require any additional payroll. Therefore, you can be more aggressive with the rate.

Begin Forecasting 1 Week Out

A major way in which labor cost becomes problematic is when scheduling is done without any idea of how much business there will be, or when managers incorrectly estimate the amount of business that there will be.
The first step in managing proper labor cost is to be able to accurately forecast for next week: how many rooms will be sold, what will the average rate be, how many guests will be in-house, and how many arrivals and departures will occur.

How this Helps

Even with a great set of standards, if we cannot accurately determine how much business there is going to be, we will either over or under staff based on bad assumptions.
If you are frequently calling employees in, sending employees home, or telling employees not to come in tomorrow, then you need to do a forecast.
This not only allows us to plan for proper staffing but makes employees lives easier as they can at least know when they will be needed.

Implement a Process that converts Standards and Forecasts into a

Schedule

If you have an accurate set of standards, and forecast of hotel statistics and revenues, the process of determining how many hours are needed can be automated in Excel or some other program.

How this Helps

Automating this process will help eliminate bad scheduling habits, and eliminate over and understaffing.

Measure Daily & Make Adjustments

Develop a report that shows what you forecasted for business levels, the hours you scheduled, and the resulting payroll.
Each day, check your accuracy of both volume and hours worked. If you either missed forecast or are using more or fewer hours, make adjustments for the rest of the week.

How this Helps

While our goal is to have accurate projections and schedules. Occasionally even the best of us will mess up, especially when first learning to forecast and use standards.
Monitoring results, allows us to fix the mistakes as we see them, protecting our profit margin.

Have a Weekly Review Comparing Schedule & Actual

Very similar to the Daily report, this report should compare what you forecasted and scheduled, to actual results for the previous. The weekly totals and an accuracy percentage (actual / forecast or schedule) for each value provide actionable data.

How this Helps

Two of the most important factors in maximizing your labor cost is having proper standards and an accurate forecast. This report allows you to see if you are good at forecasting and if you are sticking to your standards. This report can also help you to understand why you are not hitting standards and the cost of employees not punching in and out promptly.

Check your Metrics Monthly

Listed in the section below are a variety of labor metrics that profitable hotels monitor and use to take actions.
You can develop new reports to track these metrics, add them to an existing report (and your operating statement), or use a program like CIA’s HLO website to create the needed tracking.

How this Helps

It is not enough to track payroll dollars and hours worked. The reason is they are not comparable, variances in the volume of business can make it difficult to compare hours and dollars.
The metrics listed below are used because they are weighted by volume, allowing for accurate comparison to other hotels, or your own history.

Use your History to Adjust

Highly profitable hotels analyze their results (daily, weekly, and monthly), comparing to other hotels and their own history and their goals.

How this Helps

The rise or fall in the metrics, as compared to previous performance or results of comparable hotels is often the first indication that something is happening to your labor cost and profit.
Often changes in marketplace, rate, a mix of business that may otherwise go unnoticed will become magnified by their impact on payroll.

Begin Forecasting the next 30-60 Days

The real improvements in profit from labor cost optimization comes from learning to marry it to Revenue Management.
With the other steps here mastered, you should be able to take future revenue projections (from your PMS or Revenue Management System) and create an accurate projection of what labor is needed to service that level, and what the cost and profit will look like.

How this Helps

We are looking for three situations when doing this kind of forecasting:
1. Dates where we are projecting high-cost % of sales and potential losses.
2. Periods of time where room levels are at a level where increases will not add more labor.
3. High volume days (especially periods with low turnover) where we can maximize profits.
Our goal is to see these periods of time far enough in the future to have a chance to make plans.

Labor Cost % Of Sales

Total Payroll / Total Revenue
Payroll includes Managers, but not Taxes or Benefits.

How this Helps

The most basic and telling of labor measurements. This metric has the most direct relationship to Profit. As it goes up, profit goes down. With a little work, you can determine at what points in labor cost you will lose money, and at what points you will maximize profits.
Being able to understand what is impacting this metric is the first step in determining how to improve.

Hours Per Occupied Room

Total Hours Worked / Total Occupied Rooms
Hours include any hours worked by managers, but not holiday, sick, etc. Occupied rooms includes comps.

How this Helps

Increases or decreases in this metric will show how constant your service level is, and if you are flexing staffing with volume.
How well you compare to other hotels and your own history is a good indicator of efficiency.
Awareness is Efficiency, Efficiency is Margin, Margin is Profit.

Revenue Per Hour

Total Revenue / Total Hours Worked

How this Helps

When coupled with hours per occupied room, this metric will highlight the impact mix of business and rate, are having on your profit.
The most profitable hotels run the highest Revenue/Hour.

Full-Time Equivalents

Total Hours Worked / 8

How this Helps

FTEs are another way to compare staffing levels across different periods of time (month to month), or between properties.
A comparably high FTE count indicates that you simply have more employees in your building than you use to, or your fellow operators are using.
This can be useful to help control staffing from creeping up during high demand times.

Overtime Average by Day of Week

Use Excel, or some other reporting service, to track Overtime day by day. Then when you have at least 2 months of data, start averaging the data by day of the week.

How this Helps

Depending on your state laws, you should not accumulate over time until later in the work week if at all.
If you are incurring Overtime early in the week, or on several days of the week, or if you run a high percentage of overtime hours late in the week, you are understaffed.
If the trend continues, you may find it more profitable to find additional employees.

Room Attendant Hours per Occupied Room

Total Hours of employees cleaning rooms / Occupied Rooms

How this Helps

One of the most straightforward standards in the hotel business is Room Attendants. If your standard is built to accommodate Stay Overs vs Check Outs, Multiple Occupancy, and Deep Cleaning, then a comparison of actual hours to ideal hours should be very meaningful.
Like the majority of controllable expense, any effort to better control labor begins here.

Fixed % of Total Payroll

Total Management Payroll $ / Total Property Payroll $

How this Helps

Perhaps not high on the mid-scale operator’s list, but still worth monitoring. If this value is increasing, or high in comparison to other hotels, it might indicate that your manager is spending too much time functioning as an hourly employee. Basically, they are working in the business and not on the business. If the number is decreasing, or low in comparison, employees are likely unsupervised.

Minimum Payroll, Minimum Revenue, Maximum Coverage

Calculate the fewest hours and accompanying cost (multiply the hours for each position * the average rate of pay for that position) for a single day. Remember to include one day of salary for any managers.
Take the minimum payroll cost you determined above and divide it by the payroll cost you wish to run. For instance, if I want to run a worst case 30% labor cost, and have a minimum daily payroll of $1000; the formula would be 1000 / .30. This would result in minimum revenue of $3333.
Take the minimum revenue from the step above and divide it by the maximum number of rooms this staffing level can cover. 10 rooms, then the rate needed to hit the target would be $333.33 ($3333 / 10).

How this Helps

We discussed this above but will add some additional thoughts.
For many hotels the desire is to keep their employees and fully employed and happy. For others, their staff is already small, and major reductions cannot be made in any event.
The answer to both these problems is to understand 2 conditions, and know how to manage them. First, when we realize how expensive low revenue days are, we need to work hard to avoid them. Secondly, when the hotel runs high volumes, we need to resist the tendency to staff up, if it can be avoided.

Day of Week Trends

Use Excel, or some other reporting service, to track the metrics you desire day by day. Then when you have at least 2 months of data, start averaging the data by day of the week.

How this Helps

We look to day of week trends to help us get better at payroll management as a whole. This metric will show if we are using too much fixed-scheduling. If we see certain days of the week outperforming others, then we should be discussing how to replicate that success on more days. Again, metrics will make numbers considerably more comparable.

How to Properly Account for Utility Cost

Those of you who are users of our Profit Evaluation tool, or participate in Choice Hotels International’s Project GROW, know that we send out Monthly Tips on issues of compliance with the hotel industries accounting standards (The 11th Edition); the goal of the emails is to help you get your accounting lined up with industry standards. Without that attention to detail, the comparisons of expenses and knowledge you may gain from them, are seriously impacted.

“It’s the little details that are vital. Little things make big things happen.”

– John Wooden

 

One of the areas where comparisons can be of the most help to you is Utility Cost.

  1. Electricity
  2. Gas
  3. Oil
  4. Water/Sewer
  5. Steam
  6. Chilled Water
  7. Other Fuels (examples include propane, kerosene, diesel, geothermal, solar, wind)
  8. Contract Services (firms that are engaged in energy audits, water reclamation, or other services that reduce energy consumption)

Things that don’t belong under Utilities (and where they belong): Cable (Rooms Expense), internet (Information & Technology), Garbage (Maintenance), Pest Control (Maintenance).

Next Up – Accuracy Matters

Be sure to post each type of cost to the appropriate line, and keep current with your postings. Sometimes, accountants will post several types of cost to a single account, or miss a month and post two months at a time. This will cause issues for you in the event your Utility Cost is out of line with other operators. If your cost is high, the next thing to do is look at ach cost individually. If you are not tracking your expenses by type of utility, you find that you cannot determine which cost(s) are causing the issue. It should not be any harder to book the expenses individually than together. Similarly, season and volume of business are also contributors to Utility Cost variances. Posting monthly amounts will allow you to better see these fluctuations.

Help Is Out There

There are a number of FREE tips and resources for improving your utility costs, and you can learn about them from us, your Brand Representative, your local utility provider, or Google.

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How to Better Understand your Star Report

One of the tasks were hoping to accomplish on this site to assemble a collection of resources to help you address the various areas of profitability and the measurements you see in the various sections. Now you know what they say about reinventing the wheel, and some of the items we track, trend, and report to you have been written about extensively.

So when we talk about resources, they could be: Videos of presentations we’ve done, PowerPoints, Articles, Specific instructions on implementing a strategy, or sample report formats. Now we aren’t so arrogant to think only WE can tell you how to improve. From time to time we will invite other industry professionals to add content, and in addition to that we will also put articles like this up to help you find resources related to a specific topic.

This month we are featuring Smith Travel Research’s STAR Report. I’m sure that you have heard of and are using the STR Report. In my dealings, I have come across very few owners and operators who haven’t heard of the STR report and/or review their STR report. The group of hotels who understand all of the various measurements and can make sound decisions based on what they see, is a much smaller group.

I asked a dear friend of mine once what was the biggest thing she thought most companies missed on the STR report. Now this wasn’t some neighbor or coffee friend, she was a Cornell educated, Hotel Underwriter, who has worked as an Asset Manager for one the largest hotel REIT’s. Her response was “Their Rank in the Comp Set”. Her contention was that Index only told part of the story, and that her question to operators centered more on what are your plans for improving your Rank in Occupancy, ADR, and REVPAR. What’s interesting about her approach is that, unless you are ranked first, the index is not the whole issue. In some markets, 2 or 3 hotels hold large indexes, while 3 or 4 hotels are well below fair share. This could be a bad comp set issue, it could be a lot of things, but focus on Rank is a much clearer goal for the hotels in positions 2, 3, and 4. Their indexes may say more about the failings of the bottom performers than anything about their own success.

The STR report is a valuable tool, a weapon to wield. How well you can use it, can determine how well you succeed.

What Smith has to Say

Why not start at the source. The STR website has a lot of good content, and mush of it is actually understandable. There are documents and videos that can help you to figure out “What is all this?”

The link below will take you straight to their documents page
http://www.str.com/resources/documents

This link will take you to their videos page.
http://www.str.com/resources/product-tutorials

This link will take you their Glossary of Common terms.
http://www.str.com/resources/glossary#G

Other Resources

This is a quiz someone put together
https://quizlet.com/63247732/str-exam-flash-cards/

Here is an easy to understand article about understanding Market Penetration
https://www.xotels.com/en/revenue-management/revenue-management-book/market-penetration-index

Sometimes the STR report results are skewed by a bad comp set. Yes there are rules you have to follow, but there are bet practices in selecting a comp set. Here are two articles about the subject.
http://rethinkhotels.com/how-to-define-your-compset/
http://www.hotelnewsnow.com/Articles/27510/How-to-create-a-better-comp-set

Check these resources out. Email us with any specific questions about your hotel. If your index isn’t 100, let’s figure out why. If it is above 100, let’s see what your rank is. If you are above 100 and/or ranked #1, let’s talk about to protect your position. Highly Profitable hotels are predators. They are never satisfied and always looking to improve their position. There are hotels with REVPAR Index’s in the 200 range.

“Remember, contentment is the enemy of Profit. ABGB Always Be Getting Better”

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WHY you should follow the 11th Edition

Did you know that the Hotel Industry has a standard chart of accounts and Operating Statement format?

If you’ve heard me speak at a convention, or used one of the industries many profitability comparison reports then you’ve heard of and seen it.

The 11th edition was put together by a group Hotel Financial Experts in association with the American Hotel Lodging Institute (USALI) and the Hospitality Finance and Technology Professionals (HFTP). The standard Is used by virtually every large hotel company in the United States, be they brands, management companies, or REITS. Why do they all use the same format? Easy, comparability. The same way that hotel companies use the STR report to compare their Revenue and Room Sales, large publicly held companies want to compare expenses and profit. They use the comparisons to stay aware of expense trends and look for areas to improve the costmanagement and efficiency, much the way you might use the STR report to help set rates.

A second reason they use the 11th edition is investor comparisons. Wall Street and other investors require that the companies Profit and Loss statements be in a standard format to ensure a fair comparison to other hotel companies. REIT’s and other investors often own stock or assets from a variety of brands, and assess future investments and rebranding based on performance. Often times our clients ask for reporting on which of their management companies are run the best Labor Cost, Best Maintenance Cost, etc. This requires continuity across the reporting.

“We cannot solve our problems with the same level of thinking that created them”

– Albert Einstein

11 Reasons For Using the 11th Edition

So with apologies and acknowledgements to David Letterman, here are the top 10 11 reasons YOU should embrace the industry standard.

1.  Industry standard

    There is an industry standard, so why not use it? What advantage do you perceive to doing things differently than every other hotel? If your objection is, “What difference does it make”? Check out the next 10 reasons.

2.  Accurate expense coding

    You know the old saying “Everything in its place”. Well this is one of the first benefits that you will gain from embracing the standard. There is an Expense Dictionary in which you can look up any item or service you purchase, and it will reference exactly what account to which the item should be coded. In a study of Maintenance Expense we found that the average cost per occupied room for 700 hotels was $5.94, the HOST average for Limited Service Operators was $4.11. If you are one of the hotels in our study, would you want to know how to save $1.83 per room? For a 60 room hotel, running 70% occupancy, this would produce over $28,000 more in income. The first issue to resolve is: “Are you accounting for Maintenance the same as these other hotel”? If you are on the 11th Edition, the answer is YES! Oh and one more point, the lowest cost reported by a hotel was .81 cents, and the highest was $38.76. I assure you those owners have accounting issues, and it shows.

3.  Comparison to industry averages and studies

    Maybe you get Smith Travel’s HOST report, or CBRE’s annual study of hotel profitability, or you are user of CIA’s Hotel Operating Profit Evaluation, or participate in CHOICE hotels Project GROW. Your use of all these tools is heavily impacted by how well your accounting and reporting comply to the industry standard. All the reports mentioned are based on the 11th edition. You will need to have standardized department totals for Payroll Cost, Taxes and Benefits, and Other Expenses. Without these totals, all you can learn is how you compare at the top and bottom. If your Profit is 35% of revenue, and the industry average or your segment is 45%, then all you will know is that you are well below average in profit production. Now if you line up throughout the report, you will see exactly where you need to improve. Beyond the reports listed, there are sources like online articles, sessions at conventions, industry blogs, etc. that discuss hotel cost and profit. Your ability to benefit from this type of material will increase if you are following the industry standard.

4.  Financial Lending Requirement

    As discussed earlier, financial professionals, almost uniformly, require reports submitted to them to be in the standard format. A large part of their valuation is based on your earnings, and how those earnings compare to other hotels. In order to make this assessment, they want to compare apples to apples, and they often don’t want to have reformat your reports. I can tell you from personal experience of owners who were looking to refinance their property, or were presenting a current properties P&L when trying to secure financing for a new project, and were told to resubmit their report in the standard format.

5.  Operations vs accounting reporting

    In addition to the standard accounts and definitions of what goes in them, there is a common format to the report as well. The format chosen is designed to create an “Operating Statement”. This is a report that can be used to make Operations Decisions, not just compile numbers for tax filing. The statement is separated by department, and includes subtotals of payroll, payroll burden, and other expenses for each department. The format shows both Monthly and Year to Date amounts on the same page. This allows to see not only what happened last month, but to also see if there are long term trends that need reviewing. This format also includes comparisons to prior year and budget, and metrics that make for truer comparisons than just dollars. You should be able to share the report with managers, be able to have monthly P&L reviews using only the report, and be able to develop detailed action plans to make improvements.

6.  Comparison to your own history

    One of the features of the standard format is the inclusion of values from the same time frame Last Year. Owners look for year over year improvement, in the same way employees have some to expect an annual increase in wages. (If the notion of giving employees an annual increase pay is a new concept to you, read some of our material on the cost of turnover). This goal, make Year Over Year variance a key variances that owners want operators to manage. Assuming you can accept this reality, then you should understand the value in putting the Last Year numbers, and variances versus Current Year front and center on the report. Part of your P&L Review should be an examination of performance versus last year, and an honest understanding of what is causing the variances. In addition to Last Year, all major operators and highly profitable hotels, also include comparisons to Budget on their Operating Statement as well. Having an established set of goals for the property, and managing to those goals changes you from a passenger along for the ride, to driving your own success.

7.  Metrics

    We all can understand that when you are comparing expenses from two periods of time (this year vs last year, this month vs last month, etc.), comparing to other hotels (or groups of hotels), the first question is “How many rooms did they sell”? This is necessary because it is axiomatic that if you had more rooms sold, you are going to spend more servicing them. If there are two hotels each with 70 rooms, and one spent $7,000 on Housekeepers and the other spent $10,00 on Housekeepers, there isn’t much you can tell from this. In fact, if you are the first hotel, you may think “I’ve won. I spent less.” But, if we use Cost Per Occupied Room we can learn a lot. By dividing the expense by the number of room occupied, we get a fair comparison. Using this method, we see the first hotel spent $6.45 per room and the second $5.15. The second hotel is clearly more efficient.
    This same approach is needed for accurately comparing your current year and last year values. Unless you had the same number of rooms and the same revenue, a comparison of dollars can be very misleading.
    Your Operating Statement should include Cost Per Occupied Room and Cost Percent of Revenue at a minimum. For some line items (expenses) you may also want to see Cost Per Cover, Cost Per Available Room, or Cost Per Day.
    Conversations with managers, brand representatives, accountants, etc. will be much more productive if you focus on the proper metrics, and eliminate cross talk about differences in volume of business. If you have ever been involved in a conversation like this:
    Owner, “Why are spending so much in breakfast?”
    Manager “We had more rooms.”
    Owner, “We had that many more rooms?”
    Manager, “I guess.”
    Then you need to be looking at and discussing metrics, whether you are the Owner or the Manager. Make your conversations meaningful.

8.  Informed decisions and improved communication

    As I touched on above, the standard operating statement became the standard because it helps Multi-property managers, Owners, and Analysts to have clear communication, and ask more meaningful questions. When reviews and discussions focused on dollars, entirely too much time was wasted trying to determine the impact of volume on the numbers. The inclusion of metrics allowed hoteliers to find the real issues and move on to solving for the problems.
    The Metrics and Comparisons described above give you accurate benchmarks to agree on, and will stop owners and managers from arguing over whether or not a goal is fair, and get on to planning specific actions to obtain it.
    In a recent conversation with an owner we were discussing Room Attendant cost. The manager was convinced that there had to be something different about their hotel, because they were spending so much more. We sat together and looked the Cost Per Occupied Room and Hours Per Occupied Room on a day by day basis for 6 months. When we reviewed it this way, the manager was able to see that were plenty of days where she was running the same levels she thought wasn’t possible. Together we determined what conditions were causing the “bad” days. The manager made the changes, and payroll cost dropped into line.
    Awareness and understanding of industry measures, focus on comparable values (metrics), and having a format that make both clear, will allow you to work together to improve performance.

9.  Hiring qualified people

    One of the best habits of highly profitable hotels is that either hire or develop highly skilled managers. Their managers have a high financial acumen, and our as skilled at managing a P&L as they are at managing guest and employee relations.
    In converse to this, low profit operators tend in, strong numbers, to have inexperienced managers. Often time their managers are extremely hard working, and were the best desk clerk on property. They know the PMS and Reservations system like the back of their hand, they are wonderful with the guest, they are the first ones to come in and cover when someone doesn’t show up. They are valuable employees, and can be developed into quality managers, but they have no knowledge of financial statements. Teaching them to manage an industry standard statement will pay dividends to you for many years to come.
    If you are new to the industry, or looking to improve your properties performance, bringing in an experienced manager can pay immediate dividends. When I use hiring GM’s for a large brand, the first two questions I asked candidates was: What’s the GOP at your current hotel, and What do you run for payroll cost? These are two questions that experienced GM’s will answer off the top of their head, because they live and breathe these two values. If your reporting isn’t in the industry standard, it will say a lot about you. The same way you are interviewing candidates, they are considering you. Presenting professional, industry standard reports, and a knowledge of them WILL help you to secure better candidates.

10.  Reputation

    This brings us to how other view you and your properties. Whether it is dealing with financiers, brand representatives, potential candidates for positions, other owners, or any one in the industry in general, your compliance to reporting standards and your understanding of industry metrics and benchmarks is going to be a positive on your business.
    No bad numbers in the correct format are not going to magically look better. The correct format, and your ability to explain your numbers does tell others that you are actively driving your business, and not merely a victim of luck (be it good or bad). Think of all the situations where you want to be taken seriously and seen in the best light. In many ways, the reporting we are discussing is the foundation of your reputation. You keep your hotel clean, you make sure your employees are polite, and do other things to make sure that customers think highly of you and want to stay at your hotel. The reporting standards establish the same value in the eyes of your company with business partners.

11.  Value of your asset

    So all of this comes down to the value of your asset. You did the work to build and acquire hotels, you work hard to maintain and operate them. Someday you will want need to move on from them. Whether your exit strategy may be to sell your properties, or to pass them on to family, you want them to be a valuable as possible.
    Think about the 10 reasons above this one. They are all moving you in a specific decision: Make as much profit as possible without destroying your investment. Show margins as good as, or better than similar operators. Be a knowledgeable, savvy, operator who is taken seriously by outside entities. All with the end goal of making sure there is no reason anyone will discount the values of your asset.
    I realize that the Business Man in you is probably thinking, “If my numbers are good, who cares what the report format looks like.” I would only as you to consider the accompanying quote.
    Little things that may seem unimportant can have a big impact. Choose reports and measurements that help you dig deep, and stay aware of how things relate and affect one and other.
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Why 23% Labor Cost Matters To Limited Service Operators

If you’ve heard me speak at conventions, the number in the title is no big surprise. After years of benchmarking thousands of P&L’s, and measuring Labor Cost vs GOP, we have found a strong correlation between the two values. Labor Cost % is your total payroll divided by your revenue compared to your Gross Operating Profit divided by your revenue.

“It is not enough to do your best; you must know what to do, and then do your best.”

– W Edward Deming

 

First, a little ground work. In math there is a calculation known as R2 or R squared, known as the Coefficient of Determination. I know, great name, right. The R2 value is used to measure how much a number impacts another number. For instance, how much does what I spend effect my bank balance. Well that would be an R2 of 1.00, as every dollar spend reduces my balance by the same amount. So a perfect direct correlation would be 1.00. Okay, so back to our story. If we charted Revenue vs Profit we would find an R2 of around .83. So think of it this way, if we were comparing 2 hotels, the one that made more in revenue would make more in profit 83% of the time. That’s easy enough to believe. You would expect to make more profit if you made more revenue, right? When we look at Payroll Cost we find an 2 of around .73. So if we looked at 2 hotels, the one who had the higher Labor Cost Percent of Revenue (or Ratio to Sales) would have the lower GOP Percentage 75%of the time. Labor cost is almost as accurate a predictor of profitability as revenue.

This gives you a great way to measure how well you are controlling your labor, and driving your profits. 98% of all hotels whose labor cost was below 17% posted GOP’s better than 35%. 91% of hotels with labor cost between 17% and 20% had GOP’s of 35% or better. The trend continues on a pretty straight line. When reach hotels above 23% they are only 23.3% likely to achieve a GOP above 23%. The odds are even worse once you get above 27% Labor Cost. Take a look at the chart below.

What’s Your Birthday?

If you look at the chart you will see that only once, out of 738 hotels, does someone run a labor cost higher than 27%, and still achieve a GOP above 35% (The arrow). This means that you have a 1 in 369 chance of pulling this off. The next time you are on a plane, or at a theater, ask the person next to when their birthday is, there is a 1 in 365 chance it will be the same as yours. So… there is a better chance you will find someone randomly sitting next to you has the same birthday than you will break 35% GOP with a Labor Cost over 27%.

Check out what your Labor Cost is running on the dashboard here on VOA. Look in the Personal Profit Improvement Plan for more information about Labor Cost and how to control it. Email us or your Brand Representative to get some specific recommendations.

You know what they say about death and taxes being the only two guarantees in life. This isn’t a guarantee, but it is pretty darn close, 75%. How many things in your life happen 3 out of every 4 times?

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Operations Process Assessment

For the past several years I have spoken at Choice’s Annual conference. The overriding theme of those sessions is “The Habits of Highly Profitable Hotels”. The concept that is there are common reports, measurements, and processes used by hotels that achieve high GOP’s. Don’t get me wrong, they start out with making sure they producing the proper revenue, but there is also a way they approach managing their business that drives their daily, weekly, and monthly task list.

With that in mind, I set out to find out how they approached some of the industry standard practices. The idea is pretty simple. The same we can show you a direct line between Labor Cost and GOP, with a very high correlation (labor cost will correctly indicate GOP around 74% of the time), we wanted to see how using certain reports, understanding certain metrics, and performing certain processes had a direct correlation to GOP. For instance, do we find that the frequency with which hotels perform Linen Inventory equates to higher GOP, at the very least, what practices can we say are truly common across high profit operations.

Operations Process Assesment

There is a reason these operators ae successful, and there is a reason they value certain processes. Our hope is that we can provide all of our clients’ guidance and reinforcement on the implementing “Profitable Practice. If you are user of the Virtual Operations Analyst, think of this as a “Conversation with ProfitScape residents, on what life is like in Pinnacle City.” (If you don’t what that is, Ask Jim is always on option. It’s over there on the left.)

So with that in mind, we started with our most successful clients and trusted advisors. These are people who include Brand Representatives, Owners, REIT Analyst, Multi-Property Managers, Property Managers, Consultants, my Mom, and some others. The criteria for the baseline group is; Limited Service Hotels had to be running GOP’s above 42%, and Full Service Operators needed to be above 32% GOP.

We found somethings were consistent across the full sample, some were in practice at the vast majority, and some were not as widely adopted. Interestingly enough, the percent of people using a tool was not directly proportionate to its perceived value. Let me try to clear that up. Some of the practices recommended for use by less than half of the group, but the people who recommended ranked it as very important to their financial success. Based on the final results, come of the survey group actually adopted the practice. This is what I love the most about profit driven operators, they are always looking for ways to get better, and never cling to the past just for the sake of believing they are right.

How on earth does this help you!

Where is all this going, where can you find out these “Habits”? Here on www.ciavoa.com, there is an Operations Process Assessment. You can get to it from the “Activities” menu, the “improve Your Operations Quotient” menu, or (well shoot) just click HERE.

This is a simple survey that will ask you about the same items as the survey group. For each item you will indicate: Do you have the process in place (do you do it) is a simple Yes or No. How important is it to you, where you will rank importance on a scale of 1 – 5, and How well do you think you are executing this, which is another scale of 1 – 5.

So let’s look at “Hotel has a PM program in place with checklist performed on all guest rooms 3 times per year”

If you don’t know what PM stands for click on Ask Jim on the left, or ask your Brand Representative. By the by, it means Preventive Maintenance. So if you have a Preventive Maintenance program like the one described, you would check the box for “Do you have this in place?” If you don’t do it, don’t check the box.

Now comes how important is it to you?

If this is something you believe is critical to operating your hotel put a 5. If you do it, but honestly you don’t know why”, then you would rank it as a 1. And so on, and so forth.

Finally, how good are you at the task, or how well do you understand it?

Again this is a 1 to 5 scale. If you have a maintenance person doing PM, but management doesn’t spot check the work, then you are probably at a rank of 3. If you have a PM process, but it does include a checklist of what should be done, you are probably a 2. If you don’t track the completed room numbers and the dates they were completed, then you are likely a 1.

Don’t worry about the ranking scale, answer to the best of your ability. Once you are done you can share your results with your Brand Representative and discuss whether adopting or improving your execution of the actions would pay you benefits. In addition, we will be able to present you with specific articles, links, and exercises to show you how the task in question will improve your profit, and how to properly implement and execute the task.

This could be articles like “How PM improves your REVPAR and reduces your Capital Expense”, a link to a written PM process, or a link to an expert who can help you.

Oh yeah, one last thing, for a low fee ($50.00) we will give several additional resources that will help you to implement the various tasks on the questionnaire. We will score you based on your answers, and show you how your overall score compares to others (and to the high profit survey group), as well as how your answers on individual item compare. As with all of our other comparisons, our goal is to give you the ability to compare your use of the items listed to: Your Brand, Hotels Your Size, Your Geographical Area, etc.

I know this isn’t as direct and exciting as Labor Cost at high profit hotels (<17% of revenue FYI), but this gives you some direct feedback on how high profit hotels operate, and some actions that you can implement. Properly implementing these processes, reports, and measurements WILL have a positive impact on your profit.

 

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10 ways CIA makes your accounting and reporting better

10 ways CIA makes your accounting and reporting better

1

Electronic posting of Property Management System data eliminates transposition errors.

2

Electronic posting of Property Management System data eliminates miss-coding.

3

Regardless of your accounting system, our interfaced reporting package provides you with an industry standard format, with no additional data entry.

4

Provides an automated way to ensure your payments and revenues are in balance.

5

Provides an automated way to ensure that your Guest, Advanced Deposit, and City Ledgers are in balance.

6

Improves credit card reconciliation by creating daily records and balance checks, reducing unseen variances.

7

Provides a Daily Report that not only tells you what happened yesterday, but also helps you plan out what you’ll do tomorrow, and suggest ways to drive PROFIT.

8

Provides all the metrics and comparisons your managers need to make better operations decisions

9

Provides an easy to use Combined and Comparable report to see how all your hotels are doing on 1 report.

10

Provides you a monthly comparison of spending compared to similar revenue, same brand, similar size, similar markets, etc.  Comparisons are at a detailed account level, and are in dollars and metric.  (Comparisons available are based on other users in the program meeting the requested criteria)

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CIA Software @ Choice Conference Las Vegas 2018!

We are honored to be presenting at the Choice Hotels Convention in Las Vegas for a 6th year in a row. It has been great getting to know the Choice Family and teaching Management how to improve their Profitability. We have some exciting things in store for 2018! Stay tuned for Session Information and More!
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