Improve Profitability: Labor as an Investment, Not an Expense

For Hotels, Labor as an Investment Rather than an Expense Can Improve Profitability

The hotel industry is benefiting from a strong economy. However, as hotel revenues and profits increase, so, too, do the expenses. Many of these costs are unavoidable—labor, utilities, property costs, and taxes—but of these, labor costs are by far the most significant operating expense for hospitality organizations.

While there’s no getting around the need for labor, there are ways to optimize your labor’s ROI. In fact, with an effective strategy, you can transform your biggest expense into your greatest investment.

Labor Costs Are Rising, But It’s an Investment That’s Measurable

According to the CBRE Trends® in the Hotel Industry Report, labor costs for the Rooms Department increased 4.8% from the previous year, while overall, total labor costs climbed 4.2%. Typically, hotels measure expenses vs. budget, rather than tracking results vs. productivity goals. Why does this matter? Because smart investors track dollars invested based on a target return. It’s all about the performance of the investment. Expenses can be managed in the same way.

With many labor roles necessary to keep these properties open and functioning properly, hotels should consider staffing based upon productivity targets (i.e., minutes per room-MPR) and guest experience parameters (i.e., check-in times). A “zero base” modeling exercise can be helpful in determining appropriate labor requirements for hotel operations as well as how to understand the benefits of incremental labor investments.

While additional labor may be an investment needed in a variety of departments—from housekeeping to front desk staff—what’s critical here is to ask yourself what productivity targets are you focusing on for your labor investment. All of your employees have specific roles. The actual work that they do is measurable, both quantifiably and qualitatively. Set targets and metrics based on internal goals, then validate against external benchmarks.

How to Reduce Labor Costs and Maximize Productivity in 2020

Conventional labor cost controls aren’t designed to assist managers in making intelligent investment decisions. Whereas, when you shift your approach to managing labor as an investment, it can dramatically improve profitability. The key to optimized productivity is to establish standards and expectations, then measure for every role while verifying your internal best practices against industry benchmarks. It’s also critical to create a culture of accountability with labor check-ins. Through the use of automation, technology can support your pivot while measuring the impact.

Overcome the Challenge of Labor Costs with Hotel Effectiveness

Increasing labor costs represent over 40% of a hotel’s total operating budget. Many factors contribute to this number, such as overstaffing, overtime, and contract labor. In fact, overstaffing is a major subcomponent of a hotel’s labor costs, with some areas being overstaffed by up to 20%. Further, helping to boost revenues at peak—a necessary evil—overtime is another factor to consider, as well as the need for contract labor in specific situations. However, improved insight and an approach that measures the productivity targets of each role can enable better forecasting and reduced costs.

Using Hotel Effectiveness platform, PerfectLabor™, hotels can have clear context around labor expenses. As a leading provider of labor management solutions for hotels, we can help your business become more profitable while you continue to invest in labor strategically. With the visibility offered through our tools, you can reimagine labor costs as labor investments.