Currently, the average hotel profit margin stands at approximately 4%. That may not sound like a lot but considering not long ago the industry was hovering at a 1% return per annum and these numbers start looking pretty good. Of course, these are average numbers with some hotel chains sporting returns of 8% or more while a great many are losing money.This begs us to ask where hotels are gaining their highest ROIs. The answer to that question is not as simple as it may first appear. As a general rule hotels can generate income through 5 major sources. Where they are garnering the majority of their profits will, to a great extent depend on the class of hotel and its target clientele. It also can't be forgotten that none of these divisions truly stand alone but are all interdependent on each other for success.Let's examine these primary income sources more closely.
This should be an obvious area, to begin with. Lodging, after all, is the reason that hotels exist. According to Kristin Rohlfs at the Hospitality Research Group, approximately 65% of all hotel revenue is derived from booking rooms. At the same time, it must be remembered that the maintenance upkeep and servicing of these rooms also account for the majority of a hotel's operating expenses.Also if the hotel is attached to a facility like a casino the rooms themselves may be seen as a loss leader to be used getting customers in the door and most of the other the amenities offered are just another way of keeping them there.
Most hotels of any reasonable size are going to have a bar or lounge on the premises. It is one of those items that the majority of patrons expect to be available on site. This is an area where the profitability of the operation is highly dependent on the type of hotel, its location and the type of clientele it services.Higher priced establishments tend to have the highest profit margins, followed by those in the discount bracket and also serving locals, with the middle ground seeing very little overall gain other than keeping their guest happy. Hotels that offer bottle service to their rooms also see a drastic increase in their profits.
Whether at a simple breakfast buffet or in a fine dining restaurant everyone needs to eat and food services are one of the most tried and true methods of keeping guest onsite and spending their money in-house. In the overall scheme of things, food service should produce about 25% of a hotel's income.Here again, this is an area whose profitability is highly dependent. Some hotels have found offering a free breakfast is an excellent way of drawing more clients to their establishments which makes the expense of the meal, both a loss and leads to higher profits overall.As a general rule though, the potential profit of a restaurant is once again determined along economic lines. Those with an average check of $15 or less averaged a 3% overall return. Eateries with an average check of 15.00-24.99 have the highest average profit margin at 3.5% and those fine dining establishments with a bill of more than $25 per patron had the lowest profitability only showing a return 1.8%
Hosting Events and Meetings
This is an area where actual profitability can be near impossible to calculate in general terms. There are simply too many variables that can come into play to offer any hard and fast answers in the limited space available here.You have rental fees for spaces ranging from meeting rooms to ballrooms. There could be added amenities like tables, chairs, lecterns, and decorations which may be included at no cost or charged for. Catering and bar services that will vary greatly depending on the type of event being hosted and late night parties and dealings always contribute to room registrations as well as added clients in hotel restaurants for breakfast.Needless to say, the ability to host events greatly enhances a hotels profit potential but again many factors come into play that makes exact numbers hard to define.
Spas and Gyms
Hotel spas and gyms can be operated as amenities to enhance guest comfort and further gain their loyalty. However, many hotels have now started offering memberships to local clients. This basically turns their facilities into a business within a business and provides an additional income stream to feed the hotel's bottom line.So, what is the answer to the question about what part of a hotel operation provides the highest and quickest return on investment? There really isn't a hard fast answer. The argument can be made that in most instances rooms are going to be the major contributor to the success of a hotel but there are cases, as noted above, where that may not be so.What really brings in the most ROI for hotels is proper management. Companies and managers knowing their market and how to best reach, serve and retain their target clientele.A facility located in a business district will most likely have guests with very different desires and needs to those located in the heart of a beach vacation community. Clients in Las Vegas will have many different expectations than those in New York City or Oklahoma City. The shortest path to operating a hotel in the Black and avoiding the Red is maximizing services in the proper areas while minimizing expenses without sacrificing service. In other words, following sound business practices.