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Benchmarking 101: The Bottom Line on Utility Costs

In the age of COVID, numerous operating costs have decreased, as hoteliers have done all they can to reduce expenses to help offset the extreme reduction in revenue.   

Still, there’s never zero cost. Even a closed hotel has expenses. So, too, do hotels operating at reduced capacity.

One of the areas that hoteliers should always be mindful of is utilities, which in the 11th edition of the Uniform System of Accounts for the Lodging Industry (USALI) are recorded in the Property & Maintenance schedule. Utilities include electricity, gas, propane, oil and water/sewer.

Utilities can have a massive impact on a hotel’s profit. And even before the global pandemic tore through the hotel industry, those sneaky costs were growing rapidly. According to Energy Star, energy is the lodging industry’s single fastest-growing operating cost. This means that many hoteliers are unwittingly flushing a growing amount of cash down the drain.

Simply put, hoteliers can’t save what they aren’t measuring. And so the right benchmarking strategy can flip the switch on utility costs. 

U.S. Total Utility Expenses

Ratio July 2020 July 2019 Variance
Per Available Room $5.22 $8.15 -36.0%
Per Occupied Room $26.64 $9.96 +167.5%
% of Total Revenue 13.4% 3.2% +10.2%

The data on utilities is striking: On per-available-room basis, utility costs are down on a year-over-year basis for July, but substantially up on a per-occupied basis, illustrating how a dearth of rooms sold is impacting an otherwise fixed cost.  

In this blog, we’ll discuss how to set up a benchmarking 101 strategy for utilities in the hotel industry and drive more profit during uncertain financial times. 

Why Hoteliers Need a Benchmarking 101 Strategy for Utilities

It’s all too easy to let utility costs fade into the background. Most hoteliers are busy trying to reduce the economic damage of COVID-19. Plus, with so much emphasis on RevPAR, room occupancy and how much money is coming in, too many hoteliers let utility costs slip through the cracks. 

Unfortunately, what many hoteliers don’t realize is that it doesn’t matter how much money rolls in if that cash is being siphoned off on the way to the bottom line.

That’s why benchmarking utilities fits perfectly into a broader hotel performance strategy — one that focuses on operational efficiency and higher profit. By identifying those utility costs that are burning cash, hoteliers can increase operational efficiency. And that’s the blueprint for a solid, leak-free pipeline from top-line revenue to bottom-line profit. 

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With this broader strategy in mind, here’s how to set up and use a benchmarking 101 strategy for utilities:

Utility Metrics Every Hotelier Should Measure

Utilities affect every inch of a hotel or resort’s operation. That means it’s best to take a holistic approach to measuring utilities. It may be tempting to scan total utility costs and shoot for a lower number, but this approach won’t necessarily tell the complete utility cost story. Here are some deeper metrics to include: 

  1. Utilities Expenses % Total Rev — This is how much money is spent on utility expenses in relation to total revenue. It gives hoteliers a taste of how much utilities are eating into revenue numbers.

  2. Property and Management (P&M) Expenses % Total Rev — This compares property and management expenses to total revenue. It can be a good metric for measuring costs, but it can also play an added role in measuring ROI for utility investments. For instance, if a hotelier wants to track the cost of installing motion-detecting lights or smart heating systems and compare them with overall utility costs, this can be a handy metric.
  3. P&M Labor Costs % Total Rev — This is a hotel’s property and management labor costs as a percentage of total revenue. Utility costs don’t stop at daily usage. If an air-conditioning system frequently breaks down or electrical fixes are a constant, this should show up in property and management labor costs. 

  4. Rooms Expenses % Rooms Rev — Again, this gives hoteliers a more complete picture of costs. The goal here is to drop overall expenses in comparison to revenue. If utility numbers are moving in the right direction, they should shine through this metric. 

These metrics should be any hotel professional’s guiding lights. As managers work to shrink utility costs, they can come back to these numbers to measure the full impact of moves.

A Deeper Dive into Utility Benchmarking

With a firm grasp on overall utility costs, hoteliers can build out a plan to lower utility costs and increase profit. Remember, every cent of extra profit growth a hotelier carves out will help them claw back from crisis.

Not sure where to start? 

Here are a few characteristics to focus on when setting up a full utility benchmarking strategy:

Building Features 

Start by examining where energy could be better used on the property. Are physical sections of the hotel naturally protected from heat or the cold? How is sunlight affecting temperature? Subtle adjustments like adding shades or more insulation can have a big impact on daily utility costs.

Operational Information  

When looking for places to save, dive into how spaces are being used. Are there areas that need 24-hour light or heat? Where can energy be limited? Remember, every small saving opportunity has the potential to add up quickly — especially in areas that operate 24/7.

Energy Consumption 

Dive into utility bills, fuel logs and energy sources. Are there opportunities for alternative energy sources or smart lighting and HVAC systems? Again, because so many spaces remain lit up in the industry for long periods of time, this is an area where savings can pile up. 

Electricity Costs July 2020 July 2019 Variance
PAR Basis $3.42 $5.01 -31.7%
POR Basis $17.46 $6.12 +185.3%

Water Consumption 

It’s easy to leave a faucet running longer than needed or to waste water through ineffective design. In fact, Urban Land points out one case wherein faucet aerators cut a hotel company’s water consumption by 91,000 gallons in a single year. Everything from replacing showerheads to leaving a simple reminder for guests or employees to monitor water usage can reduce water waste. 

Furthermore, cleaning protocols brought upon by the pandemic have actually led water consumption to rise, in areas like laundry, resulting in water bills that are as much as 30% higher than they were pre-pandemic. Understanding these costs is the first step toward containing them.

Water Costs July 2020 July 2019 Variance
PAR Basis $1.44 $2.40 -40.0%
POR Basis $7.33 $2.93  

Turning on Better Benchmarking

The bottom line when it comes to utility benchmarking is this: It’s easy to waste what you don’t notice. Every time a light is left on or an empty room is left cooling down, that’s money lost. In the current climate, hoteliers simply can’t afford to overlook these cash sinkholes. 

The right utility benchmarking strategy will shine a light on these less obvious costs, and illuminate a path towards profit long after COVID-19 is gone. And when paired with broader hotel benchmarking data, hotel pros can turn off high costs and flip the on switch for higher profits.

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