For hoteliers and investors, it’s easy to be dazzled by revenue numbers. Unfortunately, when labor costs jump, revenue can quickly disintegrate. This is why getting a grasp on payroll data is at the heart of driving profit.
Rising labor costs have put a fright into even the most seasoned of hoteliers. And there's reason for concern: Not accounting for payroll can eviscerate profit. Consider how U.S. hotels performed in the third quarter last year. Total revenue (TRevPAR) jumped across the board, but had trouble filtering down to the bottom line.
Hotels were hit by a 3.7% year-over-year increase in labor costs.
The good news? Taking control of your payroll numbers can free the operation from the whims of the employment market and reveal new profit opportunities. Here’s how to analyze your hotel’s different payroll components for better profit.
Why You Need to Analyze Your Payroll
Payroll can be the grease that powers a fine-tuned machine. But if it’s mismanaged, high labor costs can gum up the whole operation.
This is what makes getting a precise handle on payroll so crucial. Here’s a quick look at what makes labor costs such a dynamic figure in the hotel industry:
- Labor Has a High ROI — The hospitality industry is driven by experiences. In fact, one Deloitte survey says that 56% of guests who left a review for a positive stay did so because of experiences that exceeded expectations or pleasantly surprised them. This means that investing strategically in labor can turn into more loyal and happier guests.
- It Drives Operational Strength — A hotel is about more than just in-room revenue. This means that the more efficiently each operation runs, whether it’s the F&B operation, spa or golf resort, the stronger the financial position in the end.
- It’s a High-Cost Item — It’s simple. Because labor tends to account for a large portion of a hotel’s costs, a more cost-effective payroll makes it easier to turn profit.
Which Payroll Components to Analyze?
When it comes to the hotel industry, labor costs are broken down by the type of payments going out and the category of employee receiving payment. And both have deep inherent value.
First, hotel managers need to track the category of worker. Here are the simplest ways of breaking those components down:
- Contract/outsourced labor
Second, make sure to cover as full a scope of costs as possible. This means examining these payroll components:
- Service charge distributions
- Payroll taxes
When setting up benchmarks and analyzing payroll, the best route is to combine these two components and chart the results.
How to Set up Hotel Payroll Benchmarking
Remember, payroll tells a deeper story about labor costs, and so diving into the particulars of where money is going will reveal new opportunities. Still, it’s important to uncover costs from each source throughout the operation. These are the benchmarking categories to consider:
- Payroll as a % of total revenue
- Payroll as a % of total expenses
- Management wages and salaries
- Non-management wages and salaries
- Outsourced labor totals
- Incentives or bonuses
Fittingly, each category offers insight into strategy. For instance, maybe benefits are carrying an exorbitant percentage of labor costs. It might be worth renegotiating packages. Or, maybe it’s worthwhile to lean more heavily on outsourced labor.
On the other hand, it could be spending too much on contract labor. Perhaps there are chances to save by pulling some of those duties in-house. Regardless of the final result, breaking down the numbers can inform a hotel’s plan and protect it against uncontrollable events.
A Deeper Look at Payroll
It’s easy to see the impact employees have on a hotel or resort. However, when looking at the numbers, don’t overlook the less obvious contributors.
Sure, most hotels will monitor the labor costs of front desk operators and in-room staff, but payroll should encompass the whole operation.
Ultimately, the goal should be to grasp full spending so that it can be used to drive a holistic performance strategy. This means accounting for every inch of costs. Here are some often overlooked labor costs:
- F&B staff
- Golf club and spa employees
- Contracted maintenance staff
- Property and maintenance management
- Property and maintenance non-management
- Additional property and maintenance expenses
The bottom line? By diving into deeper hotel payroll benchmarking data, the hotel will rely less on market changes and more on a holistic performance strategy. When set up the right way, payroll numbers go from being a frightening, unpredictable variable to a potential tool for growth.