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.
Why?
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.
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:
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:
Second, make sure to cover as full a scope of costs as possible. This means examining these payroll components:
When setting up benchmarks and analyzing payroll, the best route is to combine these two components and chart the results.
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:
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.
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:
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.