15Aug

Rising Minimum Wage and the Importance of Expense and Resource Management

Author: Rainmaker

In July, the U.S. House of Representatives passed an amended version of the Raise the Wage Act of 2019, which would raise the federal minimum wage from $7.25 to $15 by 2024. Hotel & Leisure Advisors indicate that this 100+ percent minimum-wage increase could potentially raise a typical full-service hotel’s payroll expense by 50 percent. Labor costs represent one of the most expensive line items in a property’s budget, with CBRE’s 2018 Trends® in the Hotel Industry report revealing that total labor costs and related expenses currently make up about 43 percent of all hotel expenses.

Hotels rely heavily on the work of employees in typically minimum-wage areas such as housekeeping and F&B. Since making significant headcount reductions is not a realistic solution, the challenge becomes how to gain efficiencies that reduce payroll and operating expenses without negatively impacting guest satisfaction. To accomplish this, your property will benefit from a revenue management system (RMS) that’s enhanced with accurate demand forecasts and actionable data and analytics using business intelligence (BI) tools.

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LABOR COSTS

Labor can be one of the most controllable expenses in your hotel budget, particularly when you can analyze booking trends and create continuously updated, rolling forecasts that allow you to optimally match staffing levels with occupancy loads.

Housekeeping

Many hotels base housekeeping schedules on a pre-determined budget, or standard number of minutes per room (MPR) allotted for cleaning each room. This may work fine at full occupancy. But if your occupancy is lower, say 50 percent, you’re squandering precious revenues paying for an unnecessarily high staffing level when there are fewer rooms to clean.

The predictive analytics generated by your RMS allow you to create accurate demand forecasts that incorporate full pattern length of stay (FPLOS) by each room type, in addition to occupancy. Typically, longer guest stays require less housekeeping services, and cleaning times vary by room type. To maintain margins your housekeeping staffing levels must reflect the reality of your demand.

Front Desk

Another area where you can control labor costs is with your front desk staff – creating a schedule based on arrivals and departures. For instance, a hotel will require more front desk clerks on afternoons when you’re expecting a large number of arrivals, or mornings when you’re anticipating a rush of checkouts. And your needs will be less during times of lower occupancy.

 

OTHER OPERATIONAL EXPENSES

According to the March 2018 edition of CBRE ‘s Hotel Horizons report, in order for hotels to achieve profit growth that keeps pace with inflation, expense growth needs to be limited to 2.6 percent or less over the next few years. This presents a huge challenge since the annual average expense growth rate since 1960 has been 4 percent. An RMS with BI plays a pivotal role in helping you reduce the operational costs of your business.

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Food & Beverage

By analyzing which guest segments – transient, groups, even specific guest demographics – will be in your hotel on a given date and time, you can optimize your F&B supply costs. Will you be serving guests who want premium liquor, or those who are satisfied with standard house wines? And based on historical data alongside anticipated booking trends, you can take note of how much food you actually need to order.

Channel Costs

Utilizing BI that analyzes each channel will help you clarify which channels are producing your highest-value business. You can optimize profitability by measuring channel costs against the revenue generated from each.

 

We’re at a unique point in history. Low unemployment rates combined with legislation about wage increases is changing the conversation about how hotels can best manage their labor and operations costs. Implementing a science-based RMS and a comprehensive BI tool will yield forward looking data that will allow you to identify staffing and other operational efficiency opportunities.  Prevent future evaporation of profits from being overstaffed or wasting money on unnecessary resources. Instead, prepare for the impact from impending wage increases and develop strategies that will drive profitability, even through such difficult times ahead.

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