Four ways independent hoteliers can reduce labor expenses

By Rafael Blanes

It’s not surprising that U.S. hotel performance was inconsistent throughout 2021. According to “Profit Matters Global Hotel Performance Review 2021” from HotStats, gross operating profit per available room (GOPPAR) showed a steady ascent off the dark months of 2020 and kicked into higher gear during the second quarter of the year. By the end of 2021, performance was choppy at best due to myriad external variables that had been bubbling for some time.

The labor market was a huge reason for profit inconsistency, according to the report. Spurred by the Great Resignation, hospitality workers left the industry in droves. Millions of workers quit either because they were furloughed or laid off and subsequently found careers in other industries. Others simply quit for high-paying jobs as wages increased across industries to attract new talent.

That means hoteliers have to adapt to a new, tougher labor market—whether by increasing wages (which was already one of the biggest expense line items even before the pandemic) and cutting services or amenities. But what can an independent hotelier do when the things they need cut are often what differentiates them in a crowded marketplace?

How to control labor costs
Some sources say that hotels should tightly maintain labor costs between 20-25% (not including management salaries), and others say they are at 50%. The actual percentage most likely varies by accommodation type, but most agree that the percentages are high. Following are four ways to curb the costs.

Make sure your schedule is effective
Effective scheduling is the easiest way to manage labor costs—and it’s essential as you face labor uncertainty. You should carefully schedule staff according to expected demand. Remember that each position has a different demand driver. For example, expected occupancy levels and average minutes it takes to clean a room must be matched with the number of housekeepers scheduled, as well as check-ins and checkouts with the front desk, and so on.

Many hotels have also cut down on housekeeping frequency, and many guests have continued to be accommodating due to COVID protocols. Be sure to factor that into your scheduling plans. Many hotels even schedule an “on-call” shift for their staff each week. This strategy can be a win-win for you to keep down labor costs and your employees who want a flexible schedule.

Cross-train employees
Cross-training has always been a great strategy, but it’s become critical to maintaining operations and reducing costs amid today’s tough labor market. Cross-trained employees can do different jobs, switching as needed throughout a shift. For example, a front-desk agent can help work on laundry and a bellman can deliver room service. Cross-training works extremely well in smaller properties where the staff tends to function as one big team. Cross-training also has the power to decrease turnover since employees use more skills, stay engaged and can work more shifts.

It also strengthens bonds and deepens understanding between different departments. Cross-training optimizes your staffing resources so you can both manage labor costs in busy times and stay lean during downturns. It also benefits employees because it can help them develop new skills and open the opportunity to further their careers.

Focus on the employee experience
The hotel industry reports an employee turnover rate of 73.8%. And as the industry competes for talent with other industries in ways it never did before, employee retention has never been more important. That means hoteliers who focus on providing a great employee experience will be best positioned to attract and retain the best talent. Even with rising wages, it’s always going to be better for the bottom line to retain an employee than hire a new one. Give your employees a reason to stay.

Monitor employee satisfaction in similar ways you monitor guest satisfaction. Just as you would act on issues guests experience at your hotel, act on the problems your employees face so that you can ensure they have the best employee experience possible.

Automate manual processes
Many big brands have tapped into tech solutions, such as contactless check-in, as a way to automate what was previously handled by team members. Soon, seamless mobile check-in through a phone or kiosk will be ubiquitous for 100% of guests, regardless of loyalty status, available at the same cost to an independent hotelier as to that of a franchisee. In the meantime, simple digital guest messaging can go a long way in helping small businesses connect with guests.

According to Gartner, by 2022, 70% of customer interactions will involve emerging technologies, such as machine learning applications, chatbots and mobile messaging, up from 15% in 2018. Additional automation technologies include integrated payment solutions, which can reduce the time a front desk agent has to reconcile payments with guest profiles with the bookkeeping system, and rate automation tools, which can help you monitor your competitors’ rates and alert you to opportunities to adjust your prices for optimal RevPAR.

Don’t forget about the guest experience
As you work through these tips to develop strategies to reduce your hotel’s labor expenses, don’t forget to consider the impact on customer service. It can be tempting to cut down all of the low-hanging fruit without fully envisioning the impact of the guest experience and negative guest reviews. However, with sufficient planning, consistent execution and help from innovative tech, you can reduce your hotel’s labor expenses without sacrificing service.

To ensure that you’re using your entire tech to its fullest potential, do an audit to identify software that is either being underused or is no longer needed. You may be able to save money by reducing the total number of vendors and choosing a hospitality industry software that bundles key functionality into a single suite. Of course, cost is always a top concern when it comes to tech solutions. Costs can quickly pile on with the more software a hotel uses. For small and independent hotels, it can seem expensive to acquire all the software needed. Consider cloud-based software which can offer a lower-cost alternative to on-premise hosting. It’s a win-win where profitability meets a more streamlined operation.

Rafael Blanes has spent more than 15 years working in hospitality as a revenue manager as well as in e-commerce, distribution and sales before joining Cloudbeds as VP of sales.

This is a contributed piece to Hotel Business, authored by an industry professional. The thoughts expressed are the perspective of the bylined individual.