Is owning a hotel a profitable business?

In this day and age everyone is feeling the pinch and financial departments are being pressurized to cut corners wherever they can.

However when it comes to owning a hotel there are only so many corners you can cut – do you lower the standards by not providing a nightly turn down service or do you do away with the doorman and porter service that your customers expect to find at a five-star property? 

In the end of it even customers at high-end properties are looking for value for money and the line between providing this great service at unbeatable rates is thinning profit margins down to barely anything and sometimes to nothing at all. 

Every year, in every country, hotels close but just as quickly new hotels, guesthouses and bed and breakfasts spring to life making you think that owning a hotel can be a profitable business. For those that get it right it sure can but due to this increasing influx of new competition and the decrease in the economy and the amount of guests actually travelling it is difficult for hotels today to stay afloat.

Once you have finished paying your staff and your monthly rent, performing maintenance and forking out for your electricity and water bills the profit margins are small particularly if you find yourself in a seasonal destination like Cape Town where half the year your occupancy is fairly low. Your only real hope is that your conference facilities, restaurant and spa make enough money from daily customers to pay for themselves.

As the years pass and you build a client base you may find that the initial challenges faced dwindle as customers to tend to book with trusted hotel brands however you haven’t even factored in inflation yet! Perhaps then the best thing to do would to buy into a trusted brand whereby you tap into a pre-existing customer base with little effort at all required to garner that all important trust?

In order to make running a hotel a profitable business it comes down to being clever with your money. You need to be as efficient and as productive as possible on your estimated budget bearing in mind that your occupancy is not always constant and your service levels need to be high if you want to grow your list of return customers.

Deciding which part of your budget can be cut while still maintaining your service levels is a fine balancing act and the trick to making your hotel profitable is to not out-price yourself while delivering a rate that is fair to both your customers and your business.

In the end it comes down to balancing your cost with your quality so that you get guests that keep coming back for more!

This guest post was submitted by Janine Mare of South African Hotels and South African Lodges – a tour operator with over ten years in the travel business.

 

 

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