7 Proven Ways To Reduce Hotel Operating Costs

“Never say no when a client asks for something, even if it is the moon. You can always try, and anyhow, there is plenty of time afterwards to explain that it was not possible.” — Richard M. Nixon

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In hospitality, there’s only one boss—the Guest. And you must do whatever it takes to satisfy the guest. However, running a hotel requires balancing guest satisfaction with efficient management of operating costs. 

Common expenses like labor, energy, and guest acquisition can quickly eat into profits if not carefully monitored. For example, high labor costs may stem from overstaffing or poor scheduling, while energy bills can surge without proper system maintenance. Misguided marketing strategies can also lead to unnecessary spending on guest acquisition. 

The key is identifying areas where even small savings can make a significant impact over time. In this post, we’ll cover seven actionable strategies to help reduce hotel operating costs and improve profitability. 

 

Understanding hotel operating costs

Hotel operating costs are the basic expenses that a hotel incurs during the daily operations. The costs may range from simple utility bills to hidden costs that people tend to overlook. If you don’t know where most of your revenue is being spent, then you are not in a position to make the right decisions. Therefore, it is vital to understand the breakdown of your hotel operating costs because it plays a key role in your profitability.

Typically, hotel expenses fall into two categories: fixed and variable. Fixed costs remain the same regardless of how many guests walk through your door. These are the costs that keep the business going, like mortgage or lease payments, insurance, and staff salaries. 

Although fixed costs are hard to change quickly, you can always find ways to improve efficiency. For example, could you renegotiate supplier contracts or reduce insurance premiums without sacrificing coverage? 

On the other hand, variable costs fluctuate based on how occupied your hotel is.  Housekeeping supplies, part-time wages, utilities, and marketing budgets shift based on guest volume. If bookings drop, cutting variable costs prevents waste. If demand spikes, increasing spend in key areas improves service without unnecessary overhead.

When you monitor critical financial metrics, your expenses remain proportional to income. For example, the Cost Per Occupied Room (CPOR) tracks the total operating costs per occupied room and clearly explains how well you’re doing with variable expenses. The lower the CPOR, the more profit you’re generating per visitor.

Conversely, Cost Per Available Room (CPAR) distributes your overall costs over every room, irrespective of occupancy. If your revenue is strong but your CPAR is high, it could indicate trouble with controlling costs. A low CPAR means you have a lean hotel operation.

A data-driven approach is needed to cut costs without hampering guest satisfaction. Start by evaluating your energy usage to identify where you can cut back. Adjusting staffing levels based on demand helps prevent paying for idle labor. Renegotiating supplier contracts helps you get the best pricing, while automating routine tasks eliminates unnecessary inefficiencies. 

These are a few strategies you can implement to optimize costs. In the next section, we will explore more advanced techniques to further reduce hotel operating costs and drive long-term financial success.

7 proven ways to reduce hotel operating costs

If you look at your profit and loss (P&L) statement more closely, it’s not hard to notice that operating costs differ in departments. Whether it’s energy consumption, labor, or supplies, these increasing costs can affect your bottom line quickly. But each hotel is unique, there isn’t one solution to fit all.

Having said that, here are some key areas to focus on as you work to optimize operations and reduce costs, all tailored to your specific needs and goals.

1. Optimize labor costs without sacrificing service

This is the first step in reducing costs at your hotel. Start by taking the time to sit down and get a clear understanding of where your expenses are going.

As you may already have guessed, labor is one of the highest hotel expenses. In 2024, labor costs per available room (LPAR) increased by about $9 compared to 2023, marking an 11% rise YOY. This shift impacts profitability, but you can manage labor costs without sacrificing the quality of your service.

In fact, rooms and food & beverage (F&B) departments alone account for over 67% of total hotel labor costs. Rooms labor costs have risen from 33% in 2019 to 35% in 2024, while F&B labor fluctuated from 35% in 2019 to 31% in 2023, rebounding to 32% in 2024. These shifts highlights the need for effective labor cost management.

LPAR can be tracked and monitored by dividing the total labor cost by the total number of room nights made available in a specific period. Watching this number helps evaluate the efficiency of labor costs against your hotel capacities and gives you a clear signal about the extent to which labor costs are being controlled.

 

 

Below are some strategies for controlling labor costs without compromising on service quality:

• Efficient scheduling: Analyze guest demand patterns and adjust staffing levels accordingly. Overstaffing leads to unnecessary expenses, while understaffing can negatively affect guest satisfaction. You can use data analytics to forecast peak times, consider seasonal trends or local events, and adjust service levels in advance.
• Cross-training employees: Train staff members to do different jobs. This flexibility permits you to assign personnel where they are most needed without incurring extra hiring costs. Your employees will also appreciate the variety the cross-training offers.
• Implementing automation: Adopt technology to automate routine tasks. For example, Hilton Hotels introduced “Connie,” the world’s first IBM Watson-enabled hotel concierge, to assist guests with information and services, reducing the workload on staff. Similarly, Hyatt Hotels Corporation uses an AI chatbot to handle reservations and respond to guest inquiries, leading to reduced customer service costs and increased guest satisfaction.

2. Implement energy-efficient practices

High electricity bills are another major cause of rising hotel operating costs. On average, the 47,000 hotels in the United States spend $2,196 annually on energy per available room, accounting for approximately 6% of their total operating costs.

The good news is that hotels can implement cost-effective changes to tackle this issue.

A good starting point is switching to energy-efficient lighting. LED bulbs last longer, use less power, and provide the same light output. Motion-sensitive lights make sure that rooms and corridors are not left on when unused.

Replacing your HVAC with newer models can also make a big difference. HVACs can cover 35% of a hotel’s electric bill. If you don’t have the upkeep, the systems will not run effectively, increasing expenses. Regular maintenance keeps them running at peak performance, but installing newer models for energy efficiency can reduce expenses by 50%.

Also, putting smart thermostats in guest rooms and public spaces allows you to have more control over temperature. The thermostats adapt according to occupancy, thus minimizing waste.

If your hotel has a pool, think of utilizing solar heaters. Solar technology harnesses energy from the sun, which means free heating for pools. It significantly lessens your dependence on conventional energy sources, reducing your utility bill. And to top it off, guests appreciate the green touch.

A real-world example is Marriott International, which has committed to sustainability across its operations. Through the LEED (Leadership in Energy and Environmental Design) volume program, Marriott promotes sustainable building practices and works toward significant environmental goals.

By 2025, they aim to cut water and carbon intensity by 15% and 30%, respectively. They also plan to reduce waste sent to landfills by 45% and source 30% of its electricity from renewable energy. 

Their climate action efforts go even further, as Marriott has committed to setting near-term and long-term science-based targets (SBT) to achieve net-zero greenhouse gas emissions by 2050. This demonstrates Marriott’s proactive approach to minimizing its environmental impact while cutting operational costs.

3. Reduce guest acquisition costs (GAC)

Every booking comes at a price. When you depend on online travel agencies (OTAs), it affects revenue because they charge really high commissions. An optimally designed booking engine retains guests on your site and has no third-party expenses.

The roomMaster Booking Engine provides just that. It has a clean, streamlined platform designed to drive more direct bookings. When visitors book directly with you, you keep those hefty OTA fees, which can really impact your types of hotel expenses. This software works seamlessly with your website’s look and your channel manager so rates and availability always remain in harmony.

It’s automatic rate updates ensure prices remain competitive, and rate comparisons assure visitors they receive the best value. The system is entirely customizable and mobile-friendly, providing visitors with a smooth experience from beginning to end.

In addition, Google Analytics integration allows you to monitor the performance of your booking engine, measure marketing campaigns, and see what converts. This way, according to data, you can alter your approach in real time.

4. Streamline inventory and supply chain management

When profits drop, it becomes necessary to reduce costs. Start by reviewing your contracts with suppliers and service providers. Can you cut back on services that aren’t essential right now? Or can you negotiate better terms with current providers, especially during this low-profit period?

If you have established relationships over the years, contact them. Suggest revised arrangements that benefit you in terms of cost reduction while providing value for them. You could ask for an advertisement slot at your next conference or a promise of referrals in return for discounted service rates. Be creative on how you can assist them and yourself.

 

 

If the negotiations do not work, seek alternative suppliers with competitive rates. Suddenly changing to another supplier can substantially drive down hotel operational expenses.

Bulk buying is another good way to save. If you purchase in bulk, you may be able to negotiate discounts. Analyze your hotel operating expenses using data and determine where you’re wasting money. After you’ve found them, you can cut out unnecessary expenses in no time.

In the end, managing your supply chain means being proactive. With consistent monitoring, you’ll spot inefficiencies, negotiate better deals, and keep waste to a minimum. This approach helps you stay agile while cutting unnecessary expenses.

5. Improve revenue management strategies

One of the most effective ways to improve your revenue is by focusing on Gross Operating Profit Per Available Room (GOPPAR). It tells you how efficiently your hotel is generating profit from available rooms, considering both revenue and expenses.

Once you have that data, adjust your pricing based on demand forecasting. Analyze hospitality market trends, booking patterns, and local events to predict when demand will rise or fall. When demand is high, increase rates. When it’s low, reduce rates slightly to keep rooms filled.

With GOPPAR and demand forecasting, you get a powerful toolset to drive hotel operating costs down and profits up. You make smarter pricing decisions, optimize room rates, and ultimately keep your hotel profitable, no matter what the market throws at you.

6. Reassess Your software stack

The hotel industry is evolving, and so are guest expectations. In such cases, technology is essential for keeping up with the times, not just an option. Yet, many hotels hesitate to invest, fearing poor ROI or thinking that technology only adds to costs.

However, 71% of hotel operators agree that guest-facing technology empowers guests. On the other hand, 21% still see it as a potential source of friction. To avoid this, technology must be seamless, easy to use, and strike the right balance between automation and human interaction.

The right property management system (PMS), booking engine, and channel manager can cut expenses and boost efficiency by automating bookings, check-ins, billing, and housekeeping. For example, the roomMaster PMS by InnQuest allows your team to manage everything from one centralized platform. Staff can handle bookings, room statuses, billing, and even personalized guest messages across devices, without the need for separate resources. The cloud-based nature of roomMaster reduces IT costs and simplifies infrastructure, keeping you on top of the latest tools.

One of the best features of roomMaster PMS is its self check-in option, which allows guests to complete the check-in process online, even before they arrive. They get a personalized link to your website upon reservation, where they can fill in all necessary details. This reduces front desk load and wait times and boosts guest satisfaction. 

Employee-facing technology is equally critical. About 62% of hotel operators report that staff view tools like scheduling software, task management apps, and communication platforms as empowering. With roomMaster PMS, staff can quickly handle front desk operations, monitor room status, and make fast group bookings.

The system is integrated with roomMaster mobile app that enriches the guest experience through contactless check-in, digital keys, and hassle-free stays. The app makes everything easy, from opening their room door with their phone to getting local area details.

Designed to be convenient and personalized, QuickInn provides an effortless way for your hotel to differentiate, save time, and drive revenue per available room (RevPAR).

 

7. Preventative maintenance to avoid expensive repairs

It’s easy to ignore routine maintenance when things are running smoothly, but that’s exactly when you should be focused on it. A proactive maintenance schedule can prevent major system failures that can cost a fortune to repair. This helps you avoid those surprise expenses that hit when equipment breaks down unexpectedly.

Track maintenance expenses as part of your operational budget. By allocating funds to preventative measures, you save on larger, unplanned repair costs down the road. A simple fix today can save you thousands in repairs tomorrow, especially when it comes to critical hotel systems like HVAC, plumbing, and electrical infrastructure.

For a detailed guide on setting up a preventative maintenance plan, check out our article on Hotel Preventive Maintenance Checklist: A Step-by-Step Guide to Avoid Costly Repairs.

How to calculate hotel running costs?

To effectively control costs, hotel management needs to track expenses and understand where money is being spent. Hence, it’s important to analyze departmental expenses, compare them to the budget, forecast, and past performance. You can also look for patterns, outliers, and inefficiencies.

The following key performance indicators (KPIs) will help you understand the impact of costs on your hotel’s revenue and profitability. You can measure these metrics daily, monthly, or annually.

1. Cost per occupied room (CPOR)

CPOR calculates the average cost of a hotel guest occupying a room, factoring in both fixed and variable costs. Lowering CPOR boosts profit potential on room sales.

To calculate CPOR:

CPOR = Total Rooms Costs / Total Rooms Sold

2. Cost per available room (CostPAR)

CostPAR measures the average cost of servicing all hotel rooms, whether occupied or not. Since the number of available rooms remains constant, this KPI helps you understand the overall cost of maintaining all rooms, not just those sold. 

Here’s how you can calculate CostPAR:

CostPAR = Total Costs / Total Available Room Nights

3. Gross operating profit per available room (GOPPAR)

GOPPAR measures the average gross operating profit per room relative to the number of available rooms. It gives you a more comprehensive look at profitability by including all revenue and operational costs. 

You can calculate GOPPAR in this way:

GOPPAR = GOP / Total Available Room Nights

4. Revenue per available room (RevPAR)

RevPAR combines room occupancy and pricing into one metric. It helps you assess revenue efficiency.

RevPAR = Total Room Revenue / Total Available Room Nights

5. Average daily rate (ADR)

ADR helps measure the average rate at which rooms are sold, guiding your pricing strategy.

ADR = Total Room Revenue / Total Rooms Sold

6. Operating expense ratio (OER)

The operating expense ratio shows how efficiently the hotel is operating. It’s calculated by dividing the total operating expenses by the total revenue.

To illustrate, let’s assume:

Your total room costs are $50,000, with 1,000 rooms sold and 2,000 available room nights. Your gross operating profit is $40,000.

Here’s how you can calculate each KPI:

• CPOR = $50,000 / 1,000 = $50 per occupied room
• CostPAR = $50,000 / 2,000 = $25 per available room
• GOPPAR = $40,000 / 2,000 = $20 per available room
• RevPAR = $100,000 (Total Room Revenue) / 2,000 = $50 per available room
• ADR = $100,000 / 1,000 = $100 per room

To make it easier for accommodation providers, innQuest provides easy-to-use calculators to assess their performance and make data-driven decisions. These tools, including RevPAR, ADR, and occupancy rate calculators, help you quickly measure the impact of your pricing strategies and track your revenue growth.

Increase your revenue and reduce costs easily with roomMaster by innQuest

Optimizing costs is critical, but it’s important to never sacrifice customer satisfaction in the process. Poor service can lead to negative reviews, which can damage your hotel’s reputation.

When you know how your hotel functions, it becomes easier to identify areas where costs can be reduced without negatively impacting service quality. With roomMaster by innQuest, you get an all-in-one hotel management software that simplifies your operations and elevates the guest experience. It’s a powerful tool that helps you optimize costs while maintaining excellent service.

The platform drives revenue by encouraging direct bookings and dynamically adjusting rates based on demand, occupancy, and market conditions. It also helps uncover revenue opportunities through upselling, guest profiling, and integrated revenue optimization features.

Schedule a demo now and take control of your hotel operations!

FAQs

1. What is the operating expense ratio for a hotel?

The operating expense ratio (OER) measures hotel efficiency, calculated as (Total Operating Expenses ÷ Total Revenue) × 100. Hotels typically maintain an OER between 65% and 70%, depending on their category.

2. How can hotels reduce operating costs without impacting guest experience?

Hotels can lower costs using LED lighting, smart thermostats, automation, direct bookings, and outsourced services while maintaining service quality. Optimizing labor, inventory, and energy usage improves efficiency without reducing guest satisfaction.

3. What is the operating profit of a hotel?

Operating profit refers to the revenue remaining after deducting all operating expenses, including labor, utilities, maintenance, and marketing. 

It’s calculated as: Operating Profit = Total Revenue – Total Operating Expenses. 

The profit margin for hotels varies but usually falls between 5% and 35%, depending on the market and efficiency of cost control.

4. What are hotel operating costs?

Hotel operating costs include fixed expenses (rent, insurance), variable costs (amenities, housekeeping), utilities, labor, and marketing. Managing types of hotel expenses effectively improves profitability while ensuring smooth daily operations.

5. How to calculate the hotel running cost?

To calculate a hotel’s running costs, you need to sum all operating expenses, including fixed costs like mortgage payments and insurance, and variable costs like utilities and maintenance, then divide by the number of occupied rooms to find the cost per occupied room.