Back
The impact of hotel operating costs on revenue is one of the most critical and often overlooked factors influencing long-term profitability in the hospitality sector. Even as room rates and occupancy rise in the post-COVID years, uncontrolled operating expenses like labour, utilities, and payment processing fees can quietly erode margins and the amount you take home at the end of the day.
To truly drive sustainable revenue growth, hotel operators must understand how these costs impact the bottom line and what they can do to control them effectively.
Here’s everything you need to know about how hotel operating costs affect revenue.
Types of hotel operating costs: fixed vs variable
Hotel operating costs fall into two buckets: fixed and variable. Understanding the difference is valuable for managing profits and controlling expenses. Here’s a quick look at both fixed and variable costs, as well as the most common hotel operating expenses, to understand where the money flows.
Fixed costs
Fixed costs stay consistent regardless of occupancy or the number of guests. Whether your hotel is packed to the brim or sitting half empty, these costs will remain the same throughout the year.
Examples of fixed costs for hotels include:
- Rent or mortgage payments
- Property taxes
- Insurance premiums
- Salaried staff wages
Long-term maintenance contracts and depreciating assets also fall under fixed costs, as they will continue to incur expenses whether guests stay or not.
Variable costs
Variable costs fluctuate based on factors like occupancy, season, and guest activity. As you see an increased number of bookings, you’ll also see an increase in variable expenses to keep up with guest demand.
Examples of variable costs for hotels include:
- Housekeeping and laundry services
- Guest amenities and supplies
- Food and beverage spend
- Utilities like gas, water, etc…
Commission fees from online travel agencies (OTAs) like Booking or Agoda are also considered variable costs, along with staff wages tied to occupancy levels, like that extra housekeeper you might have on the roster during summer months.
As a hotel, monitoring your variable costs can significantly impact revenue during both high and low occupancy periods. For example, you don’t want to pay extra staff or make large F&B orders when there’s simply not enough guest demand.
Most common hotel operating costs
To have a complete picture of your hotel's operating costs, you must consider both fixed and variable expenses.
In addition to what’s outlined above, these are the most common hotel operating costs in the industry, according to a study that analysed 2,600 hotels across the United States:
- Labour – Including salaries, wages, and benefits, labour costs continue to rise, despite a decrease in the number of hours staff have worked since 2019. Labour is the largest and fastest-growing operating cost for the majority of hotels.
- Supplies & Utilities – While utility spend tends to remain relatively consistent for most properties, the cost of operating supplies increased by nearly 10% in 2024, significantly contributing to general hotel operating costs.
- Credit Card & Agency Commissions – Both credit card and travel agency commissions have increased by 4.4% and 6%, respectively, which is a considerable operating cost, especially for hotels that may not have experienced significant revenue growth in recent years.
- Food & Beverage Costs – In general, F&B purchases from hotels have decreased, but related labour and supply expenses have increased. This has resulted in a higher overall expenditure by hotels in this department.
- Maintenance & IT – Maintenance costs for hotels continue to rise (an increase of 5%), mainly due to higher labour costs and deferred projects. Spending on information systems also increased as more hotels adopted a more practical tech stack and telecommunications systems.
- Insurance & Property Taxes – Finally, insurance premiums spiked to a shocking 17.4% in 2024, while property taxes also rose by more than 4%, forcing hotels to allocate a greater portion of their budget to primary fixed costs than before.
Hotel operating costs have risen across the board, placing more pressure on profit margins, even for hotels experiencing growing revenue.
To gain a comprehensive understanding of your hotel's financial health, it’s essential to look beyond the topline and examine how rising hotel operating costs impact revenue and overall profitability.
How hotel operating costs affect revenue?
Even when revenue appears to be growing, rising hotel operating costs can quietly erode profits.
As we bounce back in the post-COVID years, U.S. hotel revenue per available room is expected to increase by 2.58% through 2025, accompanied by record-breaking guest spending. However, non-negotiable operating expenses like labour, supplies, and insurance have also increased noticeably faster, leading to compressed margins across the entire sector.
For example, labour costs rose by 4.8%, while insurance premiums surged by 17.4% during the same period. Even regular routine expenses, such as operating supplies, have seen a considerable increase, creating a wider gap between revenue growth and actual profits for many properties.
What does this mean in terms of how hotel operating costs impact revenue?
Due to the increased overhead, many properties are limited in their ability to reinvest in the guest experience, adopt new tech, or offer competitive pricing, all of which, in theory, can contribute to greater revenue. Even for hotels with stable occupancy rates, out-of-control expenses reduce the Gross Operating Profit Per Available Room (GOPPAR), which can tell you much more about your hotel’s financial performance than topline revenue alone.
The bottom line is that properties that don’t control operating costs are sacrificing revenue gains in favour of expense growth. This is especially true during periods of high inflation or staff shortages. Ultimately, sustainable profits for a hotel depend on much more than simply generating revenue. Without managing costs with equal precision, you’re missing out on a key piece of the profit pie.
Essential KPIs for evaluating hotel costs
To understand how hotel operating costs affect revenue, you’ll need to track more than just profit margins.
The following KPIs provide a detailed view of operational efficiency, cost control, and overall profitability:
- Cost per Occupied Room (CPOR) – The total operating costs divided by the number of occupied rooms. This will give you a true sense of how much it costs to service each guest's stay and highlight any inefficiency that may be eroding profit margins.
CPOR = Operation Costs / # of Occupied Rooms - Cost per Available Room (CPAR) – The total operating expenses divided by the number of available rooms. This shows a broader view of operational costs in the context of a hotel’s full inventory, including empty rooms.
CPAR = Operation Costs / # of Available Rooms - Revenue Per Available Room (RevPAR) – This is one of the most commonly used metrics for evaluating hotel performance. It measures how effectively a hotel can fill its rooms at a given rate by using occupancy and pricing data. RevPAR focuses on revenue generation, but unlike GOPPAR, it does not account for operating expenses or overall profitability.
RevPAR = Total Room Revenue / Total Available Rooms or
Average Daily Rate (ADR) x Occupancy Rate - Gross Operating Profit per Available Room (GOPPAR) – GOPPAR reveals the rate at which a hotel can convert available rooms into actual operating profit. It’s a more complete measure of overall financial health, especially when trying to understand how hotel operating costs affect revenue. This metric considers both income and expenses, encompassing not only revenue performance but also overall financial health.
GOPPAR = Gross Operating Profit (GOP) / Total Available Rooms in the Period - Guest Acquisition Cost (GAC) – Essentially, how much it costs to bring each guest through your hotel’s doors. This takes into account marketing, sales, and distribution efforts. Many properties are experiencing a higher GAC due to higher OTA commissions or a weak marketing approach, which can erode net revenue if not addressed.
Additionally, there are self-explanatory hotel metrics, such as labour cost per available room, utility costs per room, F&B cost ratios, maintenance costs per room, and OTA commissions and distribution costs, all of which can significantly erode hotel profitability.
8 Ways to reduce hotel operating costs
If you’re a property looking to reduce hotel operating costs, here are eight innovative methods to score savings across the board while maximising revenue.
1. Data-driven staff scheduling
Since labour is typically the most significant operating expense for hotels, it makes sense to optimise how you schedule and train staff to make the most of their time on the roster.
Use occupancy forecasts, real-time data, and demand trends to drive staff scheduling decisions. For example, in summer you may need an extra hand in housekeeping, but in the cold winter months with low guest occupancy, you can probably go without.
It’s also a valuable strategy to cross-train hotel employees to work in different departments, reducing the need for excess staff while increasing operational flexibility and enhancing service during peak periods. With more user-friendly systems in place, such as a Property Management System, hotel staff can easily transition into roles like front desk or guest services, ensuring smooth operations across the property while maintaining profitability.
2. Reduce payment processing fees
Outdated and expensive payment infrastructure can be a significant driver of operating costs for hotels. With so many modern solutions available, it’s essential to review your payment processing setup if you want to maximise revenue.
A Full Stack Payment solution can significantly reduce transaction fees, enhance cash flow, and improve the payment experience for guests.
Consolidate vendors when possible (no, you don’t need half a dozen providers to process credit card payments), and use an integrated payment platform to support omnichannel experiences.
3. Boost direct bookings
Booking through third parties is second nature to most consumers, but OTAs come with commission rates as high as 30%, which are crippling for smaller properties that are often slapped with much higher fees than bigger brands.
The obvious choice here is to increase direct bookings, which can be achieved through targeted marketing efforts, customer loyalty programs, and offering the best rate guarantee. Every single booking made through your own channels reduces distribution costs and puts more money back in your pocket.
4. Automate routine back office tasks
Stop wasting time and resources on back-office admin. You can cut operational costs by automating repetitive tasks, such as payroll, reporting, and inventory, to reduce your labour spend while minimising human error and inefficiencies at the same time.
This can be done through the right property management systems, which often integrate automated accounting and reporting, ultimately reducing operational costs and freeing up your staff to focus on guest experience and other revenue-driving activities.
5. Cut energy bills with efficient systems
Upgrade your property to modern systems, such as energy-efficient lighting, smart thermostats, and automated utility systems, to reduce costs for heating, cooling, and water usage across the property.
Because utilities account for a significant share of hotel operating costs that only continue to rise, reducing these expenses where possible will make a big difference. Reducing your energy spend will also likely contribute to your property’s CSR and sustainability efforts. Talk about a win-win.
6. Renegotiate supplier contracts
Running a hotel involves managing a vast array of supplies. Reviewing your agreements for linens, supplies, maintenance materials, and food and beverage can lead to cost savings, especially when you’re able to consolidate vendors or negotiate volume discounts for immediate operational cost savings.
7. Proactive maintenance to prevent costly repairs
Instead of letting that crack in the wall grow into a full-on gash, tackle maintenance items as they come up to avoid significant, unexpected expenses down the line.
It’s handy for hotels to implement preventive maintenance measures to avoid expensive breakdowns, especially when guests are present. By staying on top of maintenance throughout the year, you can extend the life of your equipment (and property) while reducing unplanned downtime that might impact operations. Just imagine the profit losses of compensating guests for an out-of-service pool or spa.
8. Leverage tech to improve daily operations
Ultimately, investing in practical technology is one of the most significant drivers of operational efficiency and revenue growth. Hospitality technology encompasses everything from mobile check-ins to smart room controls and integrated property management systems, ensuring your hotel operates like a well-oiled machine.
Most solutions, like Planet’s PMS for hospitality, come with in-depth tracking and metrics to guide data-driven decisions, localised payment options for international customers, and a streamlined solution for both staff and guest efficiency.
When every part of your operational system works together, you’ll enhance the overall guest experience, drive brand loyalty, and reduce costs across the board.
What to consider when managing operating costs
There are a few key considerations when it comes to managing hotel operating costs. Keep the following points in mind when evaluating your operational strategy and outgoing expenses.
1. Prioritise costs that directly impact guest experience
When managing hotel operating costs, it’s essential to strike a balance between the guest experience and unnecessary expenditures. While some guest amenities may be your highest spend, they’re likely the most significant contributor to guest satisfaction and repeat business.
Avoid cutting expenses in areas that affect service quality or guest comfort, and instead focus on optimisation through more efficient systems or consolidation. Cost-cutting should never compromise the experience that keeps guests coming back.
2. Align cost management with seasonality
Hotel revenue often fluctuates with the seasons, which is essential to consider when evaluating cost-cutting measures. It’s wise to adjust spending based on occupancy trends to avoid unnecessary outgoings during slower periods because there’s no sense in forking over a small fortune to suppliers when you don’t expect any bookings.
Consider scaling back variable expenses, such as staffing, utilities, and supplies, during low-occupancy months, while still ensuring that your property can ramp up operations when bookings increase.
Not all expenses carry the same weight, so a clear separation between your essential operation expenses and nice-to-haves can help optimise your annual budget and maintain steady profitability year-round without impacting performance.
3. Use technology to improve cost visibility
Modern hotel management systems provide real-time data on every imaginable metric. At your fingertips, you have access to in-depth reports on labour, utilities, maintenance, and other key expenses.
Leverage these tools to monitor cash flow, prevent overspending, and catch inefficiencies before they spiral out of control.
These types of systems are also built to integrate directly with your payment infrastructure, often lowering processing fees and other operational costs associated with hospitality payments.
4. Benchmark costs against industry standards
You don’t always need to reinvent the wheel to be successful. Compare your KPIs like CPOR, labour costs, or utility spend to similar hotels in your market and area. Benchmarking against competitors can help uncover opportunities for cost savings and validate operational decisions.
Why cost efficiency will define hospitality winners?
I think we can all agree that 2020 (and the years that followed) threw a massive curveball at the hospitality industry that we’re all collectively bouncing back from. It’s more apparent, now than ever, that in today’s hotel landscape, those who succeed will be the ones who manage costs with the same intensity as they drive revenue. This doesn’t mean being cheap, but rising labour expenses, soaring energy prices, and increased distribution costs have turned operational efficiency into a true competitive advantage.
Guest expectations will continue to evolve, and as margins tighten, hotels that properly leverage innovative technology, highly optimised processes, and vet every single expense in detail will be much better positioned to withstand economic pressures and invest in long-term growth.
To put it simply, to grow hotel revenue and profits sustainably, operators who proactively control costs without sacrificing guest experience will quickly emerge as leaders of the pack.
Unlock cost savings with more innovative payment solutions
If you run a hotel, it’s easy to only focus on the costs that are right in your face, like staff and supplies. However, payment processing is often an overlooked expense that can result in significant operational costs due to high transaction fees, misaligned systems, and outdated infrastructure.
Planet’s integrated payment solutions and direct booking platform are designed specifically for the hospitality industry, created to reduce hidden costs, streamline operations across the board, and enhance the guest experience, all while protecting your bottom line.
Rethinking hotel profitability beyond revenue growth
Revenue growth is essential for any business, but it’s only half of the profit puzzle. True profitability depends on a deep understanding of how hotel operating costs impact revenue and the strategic management of those expenses. There are plenty of ways to go about it, and there’s no one-size-fits-all solution. It’s about identifying areas of savings for your property and implementing cost control initiatives around them.
As the hospitality industry evolves, the most successful hotels will be those that view operational efficiency as a long-term strategy for sustainable growth, rather than just a short-term cost-saving tactic.
Stay in English