The location, occupancy level, and average daily rate (ADR) are only a few of the variables that affect a hotel’s ability to make a profit. By dividing net income by total investment, a hotel’s return on investment (ROI) is determined. Typically, a hotel should aim for a ROI of 10% or higher. However, this may change based on the hotel’s size and location.
Labor costs account for a sizable amount of hotel budgets. According to an HVS survey, labor costs account for about 35% of a hotel’s overall operating costs. This covers wages and advantages for both front- and back-of-house staff.
The cost of goods sold (COGS) is one of the most important line items for hotels. This covers costs for things like food and drink, cleaning materials, and other running charges. Around 25% of a hotel’s overall operational costs are typically made up of COGS.
The average daily rate (ADR) is frequently used by hotels to determine the price of a room. The average daily rate (ADR) is computed by dividing the total income by the number of sold rooms. For instance, the ADR would be $100 per night if a hotel sells 100 rooms and makes $10,000 in revenue. Based on demand and seasonality, this figure may change.
In conclusion, there are many variables that affect how many rooms a 5-star hotel should have, but a minimum of 100 rooms is a reasonable starting point. A hotel’s good return on investment is approximately 10%, while labor expenditures typically account for about 35% of all operating costs. One of the most important line items for hotels is the cost of products sold, and the price of a room is often determined using the average daily rate.