Hotel profitability is the backbone of every accommodation business, whether you’re running a cozy boutique hotel or a big-name international brand. It’s more than just filling rooms – it’s about knowing how much profit each guest, service, and sales channel brings in.
This guide breaks down practical tips, key metrics, and real examples to help you boost your hotel’s profits, cut unnecessary costs, and get the most value out of every guest. Whether you’re managing a single property or a luxury 5-star destination, making smart use of your resources is the key to running a successful, sustainable hotel operation.
Hotel profitability is all about how much profit a hotel makes after covering all its operating costs—both fixed and variable. It’s not just about high occupancy rates or big revenue numbers; what really counts is what’s left after all the bills are paid.
Here’s a straightforward way to calculate it:
Profitability (%) = (Net Profit / Total Revenue) × 100
For example, if your hotel brings in €150,000 in monthly revenue and spends €120,000 on costs, your net profit is €30,000. That means your profitability rate is 20%.
This formula is a good starting point, but there’s more to the story. To fully understand your hotel’s profitability, you need to look at where your revenue is coming from (upselling different hotel room types, dining, events, etc.) and where your money is going (staff, supplies, commissions, tech, etc.).
The good news? The hotel industry is rebounding. According to the American Hotel & Lodging Association, global RevPAR grew by 4.8% in 2023, even surpassing pre-pandemic levels. This shows that with smart management, hotels can achieve steady profitability, even in a challenging market.
It’s not a given. Success depends on smart management, tight cost control, strategic pricing, and staying ahead of market trends. While some hotels hit profit margins between 15% and 25%, others struggle below 10%. Why? Common culprits include over-reliance on OTAs, low direct bookings, high operating costs, or decisions that aren’t backed by data.
Profitability also varies by hotel type. A corporate-focused urban hotel will see very different margins compared to an all-inclusive resort in a tourist hotspot. No matter the type, regularly reviewing your business model, revenue streams, and costs is key.
The most profitable hotels don’t just focus on revenue, but make every pound spent on operations, marketing, technology, and staffing count. The takeaway? If you want your hotel to thrive, take a balanced approach: manage revenue wisely and deliver an exceptional guest experience.
Understanding hotel profitability starts with knowing the difference between fixed and variable costs.
Fixed costs stay the same no matter how many guests are staying at the hotel. Even if the rooms are empty, these expenses don’t go away. Here are some common examples:
Managing fixed costs well means regularly reviewing contracts, streamlining processes, and assessing the value of your tech tools.
Tools like HiJiffy can make a big difference by centralising client communication, automating requests, and cutting down on repetitive tasks. This isn’t just about saving time – it’s about reducing costs in key areas like customer service and reservations, helping your team focus on delivering a better experience for guests.
Variable costs are the expenses that change depending on how busy your property is or how much guests are using services. These costs are directly tied to activity levels, making them easier to adjust with proper tracking. Here’s what they typically include:
To manage variable costs effectively, you need solid demand forecasting, real-time tools, and automated processes to align resources with occupancy levels. Keeping these costs in check means smoother operations and happier guests.
The perks of running a well-managed hotel go way beyond profits. A hotel that’s efficient and well-organised enjoys some major advantages that directly support long-term success. Here’s what you can expect:
Smart automation tools like HiJiffy also make life easier. By handling a high volume of FAQs, bookings, and operational requests, your staff can focus on what matters most – offering high-value service to your guests.
For five-star hotels, these benefits are even bigger. Upselling, premium services, and tailored experiences mean you can generate more revenue per guest while maintaining top-tier service. A well-run hotel doesn’t just bring in money – it builds loyalty, retains talent, and sets the stage for long-term success.
To accurately assess the profitability of a hotel, it’s not enough to simply look at net profit. It’s crucial to monitor several key performance indicators (KPIs) to better understand the efficiency of each operational area:
Tracking these KPIs regularly and comparing them to industry benchmarks helps you make smarter decisions to boost your hotel’s profitability.
Boosting hotel profits is about running a smarter, more efficient operation. From keeping costs in check to using technology wisely and focusing on personalised guest service, every detail matters. Success comes down to having a clear plan, the right tools, and a team that’s ready to deliver.
With the right approach, your hotel can improve margins, create memorable guest experiences, and build a solid foundation for long-term growth.
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Funding:
This project received funding from the European Union Horizon 2020 research and innovation program under Grant Contract No. 782509.
