How to Maximize Your Hotel ROI
Despite many hoteliers’ passion and dedication towards their hotel, they often struggle to achieve a return on investment (ROI) that reflects their hard work. Balancing operational costs, OTA visibility, and guest satisfaction can be overwhelming. That’s why we’ve created this blog to help passionate hoteliers turn their efforts into measurable financial success.
.png)
What is ROI in Hotel Industry Terms?
Hotel ROI (Return on Investment) measures how much profit you generate relative to your investments in your property. It’s a key metric for determining whether your efforts are translating into financial success and pinpointing areas that need improvement.
How to Calculate ROI for Hotel Insights
Formula for ROI: ROI = (Net Profit / Total Investment) × 100
For example, if your hotel generates a net profit of $75,000 from a $300,000 investment, your ROI is 25%.
Average Return on Hotel Investment
In the hospitality industry, it is generally accepted that a reasonable return on hotel investment falls between 6-12%.
However, the actual average ROI can vary significantly based on factors such as economic conditions in different parts of the world and the specific strategies employed by the hotel. The key to sustained success is focusing on improving your ROI each year. By doing so, your business can remain comfortably profitable and well-positioned for long-term growth.
The Importance of General Hotel ROI vs. Departmental ROI
While knowing your hotel’s overall ROI provides a snapshot of profitability, understanding the ROI of individual departments is equally crucial. Each department—whether it’s housekeeping, food and beverage, or the spa—contributes differently to your bottom line.
Why is ROI Crucial for Hotels?
ROI isn’t just a number; it’s a tool for making informed decisions. Here’s how ROI can help you:
1. Strategic Investments: Maximizing Returns in a Competitive Industry
For hotels, every euro spent should ideally lead to measurable value. ROI helps hoteliers evaluate the profitability of investments such as:
Upgrades and Renovations
For instance, a revamped lobby or upgraded guest rooms can increase the average daily rate (ADR) and occupancy. ROI metrics determine if the revenue boost justifies the expense.
Technology Adoption
Investments in property management systems (PMS), revenue management software, or contactless check-ins can improve efficiency. ROI shows whether these tools streamline operations enough to cover their costs.
Marketing Strategies
Campaigns to attract guests—whether through Google Ads, social media, or partnerships with OTAs (Online Travel Agencies)—can be assessed for their effectiveness in generating bookings.
2. Performance Monitoring: Understanding Your Property’s Strengths and Weaknesses
Hotels are multifaceted operations, encompassing accommodations, dining, events, and leisure. ROI acts as a diagnostic tool to pinpoint:
High-Performing Areas
Which departments or services contribute most significantly to revenue? For example, is the spa delivering returns that justify its operational costs?
Underperforming Areas
Does the in-house restaurant struggle to attract patrons? Identifying low ROI areas allows for targeted interventions like new menus, pricing adjustments, or even a rethink of service offerings.
3. Competitor Benchmarking: Staying Ahead in the Market
In the hospitality industry, your property is part of a broader ecosystem. ROI comparisons with competitors provide insights such as:
Revenue Streams
Competitors may have ancillary services—such as co-working spaces or unique packages—that outperform yours. ROI analysis helps identify these gaps.
Seasonal Trends
By benchmarking ROI, you can understand whether your property capitalizes effectively on peak seasons compared to others in your region.
4. Informed Decision-Making: Building for Sustained Growth
Hotel ROI is essential for making informed business decisions. It helps hoteliers allocate budgets to high-performing areas, optimize staffing by assessing labor costs against returns, and evaluate the feasibility of expansion plans, such as adding new wings or properties. ROI analysis also clarifies the long-term benefits of sustainability initiatives, like solar panels or energy-efficient systems, ensuring investments align with profitability and operational goals.
Common Pitfalls That Hurt Hotel ROI and Solutions
Despite their best efforts, many hoteliers fall into these traps that hinder their ROI:
1. Ineffective Pricing Strategies: Leaving Money on the Table
Pricing is one of the most dynamic levers that impact hotel revenue and ROI. When not optimized, it directly affects occupancy, ADR (Average Daily Rate), and RevPAR (Revenue Per Available Room).
Too many hoteliers still focus on just implementing dynamic pricing, instead of creating a long-term sustainable revenue strategy that helps their hotel grow.
2. High Fixed Costs: Inflated Expenses that Eat into Profits
Operational efficiency is crucial for maximizing ROI. High fixed costs are a silent profit killer, often overlooked because they’re baked into day-to-day operations:
- Long-Term Supplier Contracts: Locking into fixed-price contracts without renegotiation clauses can be costly when market prices drop.
- Energy Inefficiency: Outdated HVAC systems, lighting, and water heating can significantly inflate utility bills.
- Labor Costs: Overstaffing during low-occupancy periods results in unnecessary payroll expenses.
Solution: Regularly audit supplier agreements, explore renewable energy options (e.g., solar panels), and implement demand-driven scheduling tools for optimal staffing.
3. Low OTA Visibility: Fading into the Background
Online Travel Agencies (OTAs) like Booking.com and Expedia are critical for getting booked, but low visibility on these platforms severely impacts ROI. Even if every aspect of your hotel is perfect, if you are not being seen, you will not be able to get the revenue you are hoping for.
Case Study: Goodnight Antwerp – Transforming ROI with OTA Ranking Management
Goodnight Antwerp, a boutique hotel, faced a persistent challenge: while the owner was initially satisfied with simply being able to cover all bills by the end of each financial quarter, the desire to improve the hotel’s ROI became a priority. The hotel struggled with weekday occupancy and stagnant revenue, leaving significant growth potential untapped.
Otamiser implemented a tailored strategy focusing on two critical areas:
First of all Improving OTA Visibility. By implementing the Booster® tool, Otamiser enhanced the hotel’s rankings on key booking platforms, attracting more visibility and bookings.
And secondly, revenue management strategy. Dynamic pricing models were introduced to optimize rates based on demand, ensuring the hotel remained competitive during low-occupancy periods.
This resulted in a revenue increase of 27.5%, creating a better return on investment for the hotel.
Read the full case study here.
4. Poor Guest Satisfaction: Reputation Damage That Lowers Repeat Business
Guest satisfaction is critical for driving repeat bookings, referrals, and positive reviews. Dissatisfied guests often leave negative online reviews on platforms like TripAdvisor or Google, deterring potential customers. They are also less likely to return, forcing hotels to spend more on acquiring new guests. Operational issues such as slow check-ins, unclean rooms, or poor service can erode satisfaction and harm profitability. Prioritizing guest experience is essential for maintaining loyalty and a strong reputation.
Solution: Use guest feedback proactively to identify pain points, and train staff in hospitality best practices. Consider loyalty programs to incentivize repeat stays.
5. Underutilized Technology: Slowed Operations and Increased Costs
Technology is an enabler of efficiency and a key driver of ROI. However, many hotels fail to leverage its full potential:
- Outdated Systems: Legacy Property Management Systems (PMS) and manual processes slow down operations and lead to errors.
- Underutilized Features: Many hotels invest in robust software but fail to use all its features, such as automated upselling or integrated communication tools.
- Lack of Data Integration: Disconnected systems make it difficult to gain a holistic view of performance metrics and guest data.
Solution: Regularly upgrade technology and ensure staff are trained to use all features. Invest in systems that integrate seamlessly, offering a unified view of operations, guest preferences, and revenue trends.
Final Thoughts
For hoteliers with a passion for creating unforgettable stays, achieving a positive ROI is the key to sustaining and growing your business. By investing in the right tools and strategies, you can turn challenges into opportunities and ensure your property thrives.
Take the first step toward maximizing your profitability with our comprehensive Booking.com Checklist. Learn how to optimize OTA visibility, streamline operations, and improve guest satisfaction to achieve measurable results.
Download your free copy today and start transforming your hotel’s performance.
.svg)
.svg)
Also check out the other blogs
.jpg)
.jpg)
