Does Every Greedy Hotel Manager Know How to Increase their Hotel Profit?
With Profit is the most efficient way to run a Hotel business. However we must agree, running our Hotel with efficiency, means running it with Greed. But Isn’t Greed Good? (read on or watch the video)
Profit is simply the sales revenue remaining after all costs are paid? Hotels and other Companies use profit to calculate their tax obligation and any money (dividend) they can pay to shareholders. When the cost of running the Hotel (expenses) are higher than revenue, that’s called a loss.
But there are different Types of Hotel Profit
Hotel and other businesses use three types of profit to examine different areas of their Hotels.
Success or suitability of Hotel Products are measured using Gross Profits. Pricing decisions are often made using Gross Profit percentages.
Gross profit is what remains once variable costs have been subtracted from each product line. Variable costs are only those needed to produce each product, like food ingredients and beverages.
And the Success of Hotel Departments or Operations are measured using Operating Profit. Hotel Managers are often set targets or budgets for Operating Profits for the areas that they Manage.
Operating Profit is what remains once both variable costs and all other costs, including the Hotel Staff have been subtracted from a Hotel Department or Area.
But Finally, the Success of an entire Hotel is measured using Net Profit which includes all Hotel costs. Surely this is the most accurate representation of how much money the Hotel is making?
The purpose of most Hotels is to increase profit and avoid losses. That is the driving force behind capitalism and the free market economy. The profit motive drives Hotels to succeed with creative new products and services? We will then sell them to the most people. Most importantly, we must do it all in the most efficient manner possible.
With Greed? Not such a Bad Thing…as there are only two ways to increase Profit in a Hotel?
The first way, and the best, is to increase revenue. Which we know can be done by raising prices, increasing the number of customers, or expanding the number of products sold to each customer?
Raising prices in the Hotel will increase revenue if there is enough demand. But Customers must want the product enough to pay higher prices. Increasing the number of customers can be expensive? It requires more marketing and sales.
Expanding the number of products sold to each customer is less expensive. Do you understand your Hotel customers well enough to know which related products they might want?
The second way to increase profit is to cut costs. That is a good method up to a point. It makes a Hotel more efficient and therefore more competitive. Once costs are down, the Hotel can reduce prices to take business from other Hotels.
Theorists Milton Friedman and Friedrich Hayek argue that following the Profit motive is the most efficient way to undertake business. According to their discussion, in the Hotel Industry, like most industries today – Greed is Good….