The hotel industry has faced some interesting challenges in recent years. From Airbnb’s impact on bookings to implementing more sustainable practices, the hotel industry is undergoing a number of changes that range from innovative to disruptive. As a result, hotel management practices are evolving, and more hotel operators are embracing smart technologies to remain both competitive and profitable.
Of course, there are two sides of the profitability coin: increasing revenue and reducing costs. While increasing revenue often requires an increase in price point and/or booking volume, reducing costs is something that hotels can do without increasing their room rates, bookings, or marginal sales. In other words, by reducing costs, hotel operators can increase their profitability (and adapt to new market conditions) while maintaining a competitive price point.
From the hotel management to guest experience, moreover, there are a number of smart technologies that hotel operators can leverage to improve the efficiency of their properties and reduce their Cost Per Occupied Room. And in doing so, hotels can not only increase their profitability, but also better adapt to the changing dynamics of the hospitality industry.
CPOR and the Hotel Bottomline
From bookings to operations, there is no shortage of hotel industry KPIs. Indeed, these can be used to measure everything from overhead costs to ongoing financial performance.
On the cost side of the hotel management equation, however, perhaps none is as important as CPOR (or Cost Per Occupied Room). Simply put, CPOR is a “formula [that] helps calculate the average cost per occupied room.” The lower a hotel’s CPOR, then, the higher its Profit per Available Room (or PROFPAR), and the more profitable (and competitive) the hotel becomes.
When it comes to reducing CPOR, moreover, there are a number of smart technologies that hotel operators can leverage. And the initial investment required to implement these technologies is not only reasonable, but usually recouped in just a few years.
Reducing Operational Costs
Before a hotel can book or host a guest, it has to be open for operation. From staffing to providing basic amenities, there is an array of overhead costs that are prerequisites to opening for business.
The final price tag of these overheads costs, however, are not set in stone. Indeed, there are a number of smart technologies and best practices that hotel operators can implement to better manage (and anticipate) these costs both in the immediate present and into the future.
Smart Energy Management
In the hotel industry, energy costs comprise the largest proportion of utility costs. As one Hospitality Net study found, while electricity comprises 60% of total utility expenditures, gas/fuel comprise and additional 10.6% of that overhead.
And insofar as energy consumption has a considerable impact on GOPPAR, it also has a significant impact on CPOR. So the difference between having and not having an energy management system can often mean the difference between a hotel being in the red or in the black. Fortunately for the hotel owners, a variety of energy management technologies make it possible to not only monitor energy consumption with the utmost accuracy, but also adjust and optimize their consumption in response to real-time consumption patterns.
Smart HVAC Technology
Whether for heating or cooling, room climate settings are constantly fluctuating based on occupancy guest needs. In the process, rooms are needlessly cooled/heated, and guest experience is compromised.
Smart HVAC technology, however, now allows hotels to use their HVAC systems more efficiently, save significantly on energy consumption and costs, and maximize guest comfort. While occupancy sensors and smart thermostats monitor and respond to fluctuations in occupancy at the room level, smart energy management systems like Verdant EI employ sophisticated machine learning algorithms on the backend to continuously analyze thermodynamics and local weather patterns, and optimize energy consumption in real-time, all year round.
In fact, not only can smart energy management systems reduce hotel energy costs by up to 20%, but they also generate some of the fastest payback periods in the industry (with hotel owners recouping their investment in just 12-24 months). The ROI is so significant, in fact, that it will increase the resale value of a hotel property.
Smart Lighting Technology
Smart HVAC systems aren’t the only energy management technologies that hotels can employ to reduce energy costs and CPOR. Smart Lighting technology also allows hotels to better understand their energy needs, automate their consumption, and adapt to real-time changes in occupancy.
In fact, while some companies have cut energy costs by up to 75% by converting to a smart LED lighting system, some hotels have seen even greater savings. For example, after retrofitted approximately 1,300 lamps in the hallways, common areas, and 80 rooms, the Chatwal Hotel in New York City it reduced their lighting energy consumption by 90%, and saved around $124,255 in the first year alone.
Essentially, just as smart HVAC systems (such as Verdant EI) use occupancy sensors and machine learning algorithms to continuously analyze demand load patterns and optimize HVAC energy consumption, smart lighting systems similarly allow hotels to set preferred lighting times, track occupancy patterns, and improve overall lighting energy consumption. In fact, both of Verdant’s ZX and VX smart thermostats also integrate with external third party lighting systems, turning lights on/off according to whether or not a room is occupied. This allows hotel operators to use the Verdant EI energy management system to optimize lighting energy consumption and reduce their CPOR considerably.
Smart Water Management
Energy isn’t the only utility cost that hotels can save on to reduce CPOR. Water consumption also has a considerable impact on cost per occupied room. Indeed, after electricity, water/sewer is the second largest utility cost, comprising 23.8% of utility expenses.
After all, whether it’s for guest rooms, pools, sanitation, or food/beverage service, water is an unavoidable cost of doing business in the hospitality industry. In fact, the hospitality industry relies so much on its water consumption to keep afloat that it:
[A]ccounts for about 15 percent of total water use in US commercial and institutional facilities, according to the EPA … [And some] estimates suggest that implementing water-efficient practices in commercial buildings can decrease operating costs by approximately 11 percent and energy and water use by 10 and 15 percent, respectively.
This is why many hotels are now using IoT-enabled devices to conserve water and prevent water-related damage. Just consider how a single leaky toilet can cost as much as $840/year. Add the costs of any additional water damage, and it’s easy to see how water can become an unnecessarily inflated business expense. By monitoring water lines with smart, low-cost IoT-enabled water meters, however, hotels can reduce their overall CPOR, and evern see an ROI on their water consumption in about 4 years.
Just as smart energy management systems allow hotel operators to monitor, track, and optimize energy consumption to reduce CPOR, smart predictive maintenance technology allows them to use sensor data to identify wasteful or hazardous trends, and alert maintenance staff before a given issue escalates into a much more costly one.
For example, as an HVAC system fluctuates through different levels of performance based around occupancy needs, the components will incur wear-and-tear on its different physical components. So rather than waiting for a component to breakdown before being repaired or replaced, smart maintenance technologies allow engineering staff to predict maintenance needs based on system usage, anticipate system failures, and reduce the costs of operating a faulty system.
Verdant’s online management platform, for instance, continuously collects data related to HVAC runtimes for each unique room and assigns them efficiency ratings. This rating can be used as an indicator of how quickly a room can be heated or cooled, and provides engineering teams with critical alerts when HVAC equipment is in need of maintenance.
Smart Guest Experience Technology
The ways in which smart technologies can reduce CPOR (and increase hotel profitability) aren’t limited to operational overhead. Smart tech can also help streamline and personalize guest experiences, reducing both friction points and labor costs.
Remote Check-In / Check-Out
By allowing guests to check-in remotely through their mobile device, hotel owners can better predict/manage their staffing needs, and better control CPOR by reducing labor costs. For example, when guests can check-in remotely from their smartphones, staff can spend less time on the welcoming process.
Then, at the end of their stay, guests can enjoy a seamless self check-out experience that also allows them to arrange for their preferred transportation to their next destination (whether it be taxi, airport shuttle, or popular ride-sharing service such as Uber or Lyft). This, in turn, allows hotels to save on the labour costs associated with checking-out guests and making travel arrangements for them.
Smart Reserved Parking
Hotels can also use smart technology to save on labor costs of managing their parking inventory. Specifically, in conjunction with smart parking sensors, hotel apps to allow guests to reserve parking spots in advance of their visit, and to have the best available space assigned upon their arrival. These technologies not only help reduce CPOR, but also provides guests with a smoother experience from the moment they pull-in.
Mobile Room Keys
Finally, smartphone apps can also be used to help guests will also be able to access their room upon arrival, and lock and unlock their room door throughout their stay. This can save hotels the expense and hassle of managing a key card inventory that is susceptible to loss and demagnetization.
Smart CPOR Management Strategies
Cost Per Occupied Room is a crucial KPI for monitoring the efficiency of a hotel property. In addition to providing insight into operating costs, a reduced CPOR has a direct impact on increasing RevPar and GOPPAR — two other KPIs that directly measure hotel profitability.
Reducing CPOR, moreover, is one of the most immediate ways to improve a hotel’s financial performance. After all, it allows hotel owners to increase margins without having to increase their pricing or develop new revenue streams.
Smart technologies represent a significant opportunity for hotels to reduce their CPOR. They allow hotels to monitor and manage costs in real-time, and generate sufficient ROI that hotel operators can recoup the investment of implementing these smart technologies in a relatively short time. Indeed, by reducing CPOR, these smart hotel technologies are quickly becoming a stable of hotel management best practices.