The Benefits of Benchmarking in the Hospitality Industry
One of the most widely utilized benchmarks in the hotel industry is Revenue Per Available Room, also commonly known as RevPAR. Hotels rely heavily on this data to understand how their property is performing compared to others in the marketplace.
While top line revenues are a key indicator of a hotel’s overall health, net metrics, while more variable and challenging to calculate, come closer to illustrating actual profitability. To calculate net metrics, cost centers such as labor, supplies, technology, insurance, taxes, etc. must be considered.
Some of these cost generators are relatively static from hotel to hotel and/or geographic area. Two of the largest line item expenses, labor and insurance, can vary widely, however. Fortunately, they can be influenced – and minimized – if effectively managed.
So, how does a hotel know if their labor costs are competitive with the marketplace? First, there are organizations that collect wage and hour data in order to provide reports specific to this topic. In addition, there are also specialized consultants to ensure there is efficiency within labor costs.
Then, how does a hotel know if their insurance costs are competitive and not weighing down net revenues?
Insurance for hotels is twofold. First, a hotel needs to ensure they have adequate (i.e. Cyber Liability) and compliant (Workers’ Compensation, Minimum Value Health Coverage) coverage in place. Second, it will need to ensure the coverages in place are competitive with their peer group.
For workers’ compensation, mod factors give a baseline benchmark and experienced consultants can provide detailed benchmarking reports to peers that will illustrate average number of claimants, average cost per claimant, average age of claimants, and further relevant details.
Benchmarking data for employee benefits such as health insurance coverages and costs are similarly accessed through industry specialists, which will illustrate average per-employee per-year healthcare costs, average coverage/plan designs, average employee and employer monthly premium shares, as well as additional details.
It’s worth noting: benchmark reports specific to geographic regions are most valuable, as costs and coverages do significantly vary depending on a hotel’s location within the United States.
Health insurance is also an important cost driver to benchmark, as the landscape has changed dramatically for hotels and hospitality employers since the implementation of the Affordable Care Act’s employer mandate.
As an example, some hotels have historically offered major medical coverage to all employees, while others have only recently expanded their coverage offering to hourly and/or non-management employees. Some hotels offer traditional major medical plans while others look to minimize costs through Minimum Value Plan and Minimum Essential Plan coverage offerings, with premiums as low as $25 per month.
The benefits of benchmarking employee benefits also extends to determining how attractive a hotel’s benefits program is to recruit and retain employees.
Similar to RevPAR comparisons, if one of the largest line items isn’t being benchmarked, it makes for a challenging battle to understand market competitiveness and to identity areas of opportunity for greater efficiency.
For more information on the benefits of benchmarking, contact a memeber of the 'A' Team.
- The Value of Benchmarking
- Benchmarking: How Your Insurance Rates Stack Up
- Get Ahead with Benchmarking
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