Michigan State University Extension Tourism Educational Materials - 33411028

06/06/02

Hotel/Motel Industry Comparison

Industry averages can help you compare the operating performance of your hotel or motel with other similar operations. By periodically comparing your occupancy, room

rate, sales and expense figures with industry averages and your past performance, you can identify areas that need attention and opportunities to increase your profitability.

If you are planning a hotel or motel, industry averages can provide a basis for developing your financial projections. This data, along with local market area statistics, can provide you with information to develop realistic assumptions to support your projections.

This publication summarizes national industry averages for two types of hotels and motels: full-service properties that offer food and beverage and limited-service properties that provide lodging only. While the industry averages are based on larger properties (generally over 50 rooms), they can still be used to analyze the performance of smaller motels as sales and expense categories are typically similar.

The industry averages presented are from "The Host Report: Annual Report for the Year 1992," a publication of Arthur Andersen and Smith Travel Research. To order a copy of the complete report, contact The Host Report, 2115 Fourth Street, Berkeley, CA 94710.

Occupancy and Room Rate Trends

Two key variables that determine hotel and motel sales are the Occupancy Percent and the Average Room Rate. Occupancy Percent is equal to the number of rooms sold

divided by the number of rooms available during a period. Average daily room rate is equal to total room revenue divided by the number of rooms sold during the period. Presented below are 1992 occupancy and average room rate levels for both full-service and limited-service properties. (Vis. 1)

Revenue and Expense Industry Averages

The American Hotel & Motel Association has adapted a series of revenue and expense categories for hotels and motels called the Uniform System of Accounts. These accounts provide a standardized format for analyzing your operation. Definitions of these accounts are presented at the end of this publication.

Each revenue or expense account can be analyzed as a percent of sales (% of Sales) or as a dollar amount per available room ($/Available Room). Accounts that vary in relation to sales, such as franchise fees, are better analyzed as a % of Sales. Accounts

that are relatively fixed, such as interest, are better analyzed as a $/Available Room.

The (Vis. 2) presents industry averages for both Full-Service and Limited-Service hotels.

Comparison with Your Hotel or Motel (Vis. 3)

1. Enter your hotel or motel's annual occupancy, average room rate and income statement data in the first column titled "$ Amount." If you are using different account

classifications, translate them into this uniform industry format.

2. For each account, calculate and record your "% of Sales." Departmental expenses should be based on the corresponding departmental revenue. All other accounts should be based on total sales.

3. For each account, calculate and record your "$/Available Room" ratio. This is simply the amount of revenue or expense on each line divided by the number of rooms in your property.

4. Using the industry averages on the previous page, analyze your "% of Sales" and "$/Avail Room." Look for significant differences and record your comments in the space provided.

Once you complete this analysis, focus on those variances that are significant and controllable. Investigate how other properties have managed to increase sales or decrease expenses in the categories you have identified. Work with your staff to correct problems and set your sights on doing better than the industry averages.

Chart of Accounts

Room Sales are generated from the rental of overnight guest rooms. It is a function of the number of rooms in the property, the days open, the occupancy percentage and the average daily room rate.

Food Sales are generated in hotel restaurants and banquet facilities. They are a function of the number of people served per day and the average food check per person.

Beverage Sales includes wine, liquor and beer sales generated in the lounge, restaurant or banquet facilities.

Other Food & Beverage Sales includes meeting room revenue and miscellaneous income.

Telephone Sales include local and long distance calls made by guests and pay phone commissions.

Minor Department Sales includes gift shop revenue, guest laundry income and recreation fees.

Rentals and Other Income include space rental, concessions, commissions, vending machines and other revenues that are not included in the other departments.

Rooms Department Expense includes payroll for front office manager, desk clerk, head housekeeper, room inspector, room cleaner, house person, laundry worker, reservationist and bellperson. Other expenses include travel agent commissions, cleaning supplies, laundry supplies, guest supplies, reservation fees, uniforms and other expenses related to guest room usage.

Food and Beverage Department Expense include food and beverage purchases, payroll for the food and beverage director, restaurant manager, host, servers, bus person, cook, dishwasher, bartender, and banquet server, and other expenses such as china, linen, laundry, entertainment, and supplies.

Telephone Department Expense includes the cost of calls made by guests and charged to the hotels telephone.

Other Departments Expense includes cost of sales (typically gift shop and vending goods) and other expenses related to the minor departments, rentals and other income.

Administrative & General Expense includes payroll for the general manager, secretary, controller, night auditor, and security person. Other expenses include credit card commissions, liability insurance, postage, office supplies, dues and subscriptions and other administrative expenses.

Marketing Expense includes payroll for the marketing director and sales person. Other expenses include advertising, merchandising costs, and sales office expenses.

Franchise Fees includes marketing and royalty fees paid to a regional or national chain.

Energy Expense includes electricity, gas, water and sewer services.

Property Operations and Maintenance Expense includes payroll for the chief engineer, general maintenance and grounds person. Other expenses include supplies, materials and contracted work.

Management Fees includes the fees paid to a management company for operating the property.

Property Taxes include both the real property and personal property taxes.

Insurance Expense includes the cost of insuring against damage or destruction to the building and its contents.

Rent Expense is the amount paid for leasing or renting land, buildings, furnishings, fixtures or equipment.

Interest Expense is the periodic charge for the use of funds loaned by a bank or other lender.

Depreciation/Amortization Expense is a measure of the loss of value of business assets during a period. It is an accounting measure and may not correspond to the market value of the assets.

This publication was produced by the Tourism Research and Resource Center, University of Wisconsin-Cooperative Extension.

Written by Bill Ryan with layout and technical assistance provided by Karen Marvin.

UW-Extension provides equal opportunities in employment and programming, including Title IX requirements. University of Wisconsin-Extension, United States Department of Agriculture and Wisconsin Counties Cooperating. A partner in education with the University of Wisconsin-Extension and the U.S. Small Business Administration. If you need this material in an alternative format please contact the program coordinator or the UWEX Affirmative Action Office.

Vis 1Occupancy and Average Room Rate (1992)

Vis 2Industry Average for Full Service and Limited Service Hotel

Vis 3Comparison For Your Hotel/Motel