6 Prime Spend Areas for Hotel Cost Optimization 

Labor has always been the largest operating expense for hoteliers and, historically, the primary focus when it comes to controlling costs. But things have changed in the industry and hotel operators are more committed than ever before to holding on to their people and compensating them well. By taking a closer look at frequently ignored, hard-to-manage operating costs, hoteliers can save money and increase profitability without cutting into their valuable human resources.

Collectively, the expenses for these non-labor business services—which range from utilities to laundry to elevator maintenance and everything in between—add up to about a third of a hotel’s total operating budget. And on average, hotels are paying 21%-24% more than they should across these spend categories. In other words, hoteliers are sharing hundreds of thousands of dollars in would-be profits with their vendors. And that’s money that could be much better spent on employees or guests. 

While hoteliers have harbored plenty of excuses for largely ignoring these operating costs in the past, it’s this historic oversight that makes the following six spending areas so ripe for savings right now. 

Bank and Treasury Fees 

Banks can charge more than 3,100 different types of fees for business account services, and that fact alone makes this expense category difficult to manage. Because of the complexity and inherent ambiguity, as well as the common misperception that bank fees are a necessary evil that companies must accept out of hand, it’s not uncommon for hotels to pay 27% to 34% more than they should for redundant, excessive, or incorrectly applied fees. Deposit account control agreements (DACA) fees are often a major pain point for hotels because every individual account gets tagged with one, and there is usually limited visibility into these aggregated costs at the corporate level. Regular bank service and fee reviews coupled with benchmarking data are the keys to reducing transaction costs and keeping bank fees in check without having to change banking relationships. 

Waste

No hotel wants to risk the aesthetic and even health and safety issues related to overflowing dumpsters or trash bins on its property. However, most hotels have limited choices in waste management vendors, and scheduling for pickup is notoriously inconsistent and fraught with challenges. If haulers miss a pickup date, the hotel may get unfairly tagged with overage fees due to the bins being overly jammed. There are many other hidden fees and surcharges for waste and recycling that are not always reflected on the monthly bills. Haulers add these costs right from the start, and then every 12 months, the annual contract increases by 20% without any notice. Any hotel that hasn’t reviewed its waste costs recently is likely overpaying by a significant amount—the average is 31%.

Telecom/TV 

Despite sweeping changes in the telecom industry, most every hotel room still has a phone line and a TV. Telecom vendors will continue to charge for unused assets, such as phone lines that have been redirected or consolidated. And the prices are never consistent, varying widely even within the same geographic location. Most hotels stand to save more than a quarter of what they currently pay simply by rightsizing the network, securing competitive rates and terms, and taking a more proactive approach to eliminating common telecom and technology billing errors. 

Payroll Processing Fees 

Payroll processing and human capital management represent a critical yet complex and costly spend category for the industry. Third-party payroll processing partners are adept at applying fees at every step of the payroll process from the manifest to processing, deposits, and reconciliation, and each of these fees is assessed per full time employee. The payroll providers are not the best at finding savings opportunities, however, and many processors lack specific knowledge about payroll tax credit rules and regulations that vary by state. As a result, hotels overpay for payroll processing by 24% on average and often miss out on the savings to which they are entitled. 

Elevator Maintenance  

Somehow, elevators always break after hours, and on premium service time. Due to warranty stipulations, hotels have only one choice about who to call for service—the vendor that installed the elevator. Hotel managers and operations teams often struggle to verify the regular preventive maintenance activities or to understand what CapEx may be needed for future repair or refurbishment.  Despite a shortage in vendor choices to begin with, most hotels can reduce their elevator costs by 15% by better enforcing vendor contract compliance, correcting billing errors, and optimizing pricing structures. 

Laundry

Hotels make a lot of laundry, and laundry service providers charge a lot of fees that are often hidden in the monthly billing. What’s more, many local laundries are smaller businesses that lack sophisticated systems and operations to ensure billing consistency and accuracy. As a result, the onus is on the hotel staff to verify tonnage, manually inspect every cart in and out, and take manual counts of linen inventories on a shift basis. It’s a lot of work and, unfortunately, not everything comes out in the wash. By securing and validating the best prices and terms, most hotels can improve current laundry service levels while lowering costs by an average of 26%.

Take control of your hotel’s top overspending areas today. 

Every month, the average hotel pays a countless number of invoices for a variety of services. So, whether it’s bank fees, waste removal, telecom, payroll processing, elevator maintenance, laundry, or something else for your hotel, there are countless opportunities to reduce hotel costs. Reach out to SIB to learn more about the insider expertise, data, and analytics that can help you uncover your savings potential.  And achieve spending excellence that will free up more dollars to put toward your most important expense—your people.