What are hotel costs?
For hoteliers, hotel costs encompass everything from the cost of construction, to the cost of insurance, to the everyday operational costs of establishing, running and ultimately growing a hotel business.
For many hotel managers, hotel costs are a constant bugbear, requiring regular review and re-evaluation to avoid unnecessary and inefficient drain on the bottom line. As a result, understanding both the obvious – and more hidden – costs of running a hotel is crucial for success in an industry where competitiveness is defined by being able to do more with less.
This blog will investigate the myriad different hotel costs that all hoteliers should understand at a fundamental level, before delving into tips, tricks and techniques on how to cut those costs and stop them from sapping profits and stunting your hotel’s growth.
Table of contents
What are the different types of hotel costs?
Hotel costs are expenses associated with maintaining and running a hotel property. The three main types are construction costs, insurance costs, and operating costs.
Each phase of a hotel’s lifecycle incurs specific expenses. By breaking down these costs, hoteliers can make informed decisions, allocate resources efficiently, and ensure the long-term sustainability of their establishment.
1. Hotel construction costs
The foundation of any hotel begins with its construction. These costs encompass everything from acquiring the land, architectural designs, and building permits to the actual construction materials, labour, and interior design. It’s not just about erecting a structure; it’s about creating an environment that resonates with the intended brand image and guest expectations. Factors such as location, size, and the luxury level of the hotel can significantly influence these costs.
Additionally, considerations for eco-friendly materials or sustainable building practices might add to the initial investment but can offer long-term savings.
2. Hotel insurance costs
Protecting the hotel’s assets, staff, and guests is paramount, and that’s where insurance comes into play. Hotel insurance costs cover a range of policies, including property insurance, liability insurance, workers’ compensation, and business interruption insurance. Each policy is designed to safeguard the hotel from potential risks, be it natural disasters, guest accidents, or unforeseen business disruptions.
The size of the hotel, its location, and the range of amenities offered can influence the premiums.
3. Hotel operating costs
Hotel operating costs encompass a wide array of expenses, from staff salaries, utility bills, and maintenance to marketing, guest amenities, and food & beverage supplies. These recurring costs are vital for the smooth functioning of the hotel and ensuring guest satisfaction.
Effective management of these costs, through energy-saving initiatives or strategic vendor partnerships, for instance, can significantly impact the hotel’s bottom line.
4. Hotel room costs
Room costs cover everything needed to present a sell-ready space: furniture, soft furnishings, in-room technology, toiletries, welcome amenities and ongoing utilities such as Wi-Fi and climate control. Tracking these inputs on a per-occupied-room basis helps you spot waste, like over-ordering mini-bar stock, so you can align purchasing with occupancy forecasts.
Opting for versatile, easy-to-clean décor and sourcing consumables through consolidated suppliers keeps quality high and margins healthy.
5. Hotel labour costs
Labour remains the largest controllable expense, spanning wages, benefits, training and recruitment across departments. Investing in cross-training builds a flexible workforce that can cover peak periods without excessive overtime. Using smart scheduling tied to real-time occupancy data ensures you have the right people in the right roles at the right moments, maintaining service standards while avoiding payroll creep.
Recognising staff achievements and providing career pathways also reduces costly turnover.
Key takeaways:
- Construction costs extend beyond building – factor in land, permits, design, and brand alignment
- Insurance must cover four areas: property, liability, workers’ comp, and business interruption.
- Operating costs directly impact your bottom line – focus on energy-saving initiatives and strategic vendor partnerships.
- Track room costs per occupied room to spot waste like over-ordered mini-bar stock.
- Labour is your largest controllable expense – invest in cross-training and smart scheduling tied to occupancy data.
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How can you better understand and control hotel operating costs?
Controlling hotel operating costs doesn’t require complex overhauls; just consistent attention to these four high-impact areas that directly affect your bottom line:
- Audit every expense line monthly. Dig into payroll, utilities and supplies to reveal quick wins and long-term savings opportunities
- Automate routine tasks. Tap property tech and energy controls to cut manual work and wastage while keeping service sharp
- Match spending to live demand. Use real-time occupancy data to align staffing and purchasing, protecting both guest experience and profit margins
- Review supplier contracts regularly. Benchmark and renegotiate rates each quarter; bulk deals and fresh quotes often trim costs without sacrificing quality
What are the typical hotel operating expenses?
Managing a hotel’s finances requires understanding both revenue streams and operating expenses. While boosting revenue often takes focus, controlling costs is equally crucial for profitability. Hotel operating expenses typically include staff costs, utilities, housekeeping supplies, and maintenance; each consuming significant portions of your budget with direct impact on service quality and guest satisfaction.
Quick facts:
- Food and beverage can swallow 25% to 30% of your operating budget. Knowing the real cost of every dish and drink helps you keep profit on the plate rather than in the bin.
- Linens, toiletries and cleaning supplies can take 10% to 15% of total operational spend, so cutting waste in this area frees up cash for guest-facing upgrades that drive loyalty.
- Utility prices are climbing faster than room rates, so investing in energy efficient tech is now essential margin protection.
Here’s a detailed breakdown of each major expense category:
Staff costs
One of the most significant expenses for any hotel is its labour. Hotel labour costs encompass salaries, benefits, training, and even recruitment expenses. Whether it’s the front desk staff, housekeeping, or the management team, ensuring they are compensated fairly is vital for maintaining service quality and guest satisfaction.
Utilities
Hotel utility costs can be substantial, especially for larger establishments. These include expenses related to electricity, water, heating, and cooling. Given the 24/7 nature of hotel operations, the average hotel utility costs can be higher than other businesses, making energy-efficient practices essential.
Housekeeping Supplies
Beyond hotel room costs, which cover the basic amenities in each room, there are recurring expenses related to housekeeping supplies. This category includes cleaning agents, fresh linens, toiletries, and more. Hotel laundry costs, in particular, can add up quickly, especially in establishments that prioritise providing fresh linens daily to guests.
Maintenance and Repairs
Hotels must be in top condition to ensure guest satisfaction. This means regular maintenance checks and prompt repairs when something goes awry. Whether it’s fixing a leaky faucet in a guest room or addressing larger structural issues, maintenance and repair costs are inevitable. These expenses, while often seen as reactive, can be managed proactively through regular checks and preventive measures.
In addition, hotel room expenses can encompass a range of other costs, from in-room entertainment systems to mini bar restocking. By keeping a close eye on each of these expense categories and understanding their impact on the overall budget, hoteliers can make informed decisions, ensuring both guest satisfaction and financial health.
Key takeaways:
- Staff costs are your largest expense – fair compensation maintains service quality and reduces costly turnover
- Utilities run 24/7 and cost more than other businesses – energy-efficient tech is essential for margin protection
- Housekeeping supplies take 10-15% of operational spend – reduce daily linen changes to cut laundry costs
- Maintenance can be proactive, not reactive – regular preventive checks cost less than emergency repairs
What’s an example of a hotel’s operating costs breakdown?
A good rule of thumb is that labour usually tops the bill, followed by food and beverage, supplies, and utilities. Knowing the proportion each category consumes lets you set realistic targets and quickly spot overruns.
Here’s a typical full-service hotel budget share:
- Labour (rooms, F&B, admin) – 30 to 35% of total hotel operating costs
- Food & beverage (product + labour) – 20 to 25%
- Housekeeping & guest supplies – 10 to 15%
- Utilities (electricity, gas, water) – 6 to 8%
- Maintenance & repairs – 4 to 6 %
- Sales, marketing, & distribution – 4 to 6%
- Other operating expenses – 4 to 5%
*Percentages vary by market segment and property size but give a realistic benchmark for most mid-scale and upscale hotels.
Average hotel utility costs
Hotels operate around the clock, so energy and water quickly add up. Industry studies put utilities at roughly 7%of annual revenue. Rising electricity prices have pushed the line item up by about 3.5%in 2024 alone, outpacing many other expense categories.
The biggest energy consumers are typically HVAC systems, laundry, kitchen equipment, and in-room lighting. Upgrading to high-efficiency boilers, installing smart thermostats, and sub-metering back-of-house areas typically deliver paybacks within two to three years, locking in savings that drop straight to profit without compromising guest comfort.
What are the top 10 ways to reduce hotel costs and maximise profit?
Making small operational improvements can deliver major profit gains without massive investments or disruptions to your service.
Quick facts:
- Hotels that streamline everyday workflows can trim labour costs by up to 15%, giving you a fresh budget for guest-focused upgrades.
- Every direct booking keeps 15-25% of revenue in-house instead of handing it to OTAs, so improving your website is the quickest route to higher net profit.
- Energy-saving tech can cut utility bills by as much as 30%, meaning each kilowatt you save flows straight to the bottom line.
Here are 10 things you can focus on to cut costs at your property and make profits easier to achieve.
1. Ensure your property management system is the best in the industry
If your property management system (PMS) isn’t cloud-based, you’re missing out on serious benefits. With an automated cloud-based system there’s no need for an IT expert to maintain or operate it and it will save you a lot of time, especially when integrated with your other technology systems. Upfront costs will also be reduced without the need for any physical hardware.
2. Make mobile operating a priority for your PMS
This will let all your staff operate more efficiently. For example, housekeeping can communicate directly with the front desk system from a mobile device and check which rooms need cleaning or servicing, and which ones are occupied.
3. Be flexible about the hours your staff work
Maintaining consistent set hours for staff may not be the best thing for your business. It could mean at certain times your hotel is overstaffed, and at others understaffed. Instead, try a more flexible shift-based approach that allows you to be agile and use staff when you most need them and for specific purposes.
4. Optimise role requirements
This comes back to efficiency again. It should be made clear to housekeeping what is expected of them. If a room has simply been used as a stopover it won’t require as much cleaning time or preparation as a room that has been occupied for a week. The same principle applies to how many people are in a room. By setting standards here, staff can get more done, more quickly.
5. Reduce your hotel’s marketing costs
Paid promotion isn’t always guaranteed to garner more results. Try auditing your approach to marketing and putting more effort into free channels and organic traffic. Create quality content and build social media followings as much as you can without investing a large budget. A lot of progress can be made on Facebook, Instagram, and Google without spending money.
6. Be detail oriented about running the hotel
Taking a greater interest in energy efficiency could have significant long-term benefits for your hotel. Think about introducing occupancy sensitive cooling and heating systems that adapt to when people are present in the room. Power-saving lights such as LEDs are another great option, as well as lights that are motion-sensitive. Saving on power is an easy fix and can make a positive difference to your bottom line.
7. Capitalise on the food and beverage department
This provides one of the main opportunities to save money and gain extra revenue. Firstly, take note of how much food you actually need. If plates are consistently coming back with food left on them, it’s likely – unless you’ve had complaints about quality – that your portion sizes could be reduced, and less stock be ordered over time. A smaller menu will also help with this. Quality over quantity is always preferable.
8. Save on fixtures and furniture
Many suppliers of interior features have packages and bulk deals you can take advantage of. While it may be tempting to get unique and custom designs done, the costs could outweigh the benefits. It’s something to carefully consider and may come down to who your target market is. For instance, business travellers may be less inclined to worry about discovering quirky or special hotel designs.
9. Find a use for under-utilised spaces
If there is space in your hotel that is serving no purpose other than to create breathing room, consider using it for revenue purposes. It doesn’t even have to be anything permanent. For example, every now and then you might get a pop-up masseuse in, or an exercise class, or a cooking class. This will encourage guests already at your hotel to spend a little more than either they or you expected them to.
10. Host events and functions
Similar to the last point, if you have the space to host special events you should do so. Get in contact with potential partners to put on seminars, workshops, weddings, or whatever else may seem relevant or appropriate for your property. This way, you’ll have a revenue source that is coming from outside the guests staying at your hotel.
Next steps:
- Streamline operations: Move to a cloud PMS with mobile workflows and flexible staffing to reduce IT costs and improve efficiency
- Cut operational waste: Target energy consumption, food portions, and supply purchases—every dollar saved flows directly to profit
- Unlock hidden revenue: Transform unused spaces into income sources through pop-ups, events, and functions that work even at full occupancy
Pichata Ritchie,
Cluster E-commerce Manager
VALA Hua Hin – Nu Chapter Hotels
What are the best practices for reducing hotel expenses online?
Smart digital distribution strategies can dramatically cut your online acquisition costs while maintaining or even increasing bookings.
Quick facts:
- Independent hotels already hand over around 60% of their online bookings to OTAs and that share is edging higher. Relying so heavily on third-party channels leaves big gaps in profit and guest data.
- Typical OTA commissions slice 10-30% off every booking. Shifting even a fraction of those reservations to direct channels quickly puts thousands back into your bottom line.
- Email remains hospitality’s highest-return digital channel, generating about $53 for every $1 spent. Growing and leveraging your first-party database is therefore one of the fastest, most cost-effective ways to drive repeat business without paying anyone a commission.
Here are four proven strategies to reduce online distribution costs without sacrificing reach:
1. Don’t put all your eggs in one basket
Statistics from HSMAI show 76% of independent hotel room nights are reserved through OTAs, costing hotels billions in commissions every year.
In order to increase direct bookings, hotels need to think about their overall web presence, not just OTAs. By having an Internet booking engine (IBE) on your branded website and investing in social and mobile technologies to drive sales, you can reduce the amount spent on third-party commissions.
In particular, you should be looking to leverage the native capabilities of mobile and social platforms as a means of communicating with consumers, providing information and facilitating transactions – not just promoting last-minute deals.
In today’s competitive environment, it’s safe to assume that channels will get more expensive over time, so it’s critical to invest in the ones that offer you the most control in your marketing efforts and communication.
The key is to maximise and optimise your search, social, mobile, ad retargeting, email, and voice channels to attract and retain guests.
2. Grow your customer database
Developing and maintaining your customer database is one of the most important things you can do to nurture your customer relationships and create relevant conversations with guests.
For example, a hotel CRM (customer relationship management) system, in conjunction with your PMS or CRS, can help boost your bottom line by gathering guest data from social media profiles, and sending targeted communications and promotions.
It can also help create offers based on a customer’s behaviour and provide valuable metrics and insights which can help you measure the overall effectiveness of your hotel’s marketing campaigns.
3. Benchmark how effective you are
Are you getting the best ROI? Benchmarking where you stand in the market can give you a better idea of how well you’re performing. For example:
- How do your revenues and costs measure up to others?
- What are you paying for your marketing channels?
- Are your acquisition costs high or low?
In the quest to stay on top of what it’s costing you to acquire guests and to keep them, your data and analytics are powerful tools for generating insights into your digital ROI and helping you discover the best distribution channels for reaching your target market.
4. Seek your competitive advantage
With hotels sitting in an ever-changing and volatile distribution landscape, they must constantly seek to improve their position in their market. Using a variety of channels (social, mobile, website, email and search), hotels can reach out to customers with special promotions and discounts, value-add deals and other incentives such as free room upgrades to get customers to book directly and build loyalty.
For example, Danubius Hotels offers guests a free £15 voucher for each night booked directly, along with the best price guarantee.
While OTAs have their rightful place in any hotel distribution strategy, the key is to find a balanced approach to direct and indirect business.
In particular, hotels need to pay attention to where their guests are coming from and measure the effectiveness of each channel by setting specific performance objectives.
By staying one step ahead of the game, you can effectively reach your guests and retain them.
Next steps:
- Capture more direct bookings: Add an internet booking engine to your website and promote mobile or social offers so you keep the 10-30% commission that OTAs would otherwise take
- Turn guest data into revenue: Feed a CRM with web and social insights and send targeted emails, which can return about $53 for every $1 spent
- Follow the numbers, don’t guess: Track acquisition cost and revenue by channel each month and shift budget toward the platforms that deliver the strongest returns
- Create competitive direct booking incentives: Offer exclusive perks like room upgrades, vouchers, or price guarantees that OTAs can’t match to drive loyalty and direct reservations
How can a premium hotel group cut hotel costs and increase revenue?
Premium hotel groups can cut costs and increase revenue through strategic technology adoption, operational optimization, and revenue diversification. Key strategies include implementing automated revenue management systems to optimize pricing, centralizing procurement across properties to negotiate better supplier rates, introducing dynamic staffing models based on occupancy forecasts, and developing ancillary revenue streams through spa services, F&B partnerships, and event spaces.
These integrated approaches deliver significant improvements in profit margins while maintaining luxury service standards.
How does a booking engine cut costs and increase revenue?
Booking engines cut costs by automating manual reservation tasks and increase revenue by capturing more direct bookings while reducing OTA commissions. By handling real-time availability updates across all channels automatically, they free staff from time-consuming admin work and eliminate costly booking errors like double-bookings that damage guest relationships.
The scale of this challenge grows exponentially with portfolio size. Hotels managing dozens or hundreds of properties face a choice: hire more staff to handle the administrative burden, or invest in technology that scales without adding headcount.
Smart hoteliers choose automation because it delivers compound benefits. Staff can shift focus from data entry to guest experience and revenue optimisation. Properties can respond faster to market changes, adjust pricing dynamically, and capture bookings 24/7 without human intervention.
Premium hotel groups face higher stakes than budget operators. Their guests expect flawless service, meaning even minor technical glitches can trigger negative reviews and lost loyalty. This demands enterprise-grade booking engines with robust failsafes, not basic solutions that work for smaller operations.
SiteMinder’s premium hotel booking engine
SiteMinder offers a booking engine that rated #1 within the industry, providing simultaneous and automatic updating of all rates and availability across hundreds of different OTAs, as well as a smooth, simple direct booking process that can be embedded easily into an existing or custom-made hotel website.
This minimises the amount of administrative time that needs to be spent updating the various booking channels, decreases operational costs and virtually eliminates the risk of overbooking rooms at exclusive properties.
Visit our case studies to read real-life examples of hotels using SiteMinder’s booking engine with great success.
