Why Hotels Should Consider Outsourcing

By Derek Olsen Senior Vice President, CHMWarnick | October 22, 2017

Co-authored by Sean Kreiman, Manager, CHMWarnick

As the industry sits at the top of the hotel cycle, one of increasing supply, rising labor costs, peak occupancy, marginal rate growth, and growing customer acquisition costs, hoteliers and asset managers need to evaluate all cost containment opportunities to improve profits and enhance asset values. As is evident when reviewing the large amount of expense attributable to the Contract Services lines in most hotel P&Ls, many hotels are already outsourcing various components of their operations, including public area cleaning, maintenance, pest control, and landscaping, to name a few. While these functions may be considered routine, there are more profitable (yet riskier) areas of the operation that can be outsourced, particularly those related to labor, which currently accounts for more than 50% of a hotel's total operating expenses.

Outsourcing by Department

Rooms

The most profitable department in most hotels (typically between 70-80% of Revenue), has additional opportunity to enhance margins through the outsourcing of key functions including housekeeping, laundry, and reservations. However, this department also comes with the most challenge given the high-levels of guest interaction. A lack of control in this area of the operation can most adversely impact the entire operation. It is important to consider a hotel's market and positioning when considering making changes to any of these Rooms Department functions.

Food and Beverage

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