To lower hotel energy costs management must monitor, understand and regularly manage business energy bills. Sustainable energy efficiency, such as efficient automated lighting, and renewable energy generation, add to material cash savings.
A hotel with greater positive cash flow can compete better, withstand challenging times and continuously improve its service offering.
How to lower hotel running costs?
The best way to lower hotel running costs is on-going cost management combined with a deep understanding of cash flows. Cutting costs and retaining excellent service may often come into conflict. When a hotel or an operator lower costs they must find the right balance between efficiency and excellent service levels.
A simple cost-cutting exercise may be right in the times of stress when the business is in dire need of cash. For example during Covid-19, hotels have been forced to shut down and lay off staff. However, the ongoing focus on cash flow and lowering bills is critical.
How to manage hotel energy bills?
In order to manage hotel energy bills, owners and operators need to understand energy prices and how these prices work. For example, hotel energy bills are billed based on pence per kilowatt-hour rates. In addition to the standard rates, energy companies have much more expensive rates such as deemed rates, out-of-contract rates.
What is the average hotel energy use?
On average hotels use 305-330 Kilowatt Hours per square meter or 305-330 kWh/m2. The data comes from a European Union back research which you can read in detail here.
What is the average hotel electricity cost?
The average hotel electricity cost is £40 – 50 per square meter based on current prices of £0.13 – £0.15 per kWh. This average cost excludes Value Added Taxes (VAT), Climate Charges and Standing Charges. Most hotels are locked in fixed year deals. Energy prices are at historic lows. Therefore your costs may be much higher.
Energy costs are typically the second or third highest cost item for hotels. Energy cost management should be remarkably simple- in most cases, many hotels struggle to get costs under control. This is particularly true when the owner/operators are looking after a portfolio of hotel assets. The first step is to get all the energy bills in order.
Reducing hotel energy bills adds directly to the bottom line. For most hotels, bills will run into high hundreds, thousands, tens and hundreds of thousands of pounds. Hotels that manage their business gas and electricity costs, will materially improve their operational efficiency.
How to understand energy prices?
Make sure that all the relevant prices are understood. Energy is measured in kilowatt-hours both for business electricity and for business gas. The confusing bit is that prices are set in pence per kilowatt-hour whereas your energy bills are likely in pounds.
What are Unit Rates?
Unit Rates are what you pay for your gas and electricity consumption. For example, your hotel will likely pay Day, Night and Weekend Unit Rates.
It all depends on the type of meter that you have. Generally speaking, hotels are likely to be on half-hourly meters which will measure and charge your hotel for usage every half hour. Click here to read our guide to half-hourly meters.
What are Standing Charges?
Standing Charges are what you pay for your meter. Believe it or not, you are paying rental charges for your meter regardless of how much electricity you use.
What are Pence per kilowatt-hour?
Hotels need to understand the relationship between pence per kilowatt-hour that hotels are paying and the large energy cash drain that leaves the hotel’s account every month or every quarter. We have a handy guide to business energy prices. Please click here to read more.
What are fixed-term electricity and gas contracts?
Most hotels will be on fixed deals with energy companies. Hotels may have fixed business electricity and gas contracts for 1, 2, 3 or even 5 years.
The longer the fix, the more stuck in the deal you are. While it may make sense to lock-in hotel energy contract for a period of time, even the best Wall Street traders can not predict energy prices too far ahead. Hotels may win by locking in low rates (as you may currently) or may lose if energy prices decline even more.
What are the cheapest business gas and electricity prices?
The cheapest business gas and electricity prices are currently around 12-14 pence per kilowatt-hour for business electricity and around 2-3 pence per kilowatt-hour for business gas. You can regularly check the best prices on EnergyBillKIll.com.
If your hotel’s business electricity cost is 15 or even 20 pence per kilowatt-hour, you are paying up to 20% and up to 50%+ more for energy than you should be. On a thousand pound bill that means £200 in savings, on a £10,000 you are overpaying at least £1,000 if not £5,000.
What are energy broker fees?
Energy broker fees are payments that energy companies make to energy brokers who help businesses to switch business gas and electricity providers.
Energy broker fees are hidden inside hotel energy bills. If your hotel has used or is using a broker, you must find out how much money they are making on your switch. At EnergyBillKIll.com we are charging super low fees and are open about it. You can read more here.
Most brokers and online services do not disclose how much money they are making to provide you with a switching service. These broker fees can be up to 5-10% of the hotel’s energy bill. Citizens Advice estimated in 2019 that over 1mn UK businesses are in danger of being ripped off in the energy markets. Click here to read more.
Always ask your broker how much money they are making on you!
What is deemed or an out of contract rates?
Hotels must watch out for deemed and out of contract rates. Deemed and out-of-contract rates are energy prices that energy companies charge your hotel or businesses when you have not agreed on a contract with the energy company.
What are deemed rates?
Deemed rates are business gas and electricity that energy companies charge your business when a business property has new owners and/or occupiers. For example, when you buy an existing hotel and become the new owner, initially energy companies will charge you deemed rates.
What are out-of-contract rates?
Out-of-contract rates are business gas and electricity prices that energy companies charge your hotel or business when your fixed-term contract expires.
Are deemed and out-of-contract rates expensive?
Deemed and out-of-contract rates are very expensive. These rates can be double or triple the best business gas and electricity prices. To see the cost difference please click here. These costs can really impact your cash flow and drain funds from the hotel’s bank account. You must avoid these and get a new business energy contract.
You can read more about deemed and out-of-contract rates by clicking here.
How can a hotel manage energy efficiently and sustainably?
Hotels can manage energy efficiently and sustainably because of affordable new technologies. Renewable energy and efficient light, equipment management are much more affordable today. In addition to saving costs, hotels can credibly practice sustainability in a commercially savvy way. We published an energy efficiency guide for restaurants that is useful for hotels as well. You can read our business energy efficiency guide here.
For example, for a number of months in 2019 and 2020, renewable energy sources produced the majority of electricity in the UK. That means that the cost of renewable energy has declined significantly. Renewable energy prices are now often cheaper for business electricity supply than traditional energy.
At EnergyBillKill.com we monitor prices daily, and the lowest cost provider for fixed deals has been a renewable energy company rather than a traditional energy provider.
According to our nationwide survey in 2020, almost 70% of UK businesses want to be green and sustainable. You can read more here. This is particularly true for hotels and hotel chains where customers are increasingly more sensitive to environmental credentials and practices.
If you are a history buff, you may be interested to know that the original light bulbs were very long-lasting. We are in fact going back to the original technologies of the 19th century, in many ways to help us save the environment and cut business energy costs. To read more click here.
How to manage energy costs for a hotel portfolio?
The best way to manage energy costs for a hotel portfolio is to consolidate all your bills in one place. The energy industry has set up an online system where non-domestic energy users can bring together all their properties and energy meter data in one place.
The system is called ECOEs. You can register on the system as a non-domestic customer. Once registered, you can add your hotel addresses and have all the meter information in one place. This should materially simplify your hotel energy costs management. Click here to read more.
Consolidate bill information management is important, particularly when the hotel aims to lower business gas and electricity costs by switching suppliers.
Non-energy hotel cost management
How to manage hotel labour and payroll costs?
Payroll is the number one cost item for most hotels. Labour costs can represent up to 50%+ of the entire cost base. A five to ten per cent savings in payroll can make a significant impact on the bottom line. Covid-19 lock-down in the United Kingdom has forced many hotels to temporarily lay off staff and in some cases to initiate permanent layoffs. These are drastic measures in the time of crisis.
However, under normal conditions, managing payroll is as important as during crisis times. The right balance between the right number of people to manage a particular hotel and cost management is tricky.
If you do not treat your staff well, underpay or cut corners on benefits, then this will be reflected in the hotel culture and your guest experience. On the other hand, if you do not manage payroll costs and your cash flow is suffering, your colleagues may not have their jobs for much longer.
One way to manage costs is to set in place the right performance expectations that are linked directly to productivity.
This is easier said than done, but most general managers will know (or should know) exactly the relevant efficiency metrics – ‘flip X rooms per shift, spending Y minutes in each room’. The processes and time management in place to achieve the above will often reflect on payroll numbers. Sub-par efficiency will expand the payroll, good efficiency will keep the payroll in this area steady. Another opportunity is staff cross-training. Please see below.
How to manage hotel training costs?
Staff training is critical. Hotels is a people business. Every member of the staff represents the hotel. Training costs may be the first in the firing line. Hotels may need to be careful here. Get your training wrong and you will damage your hotel’s reputation and negatively impact the top line.
An alternative is to ensure that training is efficient and focused on service quality and delivery. One approach is to cross-train employees. This will enable greater flexibility in the time of stress and empower your workforce to take on more responsibility.
For example, one New York hotel trained ‘room managers’ rather than just housekeepers or front desk staff. This has an important benefit in that your staff may be able to step into different roles depending on the hotel needs.
Hotel’s food and beverage service perhaps can benefit the most from cross-training. Many hotels are moving away from traditional dining.
This opens up the opportunity for staff to be cross-trained for a number of operational and guest management tasks. Some in the industry talk about the ‘arrival’ position- meaning someone who can welcome guests, accommodate their seating preference and curate their dining experience.
How to use hotel automation technology?
We live in a technological age. Many hotels already use keyless technologies, on-line check-ins etc… Hotel automation is a tricky subject. In many ways, the amount of automation may depend on how a particular hotel or hotel chain positions itself in the market.
However, there are a number of areas where most hotels could benefit from automation already. Check-in/Check-out and payment processing is one such area.
Automation, if done right, actually significantly improves the service level and the bottom line. Contactless payment terminals and pre-checking/out guests is a welcome benefit for frequent travellers.
Most of us want to go straight to the room or a meeting when we arrive. Paper filling forms and re-submitting information the hotel should already know is a pain both for staff and guests. Yet, automation can both cut your costs in this area, make your staff more efficient and guests happier.
In summary, hotels must manage operational costs efficiently and prudently.
Cut too much, and your service, brand and top-line suffer. Manage costs sub-optimally, and your cash flow suffers. Business gas and electricity costs are an excellent low hanging fruit to retain more cash in your hotel’s bank account.