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Gross Margin of Hotels

by Russell Huebsch, Demand Media

The international market will drive hotel growth in the 2010s.

Hemera Technologies/AbleStock.com/Getty Images

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Although a 2011 DLA Piper survey found that 88 percent of hotel managers expected the hotel industry to sustain higher than
average growth after the end of the 2009–2010 recession, hotels have never had high profit margins. Hotel owners may improve
their margins by raising rates, but lower rates by competitors may not make increased rates feasible. However, lowering
operating expenses always increases a hotel's profit margin.

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Identification
The gross profit margin -- the amount of revenue left over after accounting for expenses -- fluctuates from year to year, but
usually averages out to 30 percent, according to Kristin Rohlfs at the Hospitality Research Group of PKF Consulting. The
hospitality industry tends to have the lowest profit margin of any industry. Industries with lower margins than the hospitality
industry, such as car dealerships and construction, make up for low margins with a higher gross profit on each sale.

Sources of Revenue
In 2011, most hotels offer more than just lodging, such as food and spa services. The average hotel receives 65 percent of its
revenue from room bookings, 25 percent from food and beverage sales and the rest from other shops located on the hotel's
property, according to Hospitality Advisors CEO Joseph Toy. Large properties -- especially hotels connected with a casino --
may derive an even higher percentage of revenue and profits from services other than lodging.

Related Reading: Definition of Gross Profit Margin

Misconception
Hotel owners often try to improve profit margins by cutting rates to sell more rooms and build brand loyalty. Economies of scale,
however, tend to reduce profitability per room even though total revenue increases. For instance, profit margin per available
room steadily dropped in the 1990s and 2000s in conjunction with falling room rates, according to Abraham Pizam, author of
"International Encyclopedia of Hospitality Management."

Tips
The state of the hotel industry often follows the economy. Managers can maintain profitability through tough economic times by
keeping expenses low. Hotel owners tend to cut labor costs first to lower operating expenses, but businesses should also look at
reducing other variables costs. For instance, an establishment could install a soap dispenser rather than constantly purchasing
small bottles of shampoo. Also, a building designed for energy efficiency will lower utility bills for decades to come.

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Saturday, September 27, 2014


How to start a Budget Hotel/Inn business in Nigeria
Posted by Paul Onwueme at 12:05 AM Labels: Bed and Breakfast hotel in Nigeria, business opportunities in Nigeria 2014, Hotel
business opportunity in Nigeria, how to start a hotel in nigeria

Nigeria being the most populated country in Africa and the busiest market on the continent attracts tens of
thousands of daily visitors who troop in for business or pleasure. The estimated return on investment is
between 20 and 30% net profit on total sales.

Opportunities in the Budget Hotel Business

One online report has it that not less than 20,000 people fly in daily into Lagos and Abuja both local and
international for business purposes alone. The vast majority of these people are on official trips from
companies they represent and so need to be accommodated for the duration of their visit. Where could
they possibly be hosted?

As of 2014 there are just over 150 hotels in Abuja to host 8,000 – 10,000 guests at any given time. Many
of these visitors are international guests and would prefer to lodge at only premium hotels that fall within
their budget. This means only larger standard hotels with many rooms have the capacity to manage the
huge influx of international visitors leaving the smaller hotels to compete for the remaining low budget
guests who are roughly 30 – 50% of the entire hotel market. So let’s say your hotel is based in Abuja, out
of 10,000 daily guests you have to compete for say between 3,000 and 5,000 guests with other budget
hotels.

In the UK, the leading hotels are budget hotels capturing roughly 39% of the entire market. This is
because they’ve been able to provide world class services at affordable rates thereby poaching some
customers from the other hotel categories.

On average a 20 room budget hotel should be fully booked year round and with adequate services to go
with there is plenty of room for expansion.

Types of Hotels in Nigeria to Know

If you want to venture into hotel business in Nigeria you’ll need to factor in how much capital you have,
where you’d situate the hotel, the target market etc. These factors would now determine what you’d like to
provide as services and amenities for guests and customers. But take note of the following types of
Hotels in Nigeria

Business Travel Hotels