In the ever-evolving hospitality industry and the current inflationary era with its increased cost of capital, maximizing the bottom line is top of mind for every hotel owner.

Consider the case of three large, public real estate investment trusts: Park Hotels & Resorts, Ryman Hospitality and Apple Hospitality REIT. Their net income margins have declined 160 basis points, from 27.7% to 26.1%, from 2019 through 2023. This erosion can be attributed to rising costs of labor, property taxes, insurance and utilities. In this landscape, mastering flow-through becomes imperative for hotel owners and asset managers alike.

Flow-through, simply put, is the efficiency with which top-line gains are converted to profit gains. For example, if there is an increase of $1 million in revenue over the previous year and an increase of $200,000 in net income, the flow-through is 20%. Flow-through is the engine that drives sustainable success in the fiercely competitive hospitality industry. Enough has been said about driving room rates to boost profitability. But as they say, you don’t take average daily rate to the bank; you take profit to the bank, hence the critical need to optimize profit by maximizing flow-through.

In this column, we'll consider specific ways hotel owners and asset managers can enhance the efficiency of driving additional revenue to profit, ultimately leading to sustainable success in the competitive world of hospitality. From optimizing operations to implementing innovative strategies, there are numerous avenues to explore when it comes to improving the bottom line.

Parking is often underestimated, but it can be a significant source of ancillary revenue that flows directly to the bottom line with no extra cost. Implementing parking charges tailored to demand and partnering with online aggregators can substantially boost parking revenues without sacrificing market share. In 2021, we implemented parking charges across 42 hotels in our portfolio in various markets resulting in significant margin expansion. There was no loss in market share even with additional parking charges, and most competition hotels followed suit.

While most hotels are adept in managing yield from rooms, parking is often overlooked. Just like room yield, managing parking yield is crucial, and revenue must be maximized per available parking space. Especially for hotels near busy airports, there is a tremendous opportunity to sell parking to online aggregators, such as “Ways.com.” Offering demand-based dynamic parking pricing and measuring revenue per available parking space for the hotel helps drive parking revenues.

An underutilized lobby market can be transformed into a profit powerhouse. Stock it with gourmet snacks, beverages, games, swimming gear, sports gear and location-specific products to maximize per-square-foot margins. In most of the hotels in my portfolio, the lobby market earns the maximum profit margin per square foot. In leisure markets, offering souvenirs and memorabilia also can contribute to increasing footfall in the market and, eventually, sales. The quality and presentation of the products are also key factors influencing the market sales.

Not all room bookings are equal. While one room booking may seem to be at a higher rate than another, the cost of acquisition and rate inclusions have a direct impact on profitability. Analyze net profit per segment and not net revenue per segment to tailor revenue strategies and prioritize net profit over net ADR. Ensure that each booking contributes optimally to the bottom line.

U.S. hotels are expected to pay employees $123 billion in wages, salaries and other compensations this year, marking an increase of 20% from 2019 and 4% from 2023. The national average wage has reached an all-time high of $23 per hour. With the mounting pressure of wages, hotel operators and owners must find ways to improve the efficiency of the labor.

Proven methods to improve housekeeping efficiency and productivity for hotel staff include tracking minutes spent cleaning each room, investing in staff training, optimizing storage spaces, maintaining linen pars and retaining skilled team members. Once a reliable system to track productivity has been established, rewarding the staff for elevated productivity in the form of cash, gift cards, etc., keeps them motivated.

The hotel industry has a lot to learn from other industries, such as quick-service restaurants and airlines, when it comes to upselling. Whether it’s the five screens of add-on options after flight booking or the extra-large fries questions at McDonald’s, it’s all a strategic way to upsell. Incentivize front-desk staff to upsell, creating a competitive environment. Maintaining a database of guest preferences enhances upsell opportunities.

Collaborate with local breweries, artists and tour operators to offer unique experiences to guests. A revenue-sharing model benefits both the hotel and its partners, driving margins.

Leverage technology to reduce labor costs. Whether it is robot vacuums or app-controlled locks, harnessing technology can save valuable dollars by reducing the reliance on labor. Companies already are offering AI-enabled cleaning solutions to replace labor with technology.

In luxury and resort settings, curated experiences such as cooking sessions and outdoor activities can help with increasing the overall profitability of the resort as they come with no added cost in most cases.

In a world where every dollar counts, mastering flowthrough is the difference between surviving and thriving. It's about optimizing every aspect of a hotel’s operations to ensure that revenue translates into substantial profits. The strategies outlined above offer a roadmap for hotel owners and asset managers to navigate the complexities of today's hospitality landscape.

As we embrace the era of post-pandemic recovery and adapt to the new normal, the most successful hotels will be those that go beyond traditional revenue metrics. By focusing on flow-through, hotels can unlock hidden potential, drive profitability and create unforgettable guest experiences. It's time to make flow-through the new mantra of modern hospitality, where every dollar earned is a step toward sustained success.

Prateek Kumar is the head of asset management at Copford Capital Management, the family office of Navin & Rita Dimond, founders of Stonebridge Companies based in Denver. At Copford, Prateek oversees the hospitality real estate portfolio of more than 40 hotels under the Four Seasons, Marriott and Hilton brands.

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