Operating a hotel and spa can generate generous profits or enormous losses quickly. Each guest requires fairly minimal costs during a stay, but maintaining the building and keeping the staff on payroll incurs substantial fixed costs. Because the majority of each dollar a guest spends contributes to the bottom line, once your facility breaks even you’ll be able to stack on profit quickly. Comparing your hotel and spa’s net margin to industry averages gives you a sense of how you’re doing and where you might focus your efforts.
Net profit margin shows how much is left over after expenses and taxes compared to total revenue. Because you’re running a business in the leisure and hospitality industry, economic conditions have a significant effect on your revenue. You can’t quickly reduce costs to match declines in occupancy rates and guest spending, so net margins vary widely. As of 2013, average net margins were between 6 and 7 percent, up from an 8 percent loss in 2008.
Depending on the ownership structure of your hotel and spa, you might benefit from lowering your net margin. You’re likely to have other shareholders who might not work for the business, though, which eliminates the potential advantages of operating at a slimmer margin. Net margin looks at after-tax income -- income that can become shareholder distributions. If you operate as a traditional corporation, decreasing your corporate profit by transferring money to shareholders in deductible ways, such as increased salaries, lessens the amount of double taxation.
In most cases, however, you’ll want to increase your net profit margin. More efficient return on investment makes your business more valuable. Examining the effect increases in sales for product lines on either side of your business -- hotel sales and spa sales -- have on your net margin can help you work on maximizing the profitability of each dollar a guest spends. It might turn out, for example, that the markup on room service would require an unattainable level of sales to cover the fixed cost of operating a kitchen.
Most of your revenue comes from the wallets of people who come in. Hotel managers often focus on revenue per available room, or RevPAR, as a key financial metric. If your hotel offers a number of additional products and has success getting hotel guests into the spa, you might tolerate a drop in RevPAR from discounted and complimentary room prices to increase non-lodging revenue. Adjusting your pricing can identify the most profitable ratio of prices to occupancy for your hotel and spa.
