How to reduce hotel operating costs: the best strategies

Key takeaways

• Hotel operating costs span fixed, variable and semi-variable expenses such as labor, utilities, supplies and marketing, and managing them well is essential for profitability.
• Key performance indicators (KPIs) such as cost per occupied room (CPOR), gross operating profit per available room (GOPPAR) and revenue per available room (RevPAR) help hoteliers track cost efficiency and link expenses to actual revenue and occupancy performance.
• Smart operational strategies, including adjusting staffing to match demand, improving energy efficiency and encouraging direct bookings, help control costs while preserving an exceptional guest experience.

Rising hotel operating costs can significantly impact your bottom line, making effective expense management essential for long-term financial health and overall performance. If your property is losing money from preventable expenses, taking proactive steps to manage costs is vital.

Successful hotels closely monitor hotel operating costs to ensure that expenditure aligns with revenue generation. Because profitability depends on this balance, optimizing costs plays a key role in sustaining and growing revenue.

However, while reducing spending is an important strategy, excessive cost-cutting can reduce productivity and ultimately harm your hotel's profit margin.

Let's explore hotel operating expenses and the best strategies to optimize them.

What are hotel operating costs?

Hotel operating costs are the expenses a hotel incurs to run its day-to-day operations, including staff wages, utilities and maintenance, to serve guests. They also include the costs of supplies and hospitality services, known as the cost of goods sold (COGS). Understanding operating costs is essential for setting pricing strategies that ensure revenue covers all expenses.

When calculating gross revenue, operating costs are deducted from income. Besides COGS, operating costs comprise sales, marketing and administrative expenses directly linked to income-generating activities. It's important to distinguish operating costs from non-operating expenses, which include financing costs like loan interest, investment expenses and taxes.

Having a clear understanding of operating costs allows hotel owners to make informed decisions.

Hotel operating cost breakdown: fixed, variable and semi-variable expenses

Hotel operating costs fall into three categories, each behaving differently and carrying distinct implications for your bottom line.

Together, these three cost types shape your hotel's overall cost structure and directly influence profitability and pricing decisions.

Common hotel operating expenses

Hotels incur a wide range of day-to-day expenses to keep operations running and deliver consistent guest experiences.

Here's a breakdown of the most common hotel operating expenses and what drives each one:

• Labor is the single largest hotel operating expense, with labor costs per occupied room rising 12.8% in 2025, according to a HotelData.com report cited by Hotel News Resource.
• Utilities such as electricity, gas, water and heating and cooling systems are significant cost drivers that spike during peak occupancy and extreme weather conditions.
• Supplies and housekeeping expenses, including guest amenities, linens and cleaning products, rise in proportion to occupancy levels and the frequency of room service.
• Marketing and distribution expenses cover advertising, promotions and the cost of acquiring bookings across both direct and third-party channels.
• Insurance and taxes include property taxes, licensing fees and operational risk coverage, all of which can shift with location, property size and regulatory changes.
• Online travel agency (OTA) and supplier commissions are transaction-based fees charged by third-party booking platforms and payment processors, which rise with your reliance on these channels.
• Maintenance and repairs are ongoing costs tied to property age, equipment lifecycle and usage intensity, and deferring them often leads to higher emergency expenses down the line.
• Technology and software systems include subscriptions for property management systems (PMS), booking engines and guest communication tools, along with infrastructure costs for internet and cybersecurity.

Understanding this hotel operating expenses list is the first step toward identifying where your property can operate more efficiently and protect its bottom line.

KPIs to control hotel operating costs

Controlling operating expenses and understanding how to calculate them are crucial aspects of ensuring profitability. Let's explore some of the most common indicators along with methods for calculating them. 

Cost per occupied room(CPOR)

CPOR measures the average cost incurred for each occupied room, making it a direct indicator of operational efficiency at the unit level.

CPOR = Total operating expenses / total occupied rooms

A rising CPOR may signal inefficiencies, such as increasing costs or occupancy levels that are too low to absorb fixed expenses. Since it reflects the cost of servicing actual demand, CPOR is especially useful for identifying areas such as housekeeping, utilities or staffing where per-room costs can be optimized.

Cost per available room (CostPAR)

CostPAR provides a broader view by distributing total costs across all available rooms, regardless of whether they are occupied or not.

CostPAR = Total costs / total available rooms

Unlike CPOR, this metric captures the full cost burden of running the property, including fixed expenses. It is particularly useful for understanding baseline cost efficiency and how well the property utilizes its capacity over time.

Revenue per available room (RevPAR)

RevPAR is a core performance metric that measures how effectively a hotel generates revenue from its available inventory.

RevPAR = Total room revenue / total available rooms

Although not a direct cost metric, RevPAR is essential when considered alongside CostPAR. The objective is to increase revenue without a corresponding rise in costs, widening the gap between earnings per room and operating expenses.

Gross operating profit per available room (GOPPAR)

GOPPAR goes a step further by factoring in operating expenses, offering a clearer picture of profitability at the room level.

GOPPAR = Gross operating profit / total available rooms

By combining revenue and costs, GOPPAR serves as one of the most comprehensive measures of financial performance, showing whether increased revenue is turning into profit or being eroded by rising operating expenses.

Labor per available room (LPAR)

LPAR evaluates how efficiently labor costs are distributed across the available room inventory.

LPAR = Total labor costs / total available room nights

Given that labor is often the largest expense category, this metric helps identify whether staffing levels are aligned with demand. A high LPAR may indicate overstaffing or inefficient workforce allocation, particularly during periods of low occupancy.

Guest acquisition costs (GAC)

GAC tracks the cost of acquiring bookings in relation to the revenue they generate, making it a key measure of marketing and distribution efficiency.

GAC = (guest acquisition costs / total room revenue) × 100

This includes spending on advertising, promotions, OTA commissions and other distribution costs. A rising GAC suggests increasing dependence on paid channels or inefficient campaigns, which can erode profitability even when occupancy is strong.

How to reduce hotel operating costs without harming guest experience

From staffing and utilities to technology and marketing, every cost category in a hotel offers room for smarter decision-making.

Here are the most effective strategies for lowering hotel operating costs without compromising the guest experience:

Optimize labor costs with training and scheduling

• Use occupancy forecasts to adjust staffing levels in real time, preventing overstaffing during slow periods and understaffing during peak ones.
• Cross-train employees to handle multiple roles, which reduces the need for additional hires and improves flexibility during demand spikes.
• Invest in onboarding and employee benefits to reduce turnover, which can be costly each time an employee leaves.

Reduce utility expenses

• Track energy consumption patterns regularly to identify inefficiencies and uncover opportunities for cost reduction.
• Install energy-efficient lighting and occupancy sensors to avoid unnecessary resource use in unoccupied rooms.
• Schedule regular HVAC maintenance, as poorly maintained systems can substantially increase energy consumption.

Rethink your software needs

• Consolidate standalone tools into a unified platform to reduce licensing, maintenance and staffing costs tied to managing multiple systems.
• Shift to a cloud-based PMS to eliminate on-site server costs and reduce maintenance complexity.

Implement technology and automation

• Introduce digital check-in and self-service options to reduce front-desk workload and improve the guest experience simultaneously.
• Automate repetitive tasks such as billing, reporting and guest communication to free up staff for higher-value interactions.

Limit marketing costs

• Prioritize direct bookings over OTA channels to reduce commission fees and improve per-booking profitability.
• Continuously evaluate digital campaign performance to ensure that marketing spend translates into measurable revenue outcomes.

Increase revenue and reduce costs with Mews

Managing hotel operating expenses is simpler when your systems work together. The Mews Hospitality Operating System brings every part of your property onto one modern cloud-native PMS, giving you the control to run leaner operations without sacrificing service quality.

Here's what it delivers:

• Unified PMS, point of sale (POS), housekeeping and payments in one platform, reducing the cost and complexity of managing disconnected tools
• Automated billing, reporting and guest communications, cutting manual workload and freeing upstaff to focus on guests
• Digital check-in and self-service options that reduce front-desk pressure and shorten queues
• Built-in dynamic pricing and upselling tools that help you grow revenue from every stay, not just from new bookings
• Access to 1,000+ integrations through the Mews Marketplace, so you can build a tech stack that fits your property

Book a demo today to see how Mews can help you control operating costs and boost revenue.

Download our guide Embracing Metrics that Matter 

Operating costs are only one of dozens of important metrics that your property should be tracking. Want to explore the rest? 

The Metrics that Matter is the ultimate guide to the new generation of hospitality metrics that will encourage you to think differently about your property and ultimately boost revenues.

Download the guide