Steps for Calculating the ROI of Your Hotel Renovation
Every hotel needs renovations sooner than later. Managers might determine that the old carpets are an eyesore or lighting fixtures have to go. Whether hoteliers look into major or minor projects, they can follow these steps for calculating the return on investment (ROI) of the hotel renovation.
A successful project impresses customers and increases profits. Without one or the other, the renovation won’t be worth anyone’s time. Use these tips to narrow down renovation options and start a project that has a significant ROI.
Step 1: Calculate Your Current State
Hoteliers and management teams should calculate the current state of a property before deciding on any renovations. Consider the current number of rooms and how well they’ve withstood customer use since the property opened or last received updates.
Average daily rates (ADRs) also come into play. Figuring this out calculates the standard daily revenue that provides the foundation for estimating a project’s ROI. Management can also use the ADR to ascertain the hotel’s operating performance, indicating the need for bigger or smaller renovations.
It’s also crucial to note the average occupancy percentage. Without these numbers, there won’t be a way to compare post-renovation occupancy or profits and see if there’s an improvement.
Step 2: Determine Your Budget
Hotel renovations always require a budget. The size depends on what kind of renovation management wants and the property’s current profitability. A hotel making little revenue will have limited funds leftover for projects. Sticking with current funding avoids taking out loans for projects that might not pay off.
Look into the anticipated ROI of a chosen renovation. It should include all estimated costs, plus current and future revenues. A team of contractors can assist in this calculation before the work ever starts.
Renovation budgets also rely on timeframes. A project timeframe involves multiple factors, like the size of a project and how busy the hotel will be during construction. Hoteliers have to continue affording a renovation even if delays occur, which may change how leadership plans their budget.
Management can also inquire about low-risk estimations to determine hospitality construction safety before involving contractors, hotel employees and future guests. On-site injuries are bad for any property and add injury coverage insurance fees to the budget.
Step 3: Consider the Future
While calculating the ROI of your hotel renovation, consider specific future factors to rule out potential projects. Repainting the lobby may provide more impressive website photos, so how much will bookings increase? The expected percentage may be lower or higher when compared with renovations like upgrading mattresses or installing an on-site restaurant.
Management also has to adjust the ADR if the renovation adds new hotel rooms. It depends on how they charge their rooms, which varies based on pricing philosophies regarding single rooms, room blocks and more. Rates can increase because room quality improves, but a significant spike will turn potential guests away and decrease the projected percentage of occupancy.
This step creates an accurate estimation for post-renovation revenue. Compare the results for different projects to further narrow down a list of the best options.
Step 4: Break Everything Down
At this point of the planning phase, hoteliers will have tons of data in front of them. Break everything into lists and compare the projects. Some may seem like a good idea until the ROI calculations prove otherwise. Taking time to clarify every detail and weigh the options will guarantee a better renovation experience and a worthy investment.
Calculate the ROI of Your Hotel Renovation
Hoteliers can use these steps for calculating the ROI of your renovation to better understand and plan future projects. When management considers details like renovation safety and possible ROI influences, projects will go according to plan and improve a property’s revenue.