How To Increase Hotel Revenue: Understanding Hotel NOI

  • June 7, 2022

Hotel owners and managers are always looking for ways to increase hotel revenue. One way to do this is to understand your hotel’s NOI (net operating income). By understanding your hotel’s NOI, you can make better decisions about how to optimize revenue and improve profitability.

In this blog post, we’ll explain what NOI is and show you how to calculate it. We’ll also discuss some of the factors that influence NOI and provide tips on how to increase revenue in a hotel.

Hotel Net Operating Income Defined

NOI is a measure of your hotel’s profitability. It’s calculated by subtracting your hotel’s operating expenses from its total revenue. 

Operating expenses include things like staff salaries, utilities, and property taxes. Total revenue includes things like room rates, food and beverage sales, and event rental income.

The formula for calculating NOI is:

NOI = Total Revenue – Operating Expenses

For example, let’s say your hotel generated $1 million in total revenue last year and had $500,000 in operating expenses. Your hotel’s NOI would be $1 million – $500,000, or $500,000.

Why Is Hotel NOI Important?

NOI is important because it provides insight into how much profit your hotel is generating. Lenders often use NOI to evaluate a hotel’s financial performance and to assess its ability to repay loans.

If your hotel has a high NOI, it’s generally considered to be a good investment. On the other hand, if your hotel has a low NOI, it may be more difficult to get financing.

What is a good hotel NOI? That depends on several factors, including the type of hotel, its location, and the current market conditions. For example, luxury hotels tend to have higher NOIs than budget hotels because they can charge higher room rates.

In general, a hotel NOI of 15% or more is considered to be good. But there are exceptions. For example, if your hotel is located in a high-demand market, you may be able to generate a good return even with a lower NOI.

How Lenders Use Hotel NOI To Determine Loan Approvals

Lenders use NOI to determine how much money they’re willing to lend you and what interest rate they’ll charge.

They’ll also consider other factors, such as your hotel’s market value and the amount of equity you have in the property. But NOI is one of the most important factors that lenders look at.

If your hotel has a strong NOI, you’re more likely to be approved for a loan. And, if you are approved, you’ll probably get a lower interest rate.

How To Increase Revenue in a Hotel

As a hotel owner or manager, you’re always looking for ways to increase revenue. Here are some tips that can help you do just that. Implementing even a few of these suggestions can make a big difference in your bottom line. 

1. Review your pricing strategy. 

Take a close look at your hotel’s pricing strategy. Are you charging enough for your rooms? If not, you may be leaving money on the table. Review your competitors’ rates and make sure you’re in line with the market.

2. Evaluate your hotel’s amenities and services. 

Evaluate the amenities and services you offer. Are there any areas where you could improve? Are there any additional services you could add that would appeal to your guests?

3. Improve your hotel’s website. 

Your hotel’s website is one of your most important marketing tools. Make sure it’s easy to use and provides all the information your guests need. Also, be sure to include strong calls to action and clear links to your booking engine.

4. Analyze your hotel’s occupancy rates. 

Look at your hotel’s occupancy rates. Are there any patterns? Are there certain times of the year when you’re always full? Use this information to adjust your pricing and marketing strategy.

5. Examine your hotel’s expenses. 

Take a close look at your hotel’s spending activities. Are there any areas where you could cut costs? Could you negotiate better deals with your vendors?

6. Focus on customer satisfaction. 

Make sure your guests are happy with their stay. Use guest surveys and feedback to identify areas where you can improve. Also, be sure to address any negative reviews promptly.

7. Implement new marketing initiatives. 

Try new marketing initiatives to attract more guests. Social media, online advertising, and email marketing are all effective ways to reach potential guests.

8. Invest in renovations and property improvements. 

Investing in renovations and property improvements can be a great way to increase hotel revenue. Even small changes can make a big difference in how your guests perceive your hotel.

Need a Loan for Your Hotel? AVANA Capital Is Here for You

By understanding and optimizing your hotel’s NOI, you can increase revenue and improve profitability. 

For more advice about how to finance your hotel’s growth, contact AVANA Capital. We offer a variety of financing solutions for hoteliers and other business owners to help them get started on an idea or expand their current operations. With over 150 years of combined experience, our knowledgeable team can help you get the funding you need. 

Get in touch with our team to find out which loan products will work to your best advantage or request a loan today!