Hospitality is an industry that depends almost purely on discretionary dollars to sustain its existence. Examples include hotels/motels, tourist destinations, catering, golf courses and recreational facilities.
There is one unique financial characteristic that is synonymous with the hospitality industry; that is high fixed costs. Or another way of stating the same financial attribute is to simply state that the hospitality industry has low variable costs.
The hotel business has one tenet that stands above all other hospitality based business standards. Get heads on beds. Why does this one business standard have so much more value than any other? Well, it is simple, the fixed cost of operations for hotels are over 70% of all costs. Therefore any additional guest sleeping in one of the rooms adds significantly to the potential profit of the hotel.
In the hospitality industry, there is one financial tenet that takes precedence over any other business perspective. In this industry, it is about putting the maximum number of dollars (ABSOLUTE DOLLARS) in the register after each day. One of the most misunderstood business dynamics of this industry is the higher than average fixed cost to run the company.
