Your Hotel Isn't One Business - It's Several

I asked Manish Gupta, the hotel CFO I’ve been working with on this series, why he tells owners not to manage every part of their hotel to the same profit target. His answer changed how I read a line that says “revenue is up,” on any report, from any hotel.

Because a hotel is not one homogeneous business.

Rooms, food and beverage, events, spa, parking, even the departments that never touch a guest directly, all use different amounts of labor, space, and inventory. They also earn money in completely different ways. Treating them as one blended business hides more than it explains.

A few terms come up throughout this piece, so in plain terms:

Every Department Is a Different Business

Rooms can carry a strong departmental profit margin. Once a room is ready to sell, the extra cost of selling one more occupied night is usually small, so most of that revenue drops straight to profit.

A restaurant works differently. It carries food cost, kitchen labor, service staff, and often much less capacity than the hotel has rooms to sell. An event might use rooms, meeting space, kitchen output, service staff, and equipment, all at the same time.

Some departments never generate revenue at all. Engineering, finance, security, and other support functions exist because the whole hotel needs them, not because they sell anything directly.

“If I tell every department, you all need the same margin, I am ignoring the economics of what each one actually does,” Manish told me. The better question, in his words, is what contribution a department should produce, what capacity it uses, what other parts of the hotel it supports, and what it adds to the total result.

When a Good Deal Isn’t

Manish gave me a real example of how this plays out when a department looks great in isolation.

At one resort, during a slow season, a travel-trade partner offered his team a block of 40 rooms for 12 nights, guaranteed and prepaid.

On paper, it looked good. Occupancy would rise. The rate was below the hotel’s normal target, but during a quiet period, that still seemed reasonable. Sales had guaranteed revenue to report, and Rooms had guests to put in otherwise empty beds.

The problem was that the team looked at it mostly as a Rooms decision.

The group also needed breakfast for 40 rooms a night, more frequent linen changes, meeting and event space, extra engineering support, and a meaningful amount of staff attention. Revenue went up. Gross operating profit did not move the way the Rooms numbers on their own had suggested.

A rate decision in Rooms is rarely only a Rooms decision.

Manish is careful about what lesson to draw from this. The group wasn’t automatically the wrong decision, and under different conditions, it might have been exactly right. What changed afterward was the discipline: before agreeing to a similar deal again, his team now asks what other departments it touches, which costs will move because of it, what business might get displaced, and what the group is actually worth to the whole hotel, not only to Rooms.

The Same Number Isn’t Always the Same Number

A department can also look worthwhile, or not, for the wrong reason, if you only check one number.

A restaurant with a lower departmental margin than Rooms can still be worth running if it supports breakfast packages, events, local demand, or the reputation of the property. A very busy restaurant isn’t automatically a good one either, if the extra volume needs heavy discounts, more labor, a worse menu mix, or more waste to get there.

Events create the same problem in the other direction. A large event can look excellent if you only check banquet revenue, but the real picture includes meeting-space use, kitchen output, labor, any rooms displaced, equipment, and whatever other business had to be turned away to fit it in.

Manish’s clearest example of this is Rooms itself, the department that usually looks the most straightforwardly profitable of all:

A $200 booking with a heavy OTA commission is not economically identical to a $200 direct booking.

Rooms can look extraordinarily profitable until you count what it actually cost to get the guest in the door.

Direct Bookings Are a Different Business Too

Manish’s point is about which department earns the revenue. I’d add one more layer to it: which channel brought you the guest changes the same dollar just as much as which department it landed in. This part is my own extension of his point, not something he said, but it follows the same logic directly.

A direct booking, made on your own website, mostly keeps its value. You still pay for payment processing and for running the booking engine and website behind it, but EHL Insights estimates that cost at around 4.5% once those pieces are added up.

A booking through Booking.com or Expedia is a different business entirely, even if the guest checks into the exact same room. I’ve written before about what OTA commission actually costs your property, and 15-25% is a reasonable range to plan around for most independent hotels, though your own statements are the only real answer for yours.

So a $200 direct booking and a $200 OTA booking aren’t the same $200, in the same way a $200 Rooms night and a $200 restaurant check aren’t the same $200. The channel is its own department, with its own economics, even though it never shows up as one on your organization chart.

If shifting more of your own bookings toward direct is something you’re actively trying to do, that’s the exact conversation I have most often.

Questions to Ask Before You Call a Number Good News

Before you treat any “revenue is up” report as good news, it’s worth asking three questions, modeled on what Manish checks for every department he manages.

1. Which part of the hotel actually earned this, and through which channel? A revenue increase means something different depending on whether it came from Rooms, a restaurant, an event, a direct booking, or an OTA.
2. What did it cost somewhere else in the hotel? Labor, space, inventory, guest-acquisition cost, or capacity that could have gone to another department all count, even when they don’t show up on the same line as the revenue.
3. Would this still look like a win once you add up its full effect on the hotel, not just its own number? A department, or a channel, is only doing its job if the whole hotel is better off, not only its own line on the report.

This is the third of three articles built with Manish around how independent hotel owners can read and manage their own numbers with more confidence. The first looked at why a number can look right and still lead you to the wrong decision. The second looked at why most hotel budgets turn into paperwork nobody uses once the year starts.

Bonus: The Full Interview With Manish Gupta

Manish Gupta is a Chartered Accountant and hospitality finance executive with more than 23 years of experience across hotels, resorts, mixed-use assets, and multi-property operating groups in Asia and Africa. With Shangri-La Hotels & Resorts, he was part of the leadership team that turned a loss-making hotel in Chiang Mai into a property generating around $5 million in GOP, before going on to multi-property CFO and owner-side leadership roles. He was named among Asia’s Top 10 CFOs in 2024. He’s also the author of Hotel Financial Reporting in Practice, Hotel Budgeting and Forecasting in Practice, Beyond Accounting: From Finance Manager to CFO, and Independent Hotel Finance (affiliate links). Here are his complete answers, unedited.

Why every department needs its own target

Michael: Why shouldn’t every part of a hotel be managed to the same profit target?

Manish Gupta: Because a hotel is not one homogeneous business.

Rooms, restaurants, bars, banquets, spa, parking and other services have completely different economics. They use different amounts of labour, inventory, space, equipment and capacity. They also play different roles in the guest journey.

Rooms can have very strong departmental contribution because once the room is available, the incremental cost of selling another occupied room can be relatively small.

A restaurant has food cost, kitchen labour, service labour, operating supplies and sometimes much more constrained capacity.

An event business may use rooms, meeting space, kitchen production, service labour and equipment at the same time.

Some hotel functions are not revenue departments at all. Engineering, Finance, HR or security exist because the total hotel requires those capabilities.

If I tell every department, “You all need the same margin,” I am ignoring the economics of what each department actually does.

The question should be: What contribution should this business produce, what capacity does it consume, what other parts of the hotel does it support, and what total-hotel result does it create?

A good deal, until it wasn’t

Michael: Tell us about a “good” deal, a big booking, a promotion, a wholesale rate, that turned out to be a bad decision once you saw the full picture.

Manish Gupta: At one resort during a slow season, a travel-trade partner offered us 40 rooms for 12 nights, guaranteed and prepaid.

It looked attractive.

Rooms saw occupancy. Sales saw guaranteed revenue. The rate was below our normal target, but during a softer period that could still make sense.

The problem was that we initially looked at it mainly as a Rooms decision.

The group also created breakfast volume, linen cycles, event and meeting-space requirements, engineering demand and considerable staff attention. Revenue went up, but GOP did not move the way the headline Rooms calculation had suggested.

The lesson was not that we should automatically have rejected the group. I still think it might have been the right business under the right conditions.

The lesson was that a rate decision in Rooms is rarely only a Rooms decision.

After that, we became much more disciplined about asking what other businesses the deal touched, what costs would flex or step up, whether anything was being displaced and what total contribution we expected, not simply what occupancy would look like.

The mistake owners make judging value

Michael: What’s a common mistake owners make when judging which parts of their hotel, rooms, restaurant, events, are actually worth it?

Manish Gupta: Judging each one from a single visible number.

A restaurant can have a lower departmental margin than Rooms and still be strategically valuable because it supports breakfast packages, events, local demand, the guest proposition and the hotel’s overall positioning.

On the other hand, a very busy restaurant is not automatically valuable if additional volume requires heavy discounts, high labour, poor menu mix or excessive waste.

Events are similar. A large event may look excellent when you look only at banquet revenue, but you also need to understand meeting-space usage, food production, labour, room displacement, equipment, payment terms and what other business you had to refuse.

And Rooms can look extraordinarily profitable until you include the cost of acquiring the guest. A $200 booking with a heavy OTA commission is not economically identical to a $200 direct booking.

So I try to judge each business on its own economics and then reconnect it to the total hotel.

The danger is optimizing one department while making the hotel worse.