Why Understanding Your True Cost Base Is Essential for Accommodation Businesses
- Posted By Andrew Morgan
Profit is a key measurement for any business. In the accommodation industry, operators focus on guest experience, service standards and occupancy levels, but long term sustainability comes down to a single reality: the business must consistently earn more than it spends.
Breakeven occurs when the room rate (selling price) exceeds the full cost required to make that room available to rent. If the rate does not cover total costs, even strong occupancy cannot prevent financial loss. This is why operators of motels, hotels, and serviced apartments must accurately measure their true cost base and understand the financial implications of each operational decision.
Knowing the breakeven point and cost per occupied room (CPOR) enables operators to assess how pricing influences margins, determine the room night volume needed for profit, identify the impact of occupancy changes, and understand the minimum threshold before losses occur. This knowledge goes beyond financial housekeeping, it is a key pillar of strategic decision making. Operators who understand their cost base are better positioned to price confidently, plan effectively, and protect profitability in a competitive environment.
Key Pricing Considerations
Today’s operating landscape continues to place pressure on accommodation providers. To set sustainable and profitable rates, operators must consider the following.
1. Identify the True CPOR
Accurate pricing begins with calculating CPOR: total operating costs divided by the number of rooms sold. Once a baseline is established, an appropriate profit margin can be added with confidence.
2. Factor in Rising Costs
Electricity, insurance, and council rates have increased significantly in recent years. These expenses must be incorporated into pricing to avoid margin erosion.
3. Avoid the High Occupancy Trap
High occupancy does not guarantee profit. If rooms are sold below cost or heavily discounted through high commission channels, operators may lose money despite strong occupancy figures.
4. Maintain Rate Integrity
Rate parity, keeping consistent pricing across booking channels, prevents guests from shopping around and helps maintain control over the net room rate after commissions.
Why Accommodation Businesses Have Different Cost Bases
Every accommodation business operates under a unique combination of physical, operational, and environmental conditions. These variations directly affect expenses and profitability. Understanding them is essential for accurate pricing and financial forecasting.
Property Specific Factors
Unit Size
Smaller studio rooms require less labour, utilities, and cleaning time. Larger family units have naturally higher operating costs. Units with kitchens or laundries involve more labour, increased linen use, and additional consumables, raising the cost of each turnover.
Age and Condition of the Property
Older properties require more maintenance, including plumbing, electrical systems, roofing, painting, and structural repairs. Poorly maintained buildings incur higher recurring costs.
Location and Environmental Exposure
Coastal properties experience corrosion from sea air, while some inland areas may be affected by soil movement, causing structural issues that increase repair needs.
Unit Fit Out
Furniture, flooring, and window coverings influence replacement cycles. Materials should suit the local climate to maximise longevity, for example, tiles in humid regions.
On Site Restaurant
Restaurants often operate as separate revenue departments but add staffing, utilities, inventory, and equipment maintenance costs that impact the overall operation.
Facilities and General Services
Pools, spas, lifts, landscaped gardens, and saunas improve guest experience but raise utility and maintenance expenses significantly.
Business Operation Factors
Operational decisions have a major effect on a business’s cost base.
Leasehold vs Freehold
Leasehold operations incur monthly rent, while freehold owners face mortgage repayments and fluctuating interest charges. Each structure affects cash flow differently.
Clientele Profile
Corporate travellers, families, contractors, and tourists all impact cleaning times, consumable use, and general wear differently.
Laundry Arrangements
On site laundry increases utilities and equipment maintenance but offers operational control. Off site commercial laundry reduces labour but raises per item cost.
Staffing Levels
Overstaffing inflates wages, while understaffing reduces cleanliness and guest satisfaction. Efficient rostering and productivity monitoring are essential.
Owner Operator vs Under Management
Management run properties incur additional wage costs. Owner operators should still account for a fair wage in financial analysis to determine true performance.
Consumables and Amenities
Toiletries, coffee, and amenities directly affect CPOR. Premium products increase costs; bulk options reduce them with careful quality control.
Cleaning Policies
Cleaning times, cleaning agents, and standardised procedures affect labour efficiency and operational cost.
EFTPOS and Credit Card Fees
Merchant fees vary widely across providers and card types. Regular reviews help ensure these fees do not unnecessarily inflate costs.
Marketing, Distribution Costs, and Subscriptions
OTA commissions, chain membership fees, digital marketing, and software subscriptions must be monitored to prevent cost creep.
Utilities and Essential Outgoings
This includes council rates with high land values. Rising energy prices heavily impact properties with heated pools, commercial laundries, and extensive HVAC systems. Land Tax liability varies depending on state legislation and ownership structure. Insurance premiums have increased significantly due to climate impacts and rising construction costs.
Operating costs compound quickly when left unmanaged. Even small inefficiencies in labour, utilities, consumables, or maintenance steadily erode profitability. A precise understanding of the cost base enables operators to set sustainable rates, maintain pricing discipline, and make informed decisions. Ultimately, knowing your breakeven point supported by accurate CPOR data is one of the most effective tools for ensuring long term financial success in an evolving accommodation market.