The primary reason to keep the hotel's operational costs in check is to maintain a profitable establishment. Rising wages, operating costs and ineffectual practices can endanger the hotel's financial stability and profitability in the long run.

In an ideal world, the operational costs and the overall income should be parallel to each other so that the hotel owners can make a handsome profit. However, balancing the profits and expenses while maintaining the quality and the visitor experience is not easy.

However, you may do this by calculating the CPOR, i.e., Cost Per Occupied Room, and then taking the appropriate actions to reduce it.

In this blog, we will help you understand what CPOR or Cost Per Occupied Room is, how to calculate Cost Per Occupied Room, and a few straightforward ways to reduce it.

What is CPOR, Cost Per Occupied Room?

The average cost of a visitor staying in a hotel is determined using the Cost Per Occupied Room calculation. It serves as a crucial performance metric that explains profitability to hotels. Food and beverage, room rent, and supplementary income are the three primary hotel sources of revenue. A hotel's ability to enhance revenues per available room and/or become more competitive depends on how low its CPOR is. One of the easiest ways a property may raise its profit margins is by lowering the Cost Per Occupied Room (CPOR).

Housekeeping, laundry, heating, air conditioning, Internet, cleaning supplies, and any other costs associated with maintaining a room prepared for visitors are a few examples of line items used to determine the cost of an occupied room.

Apart from these the expenditures related to upkeep and management are Hotel Operating Costs. They might be either fixed costs, like rent, property taxes, and insurance, or variable expenditures, such hourly salaries, energy prices, and commissions of travel agencies. These expenses are not to be considered while calculating CPOR. 

Now that we know what CPOR is, let's focus on how to calculate Cost Per Occupied Room.

Formula to calculate cost per occupied room

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The Cost Per Occupied Room at a hotel can be calculated by dividing your establishment's operational costs by the number of rooms occupied during the period

All expenses incurred to manage the hotel, such as workforce, supplies, marketing, and administration, are included in the operating costs.

The number of rooms occupied can be found by deducting the total number of rooms vented to visitors by the number of empty rooms at the time.

Here's a three-step process that will help you in Cost Per Occupied Room Calculation:

Step 1: The overall operational costs of the hotel are first calculated to establish the Cost Per Occupied Room. Examining the hotel's financial statements will help with this.

Step 2: The number of rooms that are occupied is then calculated. You may achieve this by looking over the hotel's occupancy reports.

Step 3: The final step is to compute the Cost Per Occupied Room (CPOR) by dividing the total operating costs by the number of occupied rooms.

So basically, the Cost Per Occupied Room formula is= Total Rooms Operation Costs/Number of Rooms Sold

Let's understand the Cost Per Occupied Room calculation with an example-

For example, if a hotel has total operating costs of $100,000 for 500 occupied rooms, the CPOR would be $200, i.e., $100,000 divided by 500

Why is it important to calculate CPOR?

For hotel management, the CPOR is a crucial indicator since it enables them to monitor the effectiveness of the hotel's operations.

A high CPOR suggests the hotel is losing capital since its revenues are insufficient to offset its expenditures.

A low CPOR suggests that the hotel is making a profit since it is bringing in more money than it is spending on expenses

Effective hotel management depends on tracking the CPOR, which may guide managers in deciding where to decrease expenses and how to boost income.

How can hotels reduce CPOR? 

Imagine that you've examined your CPOR with the help of the above Cost Per Occupied Room formula and discovered that operational expenses had increased excessively across departments

Here are some crucial factors to take into account to minimize expenses and simplify operations:

Calculating ADR

Your first step in reducing your hotel's CPOR is calculating the Average Daily Rate (ADR), which directly affects the CPOR

ADR is the average rate at which every room is sold over time. It can be calculated by dividing the total room revenue over a specific period by the total number of rooms occupied.

When ADR rises, hotel rooms are often booked at higher rates, generating more income per room. This could decrease CPOR. The CPOR will also decline if revenue per available room rises while operating costs remain constant. As a result, operational expenses for each occupied room are reduced, which might increase profitability.

On the other hand, a drop in ADR can mean reduced revenue per room. If operational expenditures remain the same or go up, this can raise the CPOR. Increased Costs Per Occupied Room can hurt profitability and signify operational inefficiencies

Therefore, regulating and improving the CPOR requires calculating and optimizing ADR.

Examine your expenditures

Your next step in reducing the expenses of your hotel should be examining all your operating costs. Take some time out and review your P&L ledger to understand your expense levers

There may be an odd increase in broadband usage or unauthorized spending on linen and cosmetics. Watch what funds you spend on inventory that might have been far cheaper if you had acted sooner.

Make it a routine to review your expense records frequently. Get a summary of your operational expenses with the help of Cost Per Occupied Room calculation and look for any trends. Small things matter a lot when it comes to cutting lodging costs and managing your business more effectively.

It's best to start by considering the little things.

Managing the costs using a revenue management system:

Revenue management systems will guide in allocating the fitting room at the right moment to the right visitor for the right price.

You may enhance occupancy management, streamline operations, optimize pricing, and make data-driven choices to successfully manage expenses by utilizing the features of an RMS.

Overall, this lowers CPOR and increases profitability while enhancing visitor happiness.

Make your process smarter:

The hotel sector is developing along with the habits and expectations of the visitors.

However, hotels hesitate to engage in smart technology because of low ROI. Another common misunderstanding is that hotel technology is a hassle and an extra expense. Adopting new technology does not result in higher operating expenses. Instead, these developments may enable cost-cutting and ultimately reduce CPOR. Moreover, guests don't want to wait long to check in or use hotel amenities; they aim to complete tasks more quickly and competently. Hotel software like Guestara is part of all-in-one (integrated) hotel technology, which simplifies all processes. These systems handle reservations, contactless check-in, billing & payments, online reviews, and the whole guest journey automation.

Hiring a channel manager:

Hiring a channel manager can help you identify and track new opportunities for improving your Cost Per Occupied Room

A channel manager can efficiently monitor channel performance, reduce distribution costs, and find new ways to improve CPOR.

Cross-train staff:

will have greater freedom to move resources to where they are most required if your staff are more adept in filling roles in different departments.

For instance, in some smaller establishments, the front desk personnel are taught to serve room service, seat customers in the restaurant, and clean rooms.

Cross-training encourages collaboration, enables you to run your business with fewer on-site personnel, and aids workforce skill development.

In conclusion

Cost Per Occupied Room is an important KPI for measuring the efficiency of a hotel facility.

One of the fastest ways to boost a hotel's financial performance is by lowering CPOR. After all, it enables hotel operators to increase margins without raising prices or creating new sources of income.

By lowering operating expenses and streamlining the process, cutting-edge hotel management software like Guestara offers hotels a great chance to reduce their CPOR. Contact us at today to learn more about how our software can help your business bloom.