Given the challenges U.S. hotels are having attracting and retaining employees, the need to invest in employee training is as great as it has ever been. Unfortunately, training expenditures, like all operating expenses, have been subject to major cuts in response to the extremely reduced levels of revenue incurred during 2020 and 2021.
Labor is the single biggest expense within a hotel. In 2019, before COVID-19, the average property in the Trends in the Hotel Industry survey sample spent 31.3 percent of its total revenue, or 42.4 percent of its total expenses, on labor costs. This includes the salaries, wages, benefits, service charges, and bonuses paid to employees, as well as payments made for contracted labor. After suffering a 62.2 percent decline in revenue, labor costs shot up to 42.5 percent of total revenue in 2020, and 40.3 percent of total expenses.
Not only have labor costs been the largest operating expense for hotels, but they are currently one of the fastest-growing expenses. According to the Bureau of Labor Statistics, the average wage for U.S. hotel employees increased more than 12.5 percent from October 2020 to October 2021 versus 4.9 percent for all non-farm employees during the same period.
The services employees provide are integral to the hotel experience. Despite the continued implementation of automation into hotel service, interactions with employees are frequently the subject of guest reviews.
To extract value from hotel employees, training personnel is critical. Proper training can lead to increased productivity, improved guest satisfaction, revenue growth through upselling, and enhanced employee satisfaction that leads to greater retention and less turnover. All this can improve both revenues and profits.
Since 2015, CBRE Hotels Research has been tracking training expenditures within five hotel departments during our annual Trends survey: rooms, food and beverage, administrative and general, information and telecommunications systems, and sales and marketing. The 11th edition of the Uniform System of Accounts for the Lodging Industry defines training costs within these departments as the cost, other than payroll costs, that can be directly attributed to the training of employees in the department. These may include the costs of training materials, supplies, certification programs, and instructor fees. The cost of employee wages incurred during training is charged to salaries and wages.”
To examine recent training investments U.S. hotel operators made, we analyzed 2019 and 2020 training expenditure data for the five subject departments. To analyze the extent of training expenditures, we measured training costs on a dollar per available room (PAR) basis, as well as a percent of department labor costs and total department expenditures. The analysis only included the 788 properties that specifically identified their training costs in 2019 and 2020.
In 2019, the average hotel in our Trends sample spent a total of $193.92 PAR in training costs among the five subject departments. This equates to just 0.42 percent of the total spent on labor costs during the year, and 0.23 percent of total department expenses.
Among the five subject departments, we observed the greatest training expenditures in the administrative and general (A&G) department. In 2019, training costs in A&G averaged $74.40 per available room, 1.31 percent of department labor costs, and 0.62 percent of total department expenses. Because the human resources function is recorded in this department, it can be assumed that a portion of the A&G department training expenditures are costs that cannot be equitably allocated out to other departments, thus somewhat inflating these figures.
The second greatest training expenditures are found in the rooms department, which has a large representation of hourly front desk, housekeeping, and laundry staff. In 2019, this department’s training expenses averaged $48.60 PAR. This compares to $12.39 PAR in the F&B department and $12.14 PAR in the sales and marketing departments.
Full Service: Greater Investment
When analyzing training costs by property type, we saw the greatest expenditures on a PAR basis in 2019 in full-service hotels. This property type has greater employee-per-room ratios compared to limited-service and extended-stay hotels. Convention hotels also have a high number of employees, but their room count averages 859 rooms, thus lowering the dollar expenditure on a PAR basis.
To account for the room and employee count differences across property types, measuring training expenditures as a percent of labor costs is more equitable. Using this metric, limited-service and extended-stay hotels show the greatest investment in training. In 2019, training costs averaged 1.14 percent of total labor costs at limited-service hotels, and 0.89 percent at extended-stay properties. This compares to 0.31 percent at convention hotels, 0.32 percent at resort hotels, and 0.38 at full-service hotels.
A Decline in Investment
The need to cut costs across the board in 2020 severely impacted training expenditures. The average hotel in our 788-property study sample suffered a 71.2 percent decline in revenue from 2019 to 2020. To offset the reduced revenues, training expenditures were cut by 69.4 percent. This is greater than the 50.6 percent reduction in total labor costs and 53.0 percent reduction in total operating expenses.
On a percentage basis, we observed the lowest decline in training expenditures from 2019 to 2020 in the rooms department. It can be assumed that the high degree of turnover created the need to retain some degree of training in the rooms department compared to other departments.
Despite the heightened need for training, expect the investment made in training to be limited in 2021 and 2022.
About the Author
Robert Mandelbaum is Director of Research Information Services for CBRE Hotels Research.