How to maximise hotel and restaurant profitability

The past year has been tough for the UK leisure and hospitality industry. Food prices, staffing costs and operating costs went up and bookings took a hit as consumers grew more cautious about spending. Broader economic pressures have affected hotel revenues, too. So what does it take for a hospitality business to turn a healthy profit and boost its bottom line in 2025 — while still providing the very best customer experience?

The importance of profit margins

To succeed in hospitality, it’s important to understand what counts as a good hotel profit margin. Typically, this is the business’s profit after paying employee salaries, maintenance, marketing, utilities, property tax, and other overhead costs.

It’s calculated as the net profit (ie total revenue minus all expenses and overheads) divided by the total revenue (income generated from all sources such as food and drink, events, amenities and other offerings), multiplied by 100.

A hotel’s gross profit margin should grow each year as the business matures and becomes more operationally efficient and profitable. A high margin shows that the hotel is turning a good chunk of its revenue into profit, and it’s a sign of strong performance, good management and financial health. An average, healthy hotel profit margin is around 10%, according to CSI Market trends by industry, while a low margin is 5% and 20% would be considered to be high.

Five ways to boost your restaurant or hotel’s profit margins

1. Lower overheads and operating expenses

From heating and lighting to food costs and staffing, it costs an awful lot to run a hotel or restaurant. Cutting back on overheads and improving operational efficiency can make a big difference, with no need to compromise on providing a high quality service for guests and diners.

For example, hoteliers who make sure that their business is energy efficient can cut utility bills with no effect on hotel guest satisfaction and comfort (think solar power, energy-efficient appliances, and motion sensors in rooms and public areas to avoid wasting costly lighting). Inventory management and precise control of supplies can reduce food waste and purchasing unnecessary resources. Negotiating with suppliers to get the best rates will also help bring down costs.

2. Forecast staffing needs

A massive 50% of a hotel’s operating costs are down to staffing. And now those costs are set to climb even higher following on from Rachel Reeves’ Autumn Budget: from April 2025, employers have to pay National Insurance contributions at 15% on salaries above £5,000, instead of 13.8% on salaries above £9,100 as they did previously. All of this makes it critical for a hotel or restaurant business to be able to forecast needs to avoid both overstaffing and understaffing, both of which can affect profits and guest experience.

Striking a balance between cost control and keeping service level high can be tricky, but by predicting demand and scheduling staff accordingly, hotels and restaurants can optimize staffing levels to meet service needs efficiently while reducing costs.

Another good move is to invest in staff training to expand their skillset to multiple areas of the business so that during times when there’s low hotel occupancy they can fill roles elsewhere in the hotel or restaurant.

3. Practise revenue management

Understanding and optimising revenue (ie the number of hotel rooms you can sell in a particular period of time) through a revenue management strategy is one of the main ways to maximise profit. By using revenue management tools and dynamic pricing strategies you can set the right rate for the right room at the right time, choosing rates according to the real-time demand.

To give one example, The Hotel Zamora in Florida achieved a 41% higher booking conversion rate while increasing food and drink revenue per occupied room by 10.6% after embedding a new booking engine system on its website to streamline bookings.

4. Upselling and diversification

Hotels can charge for much more than just a room for the night. Soap, utensils, bathrobes, spas, a gym, and more can be sold to guests as well, and you can create upselling strategies for these services to provide extra revenue streams. Not only that, but it can strengthen the bond between the hotel’s brand and its customer base.

All hotels and restaurants have quieter periods. To keep a steady income coming in all year round, hospitality businesses might also consider diversifying their revenue streams by hosting weddings, conferences, or special packages that attract different audiences, from romantic weekend breaks to family gatherings. In doing this, your business will build links with the local community, making it the local go-to spot for celebrations, dining, or events.

5.Optimise marketing investments

It goes without saying that any business needs effective marketing and a strong online presence if it’s to succeed. Marketing initiatives can help attract new customers and widen your net profit margins. Business experts recommend focusing on investing in campaigns targeted at your most profitable customer segments to get the highest return on investment. Also boosting your hotel’s own booking channels via social media, SEO, loyalty programs, and direct booking incentives, can also reduce dependency on online travel agents, helping you cut costs while attracting more direct, repeat guests.

Equip yourself for hospitality leadership success

Join St Marys’ 100% online MBA with Hospitality Management and you’ll deepen your knowledge of economics; how to make cost-based, informed decisions; corporate financial management; operations; marketing strategy; organisational management; corporate planning; and more. You’ll apply what you learn to real world challenges, collaborate across and within functional areas, sharpen your critical and analytical thinking and learn to anticipate rapidly changing business challenges in a global economy.

What’s more, as the course is 100% online and part time, it fits around your life so that you can continue to earn while you learn.