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How Do Hotel Management Companies Work?

Updated: Jul 17, 2023

Did you know that the biggest hotels in the world, such as the Hilton and the InterContinental, do not typically manage all their hotels? If a company has many hotels worldwide, it is beneficial and preferred that it works with a hotel management company for various reasons. They could do so to keep costs low, work with companies that can attract clientele, to work with management companies that understand the local market, laws, and regulations.

 Lowering operational costs through hotel management companies.
Partnering with companies that excel in guest acquisition.

What is Hotel Management?

Hotel management involves overseeing all general operations of a hotel business. Usually, these duties are distributed among a manager and other professionals who all handle different management aspects. However, some hotel businesses are so big and have so many hotels that they require the services of a hotel management company to handle these tasks.

What Is A Hotel Management Company?

A hotel management company is responsible for the management of a hotel, just like an internal team would. Hotel businesses can bring on hotel management companies like UpperKey at their inception or after being in business for some time; it all depends on their needs at different stages.

If the hotel owner or owning company doesn’t want to hire managers and other staff, they can hire a hotel management company. Once they do, they make a profit without playing any role in the management and operations of the hotel.

These management companies sign multi-year contracts, so it is common to see contracts that run for five or more years. These long-term contacts allow the management company to develop a concrete long-term vision and strategy without worrying about losing the hotel and, thus, their client before whatever they have planned has produced results.

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What Do Hotel Management Companies Do?

Answering the question, “What do hotel management companies do?” is vital to understanding how they work. What they do will depend on their client’s specific needs, locations, facilities, and size of the hotel.

The first thing they do is hire the staff required to run the hotel. They will first hire the HR department to interview candidates, hire them and handle their onboarding. The HR department is then responsible for payroll management, performance evaluations, and setting up and managing HR systems and processes.

The second thing they do is create and manage budgets, financial statements, and reports. A hotel cannot run without money, and the owner expects revenue at the period agreed upon with the management company. For this reason, the management company has to handle finances properly, which can entail hiring an accountant for the job.

The management company also manages all operational activities. These include catering, food and beverages, housekeeping, maintenance, events, gyms, and spa facilities. They also have to handle and manage contracts for maintenance and repairs and contractual relationships with suppliers and vendors.

They also handle project management for ongoing renovations on work as long as they manage the property. Such renovations and works are meant to make the hotel more attractive to visitors and to attract new clientele.

Most importantly, hotel management companies have to maximise revenues. They can do this by creating offers that ensure better room occupancy, adjusting room rates, and leveraging short- and long-term stay occupancies to ensure all rooms make a given amount of money.

As part of their revenue-maximising strategies, hotel management companies like Upper Key put together marketing strategies they implement and manage. These strategies also vary from one management company to the next and can include social media marketing, email marketing, traditional marketing, and other forms of marketing.

Choosing A Hotel Management Company

Understanding what hotel management companies do and how they can be a critical part of ensuring the profitability of your hotel business, you need to know how to select a hotel management company. Several qualities will help you find the right one, starting with their specialisation. Significant differences exist between managing a small hotel and operating an international one. Find out what a company specialises in before hiring them to manage yours.

The second is the scope of services provided. Ensuring that the company provides all the services you are looking for is essential. It is crucial to find out what services they do not offer as they can disqualify a company if you think you will need those services in the future. Services that include everything you need right now, such as UpperKey Hotel management services, help you avoid the hassle of finding someone to fill service gaps in the future.

The other thing to consider is charges, fees, and margins. Whatever the management company charges should be reasonable enough that you make a margin in your hotel business. The best companies run efficiently, without much overhead and multiple layers of management that complicate things.

Need for reasonable charges that allow for a profit margin in the hotel business.
Finding a management company with reasonable charges and fees.

How To Find A Hotel Management Company: Consider Their Fees And Charges

The hotel management company needs to be paid for providing its services and ensuring the hotel is profitable. So, how much do hotel management companies charge? Depending on the hotel and property management company, these companies charge fees that are structured differently.

The base hotel management fees are calculated as a given percentage of the gross revenue that the hotel makes. It is calculated this way because it is seen as a reflection of the management’s ability to generate revenue for the hotel. Because it is a percentage, management companies that make more money for their clients (the hotels) make more money. The base rate can vary but is typically between 3% and 5% of the gross or total revenue.

Note that the management company’s performance and, thus, the revenue they bring in is not an indicator of the hotel’s profit. That will depend on all the expenses the hotel has to pay and deduct from this gross income to get the operating profit.

It is important to find a hotel management company that does a great job at controlling these expenses. Companies like UpperKey that do this well generate more operating profit for their clients, underscoring the need for hotels to partner with the right hotel management partner.

The cost of hotel management can also include incentive fees. These are meant to ensure management efficiency and are calculated as a percentage of the whole or part of the operating income, itself gross revenue minus some operating expenses referred to as deductions. It is typically

Hotel management companies handle your business so you can be hands-off in its operations and management. While they have different approaches, they are typically similar and provide similar services. However, you will get different experiences from different companies, so do your due diligence to ensure you end up with one that provides exactly what you need.

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