What is LPAR?
Labor is one of the highest expenditures for hotels, representing, on average, 49% of total industry costs worldwide. At the same time, labor has become more complex of late with lower unemployment rates and legislation to increase minimum wage. As hoteliers strive to strike a balance between profitability and workforce competitiveness, a helpful benchmarking tool is the metric known as LPAR, or Labor per Available Room.
What does LPAR tell you?
LPAR is used to calculate hotel labor costs on a per-available-room basis to produce a clear picture of how much a hotel spends in labor expenses across all rooms available in any given time period.
Total Labor = $10,000,000
Number of Rooms in Hotel = 250
LPAR = $10,000,000 / (250 rooms * 365 nights)
LPAR = $109.59
This hotel spends roughly $110 per room, per night, on staffing.
Why LPAR matters:
There are many impacts on hotel labor costs, such as macroeconomic conditions that determine unemployment rates, or microeconomic drivers such as seasonality within a hotel’s specific market. There is also labor expense in nearly every department of a hotel, from rooms and F&B to A&G and property operations and maintenance, making labor the highest operating cost for hotels. Recently, labor expense has been growing at a higher rate than revenues. This directly impacts profitability, so it is imperative to closely examine this expense when trying to understand your hotel’s efficiency.
Put it into context:
STR believes it is most useful to look at LPAR relative to revenue growth, while also considering your competition and local market. Not every dollar of revenue per available room (RevPAR) is created equally when it comes to profitability—a hotel with RevPAR growth stemming from occupancy increases rather than from a lift in ADR is more likely to see higher labor costs. Additionally, full-service hotels, as compared to select-service hotels, typically have a higher percentage of revenues spent towards labor costs.
Participating in our profitability program allows you to benchmark your performance against your competitors and gain insight into where you can be most effective in driving profitability. Learn more here.