What is LPAR?
Labor is typically one of the highest expenditures for hotels, representing, on average, 49% of total industry costs worldwide. At the same time, labor has become a more complex issue recently due to furloughs and layoffs caused by COVID-19. As hoteliers work towards recovery, it will be more important than ever to strike the right balance between profitability and workforce needs. One helpful benchmarking metric that can be utilized is 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:
Many factors impact 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. Regardless of how hotels return in a post-pandemic world, labor figures to remain one of, if not the highest, operating cost for hotels. Prior to COVID-19, labor expenses had been growing at a higher rate than revenues. This directly affects 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 average daily rate (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.
For further insights into the impact of COVID-19 on global industry performance, visit our COVID-19 hub.