How Do Your Rates and Revenues Compare?

Whether you’re an aspiring, perspiring, or retiring innkeeper, nothing is more important than knowing how your property compares in terms of occupancy rates and room revenues, as well as operational costs and income. The biannual Industry Study of Operations and Finance, 2007-2008 released by the Professional Association of Innkeepers International (PAII) shows that occupancy rates and room revenues continue a steady climb for the B&Bs and country inns in the United States.




 

Rates/occupancies improving slowly: The PAII study shows that annual occupancy for B&Bs in the U.S. rose to 43 percent in 2006, a growth rate of about 5 percent over 2005. Occupancy has risen slowly but steadily every year since 2002, when it stood at 38 percent. Overall, this five-year increase (2002 through 2006) represents a net gain for the industry of about 13 percent.

Except in a small number of travel markets, occupancy rates at B&Bs and country inns tend to lag behind that of hotels and motels, because many properties cater primarily to leisure travelers and are located in destination areas with strong weekend business and/or relatively brief "high" seasons. The occupancy figure for the overall lodging industry in 2006 was 63.4 percent, according to Smith Travel Research. “The growth over the past year was modest but suggests that our segment of the lodging industry is holding its own, even as chain hotels and motels step up the competition by imitating some of the quality amenities that B&Bs and country inns have been lavishing on their guests for many years,” explains Jay Karen, PAII President and CEO.

Inns compensate for their comparatively low occupancies by charging higher rates and providing more personalized services than do most of their hotel competitors. In 2006, according to the PAII study, the average daily rate (ADR) at B&Bs in the study was $166, a 3.5 percent increase over the previous year. The ADR for country inns (inns with full-service restaurants) was $153, an increase of 3 percent over 2005. For the U.S. lodging industry generally, the ADR in 2006 was $97.31, according to Smith Travel Research. This was a 7 percent increase over 2005, suggesting that many lodging properties boosted rates as the economy improved in recent years.

Another key performance metric in the lodging industry is Revenue Per Available Room (RevPar). This number is arrived at by dividing total annual room revenue by the number of rooms available for rent during the year -- giving a good picture of both income and occupancy. By this measure, the B&Bs in the PAII study experienced a 6 percent increase in RevPar from 2005 to 2006, reaching an average annual rate of $69.81. Overall, RevPar at B&Bs has increased by 34.3 percent since 2001, representing solid growth in both rates and occupancy. RevPar was highest in the Western states ($81.48 in 2006) and in the Northeast ($74.25), and lower in the Southeast ($60.96) and Midwest ($55.60).

Additional study findings: For more than a decade, owners of bed and breakfasts and country inns have led the lodging industry in providing upgraded amenities for their guests. Hotels, motels, and even resorts have imitated B&Bs by improving the quality and variety of amenities provided to guests, from soaps and shampoos to linens and mattresses.
 

• Luxury and Comfort: According to the study, 76 percent of B&Bs reported having "luxury beds and linens," compared to 65 percent in 2004. Similarly, the proportion of B&Bs providing bathrobes for guests more than doubled, from 29 percent in 2004 to 68 percent in 2006. These upgrades carried across all U.S. regions and locations, from rural to urban. Not surprisingly, inns with higher room rates were more likely to provide luxury amenities than were those with lower rates.
• Development and Use: The popularity of bed and breakfasts has led an increasing number of prospective innkeepers to construct new B&Bs. About three-fourths of the inns participating in the study are historic properties, but about 16 percent are now purpose-built structures, most of them constructed in the past decade. This new trend toward purpose-built B&Bs results from several factors: in some areas, particularly in the western states of the U.S., the supply of historic structures large enough to accommodate a B&B is very limited; in other areas, notably the Northeast, many historic structures suitable to use as B&B operations already have been converted to that use or have returned to use as private homes. Building a B&B from the ground up enables innkeepers to develop the property exactly as they want it, without having to retrofit an old building.
• Modernization: The study disputed the out-of-date notion that B&Bs do not provide private bathrooms for their guests. Among participating inns, 94 percent of the bathrooms are private. This means that 6 percent of guest bathrooms are shared -- a percentage that has declined steadily over the years. Another significant change was in the offering of wireless Internet service; in 2004, 60 percent of inns reported offering this service, rising to 85 percent in 2006.
• Business of Innkeeping: No longer a short-term retirement option, innkeeping is becoming a long-term occupation, with 41 percent of innkeepers reporting that they’ve been in the business for seven or more years. In part, this reflects a trend of younger people entering innkeeping as a career. Another illustration of the maturation of the industry is shown in the finding that most innkeepers have adopted formal legal structures for their businesses, such as corporations, partnerships, or limited liability companies. Nearly 70 percent of inns are now owned by these types of organizations; in the past, sole proprietorships were more common in the B&B industry.
• Expenses: Innkeepers are becoming more sophisticated in controlling their expenses to improve their bottom lines. For example, inns are spending more on payroll than in the past, but the increase lags behind overall revenues, suggesting that innkeepers are learning how to generate more business without adding staff. Innkeepers have also been successful in controlling such costs as commissions (including credit card fees), in part to offset more difficult-to-control expenses such as utility costs, which have risen sharply for innkeepers, as well as everyone else. The survey of capital expenditures by innkeepers found that many of them are investing thousands of dollars into new or upgraded guest rooms and common facilities. The study indicates the average cost of adding a guest room was $30,828 and the average cost of adding a guest bathroom was $13,853.

About The Inns

• 29% were in rural locations, 12% were urban, 5% suburban, and 54% were village
• 87% are tourist destination/resort properties
• 74% of the larger inns (21+ sleeping rooms) have meeting space
• 41% use outside caterers to handle food and beverage functions for guests
• Overall average employees per inn is 4.3
   

About the Inn Owners

• 82% of inn owners are couples
• 88% of owners live on premises
• 58% of owners are dependent on outside income
   

How Does Your Marketing Compare?

After occupancy rates, marketing plans are one of innkeepers’ favorite topics of conversation with others in the industry. How old is your website? What online directories do you use? Are you still printing a brochure? Do you let travel writers stay for free? How many room nights do you give away in a year? Did you ever write a press release? The answers to these questions, and many more, can be found in the 2006 PAII Study of Innkeeper Marketing Practices, allowing you to compare your marketing budgets and activities with those of almost 500 other innkeepers from around the country. Click here to order; just $39 for PAII members, $59 for non-members.
 

About PAII: PAII conducts studies of the bed and breakfast/country inn industry by surveying its nearly 2,000 lodging property members. The PAII study is the nation's only authoritative and comprehensive research report on the finances and operations of this segment of the hospitality industry. It is used by innkeepers to compare their businesses with other inns, by prospective innkeepers to help develop business plans, and by banks and other financial institutions as a key resource in evaluating the business climate for B&Bs and country inns. The 2007-2008 Industry Study was conducted in the spring of 2007 in partnership with The Highland Group, an industry research and consulting organization. The study includes detailed information about the operations and financial performance of inns segmented by size, type, and region.

The Professional Association of Innkeepers International represents bed and breakfasts and country inns throughout North America (and in several foreign countries) and provides education, communications, public relations, networking, and research services to its membership and the greater industry. PAII hosts the world’s largest annual gathering of innkeepers and publishes the industry’s leading trade publication, Innkeeping Quarterly (IQ).

For more information on membership in the Professional Association of Innkeepers (PAII), visit www.paii.org or email membership@paii.org.

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