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an assessment of ROI (Return on Investment)
You’re considering modernizing and streamlining the operation of your hotel or accommodation, but how can you actually calculate the value of such an investment? The simple equation is that self-service check-in reduces the need for reception staff. Here’s a thorough review of the profitability:
Savings from self-service check-in and check-out: Transitioning to self-service check-in, check-out, and digital keys requires some investments, including hardware like digital locks, automation software, and self-service solutions, and possibly a check-in kiosk. Investments are made to achieve the following benefits:
The biggest investment is likely the lock itself. There is a wide range of manufacturers and lock types available at different prices. In some cases, locks designed for the consumer market can be used, while for others, solutions tailored for professional use should be considered.
The major operational change happens when you are able to reduce staffing in the reception, possibly change opening hours, or completely remove the reception altogether. More and more hotels and rental businesses choose operating models without a reception, often in combination with a backup service. Reducing staff or freeing up time for other task create real value, enabling cost saving or activities generating more revenue. Recruiting personnel is also challenging and expensive. Self-service solutions enable you to get more efficiency out of existing staff and thus strengthen the contribution margin. Some companies opt for operating models based on staff-free offerings. This obviously provides cost advantages and potentially also regarding pricing.
How to calculate profitability in the investment:
There are several ways to calculate the effect of a self-service initiative. Here are some simple examples where a landlord chooses to invest in e-locks for 50 rental units. The price per lock in this case is NOK 5,000, resulting in a total investment of NOK 250,000. The operating costs of the system, such as software licenses, are estimated at NOK 30,000 per year.
The payback period is calculated by dividing the investment cost by the net savings per year. Assuming the annual salary for a receptionist is NOK 400,000, with additional costs, the annual cost is approximately 470,000.
If we assume 10 years of depreciation, the annual financial gain will increase by NOK 25,000 to NOK 180,000. Here, there is only nominal value, and interest and price rise effects have not been entered.
A great way to finance the investment is through the use of leasing. In this case, if the products are leased over 5 years at an 8% interest rate, the monthly cost would be approximately $5,033 without an initial fee. A leasing calculator is useful for these assessments.
Another way to calculate the effect of the investment is how much time is freed up to focus on other parts of the job. For some businesses, reducing staff might be more of a theoretical calculation. It may not be feasible to reduce staff. Freeing up their time though for other value-added work or easing workload pressure is a more likely approach. This could involve having more time for customer retention efforts, truly embracing the role of hosts, or increasing revenue through upselling and marketing. In such cases, setting other financial goals than savings might be equally important.
Other effects of digitization and self-service:
Looking at the project of self-service check-in and check-out in a broader context, you will quickly see that this is about leveraging the effects of general digitization. By introducing self-service check-in and check-out, you elevate the guest into a new type of guest journey – a digital guest journey where new, exciting, and automated processes can be added over time. Even if you don’t intend to implement everything at once, a gradual approach to gain an overview of possibilities and further potential should be considered.
Are you ready to digitize your business? Contact us today and we will get you started!
/ 29 February 2024