Hotel management is the essential backbone behind overseeing the general operations of a hotel business. In many cases, these duties are distributed across a management team comprised of a general manager and other senior-level professionals. However, in other cases, the strategic operations of a hotel are handled by a third-party management company.
What’s a Hotel Management Company?
Like the internal team of any well-functioning hospitality business, a hotel management company is a third-party that’s responsible for managing the daily operations of a hotel, either for an incentive fee, a base fee, or a percentage of gross revenue. These parties can be onboarded at the hotel startup stage or long after a hotel has been in business.
If a hotel owner does not want to hire a general manager and other key staff members, they can choose to hire a hotel management company. In this scenario, the hotel owner makes a profit without having an integral role in the management and operations of the hotel.
Hotel management companies will sign a decade-long (or more extended) contract with the owner in most situations. This way, the third-party management company can establish a long-term vision and execute the work needed to staff the hotel without the short-term risk of losing the hotel as an account in the near future.
Advantages of Working with a Hotel Management Company
There are various hotel management companies that can either assist owners in running a hotel or run the hotel entirely. The common denominator is that these companies pinpoint what owners are doing right and what they’re doing wrong. Other primary advantages of working with a hotel management company include:
- Training staff in the correct procedures of customer service
- Auditing finances and determining how to increase your profit margin
- Branding, marketing, and managing the reputation of the hotel business
- Leveraging the business’s strongest assets while reassessing the weakest
- Remaining compliant with laws, regulations, customs
- Optimizing operational procedures, products, and amenities
Of course, every situation is unique and contingent based on the contract terms and scope of the hotel management company’s role. In most cases, they will handle just about everything under the sun when it comes to operating a successful hotel.
Choosing a Hotel Management Company
When selecting a suitable hotel management company, consider the following criteria:
- Specialization – There are significant differences between managing economy motels versus 5-star resorts. Learn what types of hotels the company operates before making a selection.
- History – Some of the best hotel management companies are more than willing to share their previous experiences. They should demonstrate previous work and how they improved a hotel’s financial health without compromising service.
- Congruence – Does the hotel management company feel like the right fit? Trust and alignment, although somewhat subjective, should not be ignored as disagreements will inevitably lead to future problems.
- Scope – Ensure that the prospective company handles all the services that you require and identify the services that the company doesn’t offer (in case you need those services in the future).
- Staffing – See how the hotel management company staffs other properties. Look for signs of overstaffing or understaffing. The best companies will staff intelligently with purpose and intention.
- Involvement – How closely does the hotel management company monitor and oversee its staff? Most owners look for companies that can execute their ideas for running the hotel versus running all aspects of the hotel for them.
- Margins – What operating margins is the prospective company providing other similar hotel clients? The best hotel management companies conduct business efficiently and avoid being overly top-heavy with several layers of management.
The role of a hotel management company has greatly evolved over the years and now takes many shapes. Decades ago, third-party management companies had a clear function as operators who handled day-to-day management services and organizational support in HR, accounting, marketing, etc.
In the current environment, there’s far more flexibility in the role that a hotel management company can fill for an owner, ranging from a specialized third-party operator to some form of equity partner. Some companies have particular expertise in managing exclusive resorts, others focus on limited-service properties, and others have particular competencies in operating hotels for colleges and universities. The key to determining the best management company for any particular deal is to identify a company whose skills and expertise match.