Most cost increases are outside our control but others can be negotiated. Rent for example is normally the largest cost for a motel operator, by a country mile. Historically there was a formula prevalent in the market which suggested that the gross income should be split a 1/3 rent, 1/3 running cost and a 1/3 profit. This formula is no longer relevant in the market and we see rent being in excess of 40% of revenue in struggling motels and running costs mounting well beyond their
third. What this means is that the operators margins have been squeezed. Most operators are pretty good at retarding costs to the best of their ability by negotiating contracts with suppliers and using products and services frugally. Still we remind you that a penny saved is a penny earned. It all counts. Rent is where you can make the most difference. We have been successful in recent times in helping moteliers negotiate with their landlords resulting in no increases in rent and sometimes a reduction in rent.
There is a perception out there that landlords don’t care and they are greedy, wanting to maximise their return and minimise their costs. Wake up – this is the real world and they are entitled to think like that. They often have worked hard to be able to buy a motel freehold, have bought it because it is a low risk investment and often have their own substantial cost of ownership being a mortgage. So rather than being combative the best approach is one of trying to develop a partnership mentality.
If you work these discussions carefully you will be the big winner. It is in your interest to have a strong working relationship with your landlord. Often, exposing accurate and fully inclusive accounts can make a difference. We have also been involved where the landlord has been convinced to inject capital into the property to undertake refurbishment so that the motel can compete on an equal or better footing than its competition. These outcomes are fantastic and create value for all parties concerned.