Figuring cost per key an in-depth process

How much per key? As one of the owner's first questions when looking at a project or renovation, this issue often is used to make buy/pass decisions on a lodging asset. There is no more dangerous question in our industry because three people can provide t

How much per key? As one of the owner's first questions when looking at a project or renovation, this issue often is used to make buy/pass decisions on a lodging asset. There is no more dangerous question in our industry because three people can provide three different answers, and all three can be completely correct.

Cost per key is the total amount spent in all areas of the hotel divided by the total number of keys in the hotel. However, what is included in the cost and what counts as a "key" can be complicated to define.

The first step in solving the "how much per key" debate is to define the scope in discussion. Does the cost per key include only what is behind a typical guestroom door, or does it include the corresponding corridor items? Is the bathroom furniture, fixtures and equipment and/or operating supplies and equipment included? What about general contractor-supplied items in the bathroom?

Adding fuel to the fire is the fact that many items can be considered either FF&E or OS&E. Key items that are classified as either FF&E or OS&E include televisions and technology items. The distinction becomes more difficult with the bed: Which items are OS&E (the sheets and sleeping pillows that get changed daily) and which are FF&E (the decorative pillows, the top of the bed treatment)?

It is advisable to use a proper and complete differentiation document as the guide. The owner then can have the cost per key areas of a project defined according to who will purchase and install each item.

When calculating cost per key, be clear whether the divisor is the number of keys or the number of bays. Many new developments focus on multiple bays per key (one- and two-bedroom units, suites, etc.). A hotel may have 253 traditional "keys," but with multibay keys, the project might have the same total area as a 650-room hotel with one-bay keys.

Once the areas and scope to be included in the cost per key discussion are defined, the next step is to define what costs beyond the first product cost should be included. For example, the cost for a public space carpet imported from Asia is $30 per square yard. Is that cost free on board Asia or landed duty paid in the U.S.? If it is a U.S. cost, is it to a port, to the city the hotel is in, or all the way to the hotel or the hotel's carpet installer? Is tax included? What about installation and carpet pad? If the project is a renovation, what about carpet removal and floor prep? Add up the questions for every FF&E element and the cost can increase well over 35 percent to 45 percent from the "first" FOB factory product cost to the cost of the product installed in the hotel.

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