A recent report from SaveONEnergy described results of a lighting retrofit at Great Wolf Lodge in Niagara. Article states that annual electricity saving are “the equivalent of 400 room bookings”. While expressing results of retrofit in term dear to hotel managers is definitely a step in the right direction, this comparison understates results by a factor of 16. And here is why.
Room booking goes to revenue, while electricity savings go directly to gross profit.
These two lines are far from being the same in financial statements. To compare savings with revenue we have account for profit margin.
Now there is gross profit margin and net profit margin, which for hospitality/spa industry are around 30% and 6% accordingly. Since lighting retrofit involves investment into assets subject to depreciation deduction, I’d argue that net profit margin is more appropriate to convert saving into equivalence revenue that creates the same profit.
What does this mean for the profit?
To bring electricity savings “equivalent of 400 room bookings” (gross profit) to revenue line, savings have to be divided by profit margin of 6%. This will make savings equivalent to 6,667 room bookings instead of 400.
The same approach to converting savings to revenue will work for any industry, subject to using an appropriate profit margin numbers. To bring the point even farther, it’s valuable to to convert revenue volume into tons of product or even into days of operation.
Where are extra holidays?
Here is how savings can be presented: energy retrofit at a plant (lighting, compressed air system, refrigeration system, etc) created as much profit as 10 days of full blown operation, which allowed management to declare holidays between Christmas and New Year.
How will this sound at your plant? How will additional vacation time affect morale? Will employee turnover be lower next year?