New to NOI? Read this first, What is NOI, then come back here.
You’ve probably heard the term NOI thrown around constantly in the investment space. Net Operating Income. The number everyone uses to value a property, qualify for financing, and measure performance.
But what happens when NOI stops growing and starts shrinking?
That’s called squeezed NOI and it’s happening across the outdoor hospitality space right now. Revenue softening while expenses keep climbing. The gap between what comes in and what goes out getting tighter every month. And a lot of new owners who bought at peak valuations in 2020 to 2022 are now staring at a financial picture that looks nothing like what the pro forma said.
So what does squeezed NOI actually look like in real life?
It looks like this:
Your occupancy is solid but your net is shrinking. You raised rates a little but utilities, insurance, payroll and maintenance ate the increase before it hit the bottom line. You’re busy but you don’t feel profitable. Your bank balance looks ok but you can’t figure out where the money went.
Sound familiar?
Here’s what’s usually driving it:
Expenses that were never properly tracked or categorized so you don’t even know where the leaks are. Rate structures that haven’t been pressure tested against actual cost increases. Revenue streams that are underleveraged, amenities, add-ons, extended stays, that are generating activity but not optimized for profitability. And books that can’t tell you which part of the business is making money and which part is dragging everything down.
Here’s how you fix it:
First you have to be able to see it clearly. That means clean books, real numbers, and a P&L that breaks down revenue and expenses by category, not just one big blended picture. You cannot fix what you cannot measure.
Second you look at every expense line and ask whether it’s fixed, variable, or discretionary. Fixed costs are what they are. Variable and discretionary costs are where you find the margin.
Third you look at revenue per site, per night, per guest, and ask honestly whether you’re leaving money on the table. Most properties are. Not because owners are lazy but because they’re too busy operating to step back and analyze.
Fourth you build a simple 12 month forward projection so you’re not reacting to the numbers every month, you’re anticipating them.
This is exactly the kind of work a fractional CFO does. Not just recording what happened but helping you understand why it happened and what to do about it.
Squeezed NOI is a warning, not a death sentence. But you have to catch it early and you have to have the right financial visibility to act on it.
If your books can’t tell you where your margin is going, that’s the first thing to fix.
Questions about your NOI picture? I offer a free initial financial review. Let’s talk.
~Wendi | Fractional CFO | PVIFinancial.com
If your NOI is getting squeezed there’s a good chance cash flow is feeling it too. Read this next: “Why Profitable Businesses Run Out of Cash and How To Make Sure Your’s Doesn’t”
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