Hospitality financial leadership Ð using EFTEÕs - Insights

Hospitality financial leadership Ð using EFTEÕs

hospitality financeManagementÊthinker Peter Drucker is often quoted as saying that “you can’t manage what you can’t measure.” Drucker means thatÊyou can’tÊknow whether or notÊyouÊare successful unless success is defined and tracked.

In the hotel business payroll is the number one cost. STR recently reported that labour made up 50% of revenues for a sample of over 4,000 hotels of all types and sizes. Having an efficient and reliable way to measure payroll is critical in any business. In hotels, the impact of payroll is amplified considerably and the need to have something you can measure is the key. May I introduce the secret weapon and the star of the show? EFTEÕs!!!!!

Definition defines the acronym EFTE as ÒcÓ. I know from my experience that most hotels do not use EFTEÕs on their daily reporting and the use of EFTE’s on their financial statements is not prevalent. The creation and use of this powerful statistic are not difficult. All the information you need, you already have, itÕs all at your fingertips. You just need to organize it and let it tell you whatÕs going on inside your hotel. Measuring the dollars of payroll in your hotel is very important but understanding productivity is the most powerful tool you have. Getting to understand and measure productivity leads to the comparison of like data, this is where the EFTE is so powerful, itÕs like a power tool! Many industries use this statistic, and therefore itÕs not unique to the hotel world.

First off letÕs define the use of the EFTE. EFTEÕs measure the number of ÒequivalentÓ full-time employees. This is where most people get hung up. In the hotel business; we have full-time employees, part-time employees, salaried employees, hourly employees, unionized employees and even contracted labour. What the EFTE calculation lets you see is whatÕs the total of these pieces of our hotel labour by area, department and in total. It also allows you to see the same information for a day, month or year in a comparable way. This is very useful and once you get started with EFTEÕs youÕre going to be hooked.


Second, let’s define the calculation. This is the second most common place where people get hung up. If you can manage a little multiplication and division then this is very straightforward. Remember the first work in the acronym is ÒequivalentÓ. To calculate one EFTE we need to start with the annual calculation. Once we understand the annual calculation we can reduce the same calculation for any month in the year, a week or and a single day. Now, donÕt go south on me with the following math vomit. Once you run this through your internal bio computer you will get it. I did and I, as one good friend like to remind me, am not always the sharpest knife in the drawer.

For the basis of calculating an EFTE, we use 40 hours as the ÒequivalentÓ work week, 5 days * 8 hours per day. In hospitality, we all know most managers and leaders work more than 40 hours so donÕt let this part confuse you. The second part is the number of weeks in a year. (365/7 = 52.14) Leap year we use (366/7=52.29). We then take our 40 hours and multiply it by our annual 52.14 which equals 2086. Which is simply the number of hours a person working 5 days a week at 8 hours would work in an entire year. Note here we donÕt factor any holidays or vacation. We just want to know the number of hours one would work in an entire year.

From this magic number of 2086, we can figure out the daily and monthly EFTE values.

For the daily, it is 2086/365 = 5.715.

For a month, itÕs the number of days in the month times 5.715.

A month with 31 days is 31 * 5.715 = 177.1.

A month with 30 days is 30 * 5.715 = 171.5.

A month with 28 days is 28 * 5.715 = 160.0.

Now we know the basis for calculating the Equivalent Full-Time Employee statistic for a day, any month and a year. LetÕs put it to work for your hotel.


There are two key areas in your hotel where you will want to see EFTEÕs in your reporting. The two areas are daily labour/productivity reports and your monthly financial statements. For the daily reporting, we only need to get the report from our time clock or if we have a manual system the departmental hours worked summary is what we need. Taking the daily hours worked by department and major classification and dividing this number by the daily divisor of 5.715. The second part of the daily EFTE measurement is to divide the month-to-date hours by the month-to-date divisor.

Daily hours worked in housekeeping in this sample is 185/5.715 = 32.4 daily EFTEÕs.

Month-to-date hours worked in housekeeping as of the 18th of the month 3725/ (18*5.715) = 36.2 month-to-date EFTEÕs.

We can use this statistic for any payroll calcification, big or small. From the number of EFTEÕs in the room attendant classification all the way to the total hotel EFTEÕs itÕs all the same math. We will also want to apply this same view to the forecast, budget and last year values, especially for the month-to-date results.

With the monthly financial statements, annual budgets and monthly forecasts we also want to incorporate EFTEÕs. The report writer in your system needs to be messed with here and you will need the right person to go under the hood and write your financial formula. In addition, you will need to incorporate hours reporting on your monthly closing process. Create general ledger accounts to match each payroll classification you report on your financials. Run a monthly report from your time clock or post each pay periodÕs hours and donÕt forget to accrue the stub period and reverse last months. Once you get into the swing of booking the hours on your financials its business as usual and now you have EFTEÕs on your financial statements.


Imagine how much more insight you can gain from your business with EFTE reporting. With one glance, you can see the total EFTEÕs for budget 2018 compared to the latest forecast for 2017. Look no further now we can see the A&G EFTE count, the food preparation EFTE count, the EFTE count for the actual, budget, forecast and last year laid out side by side. Things are now much, much clearer in your financial reporting thanks to the super tool EFTEÕs.

With hours reporting on daily reports and monthly financials, we can now introduce productivity reporting. If you want a copy of my article on Rooms or F&B Productivity reporting send me an email and I would be happy to send it to you.

EFTE use and reporting are going to change your world. DonÕt let anyone tell you itÕs not possible or practical. Your prosperity depends on good financial information and organizing what you already have into highly intelligent reporting is just around the corner.

If you want a copy of my excel EFTE exercise send me an email and I will send it with my compliments.

If you would like a copy of any of the following,Êsend me an email at

  • Hotel Financial Policy Manual Ð Inventory of ÒSectionsÓ
  • Hotel Financial Coach ÒServices SheetÓ
  • F&B Productivity Spreadsheet
  • Hotel Financial Coach – “Speaking Sheet”
  • Rooms Productivity Spreadsheet
  • Financial Leadership Recipe F TAR W
  • Flow Thru Cheat Sheet Ð Enhanced
  • EFTE & Productivity Exercise

Contact David at (415) 696-9593.


About the author

David LundDavid Lund is The Hotel Financial Coach andÊan international hospitality financial leadership pioneer. He has held positions as a Regional Financial Controller, Corporate Director and Hotel Manager with Fairmont Hotels for over 30 years. He authored an award-winning workshop on Hospitality Financial Leadership and has delivered it to hundreds of hotel managers and leaders. David coaches hospitality executives and delivers his Financial Leadership workshops throughout the world, helping hotels, owners and brands increase profits and build financially engaged leadership teams. David speaks at hospitality company meetings, associations and he has had several financial leadership articles published in hotel trade magazines, and he is the author of two books on hospitality financial leadership. David is a certified hotel accounting executive through HFTP and a certified professional coach with CTI.

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