Benchmarking, or the practice of comparing performance to the hospitality industry bests metrics and to the competition, is key to understanding a hotel performance. In this article, we will look at which KPIs are the most widely used in Revenue Management and Performance Review.
The formula is: ARI = Your ADR / Competitors average ADR.
A rate greater than 1 shows that your hotel is, on average, priced higher than your competitors. While a rate lower than 1 means that you are priced lower.
Average Rate Index (ARI) Formula and Example
ARI = Your Average Rate Index (ARI) / Competitor’s Average Rate Index (ARI)
Example: for the month of June a property made €30,000 room revenue with 10 rooms - keep in mind we're assuming a 100% occupancy rate - by following the formula we get:
€30,000 / ( 10 * 30 ) = €100 ADR for the month of June.
The average daily rate of the competitors was €120.
By following the formula, we have €100 / €123 = 0.81 (lower than 1) this means that the hotel rate was lower than its competitors!
Why is Average Rate Index (ARI) a Useful Metric?
Once you have this data to hand, you can make a decision on whether to adjust your rates to increase more bookings or take the lower occupancy/higher revenue approach.
Remember, it’s not always the ideal situation to run at 100% occupancy if the revenues are too low.
Marketing penetration compares your property’s Occupancy percentage to your competitor set’s occupancy.
It will allow you to see how much - or how little - your property features in your market.
Why is Market Penetration Index (MPI) a Useful Metric?
When you’re aware of your own
Occupancy Rate (OR), you can then make comparison with your competitor’s.
This will give you an indication of how you are performing within your select niche.
Market Penetration Index (MPI) Formula and Example
MPI = Hotel occupancy % / Market occupancy %
Example: the average occupancy percentage for a property in the past month was 54% compared to the average market occupancy 90%.
By following the formula 54% / 90% = 0.6 * 100 = 60% you can see that you’re not getting a fair share of the market demand!
How to Calculate Market Penetration Index (MPI)
You can calculate it by dividing your hotel’s Occupancy Rate by that of your competitor set and multiplying the result by 100.
Any number below 100 will mean that you are not getting your fair share of demand in your given market and any number over 100 means that you’re doing an excellent job!
MPI is the best metric to show how you are doing compared to others in your industry.