At HotelMinder we believe that "if you can’t measure it, you can’t improve it”.
Managing a successful hotel has to be one of the most challenging jobs around, due to the sheer volume of responsibilities required.
With so many departments and so many people that you are responsible for, it can be very difficult to find the time to review your performance.
Measuring success via Key Performance Indicators (KPI) is vital for hotels and, in this article, we’ve outlined the most important ones to use!
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These are the KPI’s which every property should run on the regular basis.
They are simple calculations, allowing you to access a high-level view of your hotel and also create benchmark metrics against industry standards and predictions.
1. Average Daily Rate (ADR)
Average daily rate is a simple metric used to calculate the average rate per occupied room.
You calculate average daily rate by dividing total room revenue by total rooms occupied.
Although ADR can assist in analysing your hotel’s performance, it doesn’t take into account any unsold or empty rooms.
Therefore, it could be deceiving in terms of overall property performance.
It works well in isolation as an ongoing performance metric.
The ADR is most useful when comparing to previous periods or seasons to identify performance over time.
Why is this metric important?
ADR compares your performance against your competitors and can also measure financial performance.
Average Daily Rate
ADR = Room Revenue / Number of Rooms Sold
Example: For the month of June your property made €30,000 room revenue with 10 rooms.
Assuming you had a 100% occupancy rate, by following the formula, we have: €30,000 / ( 10 * 30 ) = €100 ADR.
2. Revenue Per Available Room (RevPAR)
The most comprehensive and important metric hoteliers depend on is RevPAR.
Revenue per available room is similar to average daily rate, but you include your empty rooms into the calculation.
You calculate RevPAR by dividing total room revenue by total rooms available.
You can also calculate RevPAR by multiplying your ADR by the occupancy percentage.
RevPAR can predict how successfully your average rate is at filling available rooms and therefore provides a constructive view on how well your hotel is operating.
However, there are other factors to consider when comparing RevPAR between different properties.
RevPAR doesn’t take into account the number of rooms, so a large property with fewer filled rooms may still be making more money, even with a lower RevPAR.
The Problem with RevPAR
Although RevPAR can assist in calculating revenue, it’s not foolproof. For one, RevPAR does not take into account CPOR (costs per occupied room).
Moreover, RevPAR does not account for any additional income which the hotel generates from other departments, such as catering, parking or the spa.
Because RevPAR does not account for CPOR, it can’t be used as a key metric in measuring profitability, which as we know is the key aim for most hotels!
Revenue Per Available Rooms
RevPAR = Room Revenue / Number of Rooms Available
RevPAR = Average Daily Rate * Occupancy Rate
Example 1: For the month of June your property made €30,000 room revenue with 10 rooms, by following the formula, we have: €30,000 / (10 * 30) = €100 RevPAR.
Example 2: For the month of June, your property ADR is €100 while your Occupancy is: 50% (or 0.5). By following the formula, we have: 0.5 * €100 = €50 RevPAR.
3. Occupancy Rate
Your occupancy rate is the most basic metric which you can run and it can be applied to any specific period of time you want to analyse; daily, weekly, monthly, or yearly.
What is your occupancy rate on any given night? To know this, you must know how many total rooms you have, how many rooms are empty, and how many rooms are booked.
Divide the number of rooms which are occupied by the total rooms that are available to determine your occupancy rate as a percentage.
When you make a habit of doing this type of data tracking over time, you can see how well you are performing over the course of the season,
track month-on-month performance, and see how your hotel marketing and advertising campaigns are affecting your occupancy levels.
Applying length of stay (LOS) restrictions is the best way to increase your occupancy rate.
Occupancy Rate = Total Number Of Occupied Rooms / Total Number Of Available Rooms
Example: A property with 20 units for the week of the 3rd-10th of September had 18 occupied rooms and 2 available.
By following the formula, we have: 18 / 20 = 0.9 or expressed in percentage 90% occupancy rate.
4. Average Length Of Stay (LOS)
This metric identifies the average length of stay of your guests, which is calculated by dividing the total number of occupied room nights by the number of bookings.
A higher number is better, as a low LOS metric means reduced profitability due to increased labour costs.
For example, if you had one week of one night stays, rather than one guest over the period of a week, your labour costs increase exponentially,
even though the total number of room nights are the same. Turning over the room in between guests equals additional labour costs.
If your LOS metric shows that for a certain time period you are accommodating more one-night stays than usual,
then you can make revenue management adjustments and maybe increase your one-night rate, while offering a more forgiving rate for 2+ night stays.
Sundays are usually the most quiet day of the week and you can therefore place a minimum LOS restriction on Saturday bookings, to allow for increased two nights plus bookings.
When you are aware of guest’s length of stay, you can also determine how other hotel metrics are affected.
During a period of low-night stays, you might increase profits by increasing the price per night.
Average Length Of Stay
LOS = Total Occupied Room Nights / Number Of Bookings
Example: In the month of May the number of occupied room nights at a 10 units property was 210 and there were 70 bookings - therefore 210 / 70 = average length of stay is 3.
5. Gross Operating Profit Per Available Room (GOPPAR)
GOPPAR is the gross operating profit per available room or, more clearly, the total revenue of the hotel less expenses incurred earning that revenue,
divided by the number of available rooms.
If you want to look at overall performance, GOPPAR is effective because it looks at all rooms, whether they have guest’s occupying them or not.
GOPPAR includes hotel variables, such as furniture depreciation and internet costs, and is therefore a strong indicator of performance across all revenue streams.
Gross Operating Profit Per Available Room
GOPPAR = Total Room Revenue - Gross Operating Expenses / Number Of Available Rooms
Example: For the month of June a property made €60,000 room revenue with 20 rooms, but €30,000 was the cost incurred for cleaning services, housekeeping, internet bills etc.
By following the formula, (€60,000 - €30,000) / (20 * 30) = €50 GOPPAR
6. Cost Per Occupied Room – CPOR
CPOR - Cost per occupied room helps you to determine how efficient your property is per sold room.
To determine CPOR you must divide the total, gross operating profit by total rooms available.
Gross operating profit is your ‘net sales’ minus ‘cost of goods sold’ minus ‘operating expenses’, which includes selling, general, and administrative expenses.
CPOR allows you to view room profitability and takes into account your expenses, both fixed (such as rent) and variable.
Cost Per Occupied Room
CPOR = Total Rooms Departments Cost / Total Rooms Sold
Example: the cost for 10 units in the month of May was €10,000, therefore we have €10,000 / 10 = €1,000 CPOR (Cost Per Occupied Room)
7. Adjusted Revenue Per Available Room (ARPAR)
From the formula mentioned above, we noticed that RevPAR doesn’t really give us any information about the real profitability, therefore,
hoteliers nowadays should implement a more accurate indicator, such as ARPAR, which is a clear reflection of the ‘bottom line profit’.
It’s a simple calculation; measure average variable expenses per occupied room
(base this on your historical accounting information) and average additional income per occupied room from other revenue generating departments.
It is calculated by dividing the variable net revenues of a property by the total number of available rooms.
Adjusted Revenue Per Available Room
ARPAR = ADR – Var costs per occ room + Additional Revenues Per Occupied Rooms x Occupancy
Example: for the month of June a property with 10 rooms had €166 ADR (Average Daily Rate), while the variable costs per occupied room was €50 and occupancy was 90%.
At the same time, the property made €30 additional revenue per occupied room, generated from in-room massages, room service, tours, etc.
By following the formula, we have: ( €166 - €50 + €30 ) * 0.9 = €131.4 ARPAR
Competition Benchmarking KPIs
Competition benchmarking will help you to compare your property’s performance against your competitors.
There are several different benchmarks which you can use and below you will find a few of the most popular to get you started.
In order to calculate these benchmarks, you’ll need to first create a competitive set.
Read our article to help you create your own competitor set!
8. Average Rate Index (ARI)
This metric requires you to do a bit of market research beforehand to calculate what the various ADRs are within your competitor set.
The average rate index shows whether your rate is fair, above average or below average. It’s recorded by comparing your average recurring revenue with that of your competitors.
ARI is calculated by comparing the Average Daily Rate (ADR) across a range of competitor hotels.
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.
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.
Average Rate Index
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 (<1) this means that the hotel rate was lower than its competitors!
9. Market Penetration Index (MPI)
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.
When you’re aware of your own occupancy rate, you can then make comparison with your competitor’s. This will give you an indication of how you are performing within your select niche.
Divide your hotel’s occupancy rate by the rates for your top competitors.
Once you know how you’re positioned within the market, you can adjust your marketing to entice customers to book with you instead of your peers.
However, a high percentage of occupancy isn’t always the best indicator of a successful hotel.
If your hotel lower the rates and raises occupancy, you could still lose money through ailing margins.
By taking a close look at MPI over a period of time, you will be able to identify your property’s ideal occupancy and how to achieve it.
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.
Market Penetration Index
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!
Other useful KPIs
Guest satisfaction is key to any hotel business and is a great indicator of how well your property is performing.
Using guest satisfaction to dictate your business will allow you to take a long-term approach which will pay off in the end.
When looking at financial data like ADR or RevPAR, qualitative data is not always taken into consideration.
When you look at customer satisfaction and quantify the results, you have the opportunity to make changes that will have a large impact on your property.
10. Customer Satisfaction
Today, everything comes down to customer experience. If you want to charge a premium, it’s your responsibility to consistently deliver excellent service.
Alternatively, you must add to your offering with luxury spas, new furnishings and other physical attributes.
To increase the average daily rate, hoteliers need to deliver consistent service across every outlet of the property.
Demand, after all, drives ADR and that demand is generated through consistently meeting guest expectations,
as this triggers ‘word-of-mouth’ referrals and repeat visits, maybe even loyal customers!
Use post-stay guest surveys, which are quick and easy to fill in, to identify what matters most to your guests.
Regularly surveying guests and keeping track of their responses will help you to identify what you do well and what you need to work on.
It will also help you identify problem areas before they get out of hand. We also suggest asking open-ended questions which allow the guests to express their sentiments.
11. Online Reviews
Your online reviews are also an invaluable resource and we’ve previously written on how guests can turn to onlines forums to negatively review properties.
Guests will leave all types of reviews about your property and we suggest that you conduct a sentiment analysis for your reviews to determine their true feelings.
A sentiment analysis allows you to quantify your guest’s opinions on their stay.
We created a guide on how to create a very basic sentiment analysis, which you can find here.
While there are no specific key performance indicator formulas for customer satisfaction, other than a net promoter score, we suggest
that you create your own aggregate data based on your surveys and third-party site reviews.
Regardless of the size of your property or the property type, running these metrics and paying attention to them can significantly improve your performance.
No matter which metric is used, the goal stays the same; to increase revenue and profits!