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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.
Yet, measuring success via Key Performance Indicators (KPI) is vital for hotels and, in this article, I’ve outlined the most important ones to use!
Basic Key Performance Indicators (KPIs) to measure Hotel Performance
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.
Average Daily Rate (ADR)
Average daily rate is a simple metric used to calculate the average rate per occupied room.
How to calculate Average Daily Rate (ADR)?
You calculate average daily rate by dividing total room revenue by total rooms occupied.
Average Daily Rate (ADR) Formula and Example
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.
Why is Average Daily Rate (ADR) Important?
ADR compares your performance against your competitors and can also measure financial performance.
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.
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.
How to calculate Revenue Per Available Room (RevPAR)?
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.
Revenue Per Available Room (RevPAR) Formula and Example
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.
What is RevPAR used for in the Hospitality Industry?
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!
Occupancy Rate (OR)
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.
How to Calculate Occupancy Rate (OR) for a Hotel?
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.
Occupancy Rate (OR) Formula and Example
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.
What is Occupancy Rate (OR) useful for?
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.
How to increase a Hotel Occupancy Rate (OR)?
There are many ways to increase a hotel Occupancy Rate, including:
The Average Length of Stay, or LOS, refers to the average number of nights that guests spend in the hotel.
How to calculate 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.
Average Length Of Stay (LOS) Formula and Example
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.
Average Length Of Stay (LOS) Exemple
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.
How to use Average Length Of Stay (LOS) at Your Hotel?
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.
Advanced Key Performance Indicators (KPIs) to measure Hotel Performance
Gross Operating Profit Per Available Room (GOPPAR)
Gross Operating Profit Per Available Room (GOPPAR) is a particularly useful metric for hotel owners as it gives them an idea of how valuable their hotel is as an asset.
How to Calculate Gross Operating Profit Per Available Room (GOPPAR)?
GOPPAR is the total revenue of the hotel less expenses incurred earning that revenue, divided by the number of available rooms.
Gross Operating Profit Per Available Room (GOPPAR) Formula and Example
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
Why is Gross Operating Profit Per Available Room (GOPPAR) a Useful Hotel Metric?
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.
How to Improve Gross Operating Profit Per Available Room (GOPPAR)
There's many ways to increase a hotel Gross Operating Profit Per Available Room (GOPPAR), for example:
CPOR - Cost per occupied room helps you to determine how efficient your property is per sold room.
How to Calculate Cost Per Occupied Room (CPOR)?
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.
Cost Per Occupied Room (CPOR) Formula and Example
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)
Why is Cost Per Occupied Room (CPOR) a Useful Metric?
CPOR allows you to view room profitability and takes into account your expenses, both fixed (such as rent) and variable.
Adjusted Revenue Per Available Room (ARPAR)
It is a simple calculation: measure the 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.
How to Calculate Adjusted Revenue Per Available Room (ARPAR)
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) Formula and Example
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
Why use Adjusted Revenue Per Available Room (ARPAR)?
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’.
Competition benchmarking will help you compare your property’s performance against your competitors. There are several different metrics you can use to measure against your competition, here are a few of the most popular benchmarking KPIs to get you started.
Guest satisfaction is key to any hotel business. It is a great indicator of how well your property is performing and allows you to make impactful changes. Here are some of the most useful reputation management KPIs.
Article written by Benjamin Verot
With years of experience in assisting hoteliers manage operations or opening up innovative hotels across the world, Benjamin has been a trusted name in the hospitality industry, and is well known for his knowledge and expertise in European markets.