Being aware of what is happening in your company is essential for its functioning and success. To do this, managers will have to study and take into account all the information on the movements in the hotel. There are many tools available to manage any area of the company, like Inventory Management Systems or softwares to manage the guest experience. Technological advances are providing the hospitality industry with new ways to measure and optimize its performance.
What are hotel KPIs
Hotel KPIs or Key Performance Indicators are those metrics that measure the performance of a particular area of the hotel’s operations or of the entire hotel. KPIs only measure variable metrics such as expenses, number of rooms, revenue, etc. Unlike the non-variable metrics, hotel KPIs must have a direct relationship with the company’s goals. So Key Performance Indicators are metrics that allow us to know if we are achieving our objectives. The company must be clear about those objectives in order to define the metrics that best fit their business strategy.
Why is it important to track the hotel KPIs?
Every company needs to know how it has performed in the past as well as its current results. Tracking data allows hotel managers to make effective decisions based on their past and actual performance. Comparing results gives a clearer picture of the hotel’s progress and which factors affect its performance.
KPIs are not only important for the information they provide, they are a great learning tool for hotel managers. You can get to know the weak and strong points and use them to benefit the company.
The most useful KPIs for hotel industry
Each hotel can use different key performance indicators, but some of them are crucial to evaluate the hotel’s performance and make decisions for the future. Here are some of the most useful indicators used in the hotel industry.
- Average daily rate (ADR)
This metric is used to measure the average rate per occupied room. The ADR is calculated by dividing the quantity of rooms sold by the revenue earned from those rooms. Although ADr helps to know how the hotel’s rooms are selling, it doesn’t take into account the unsold rooms or the empty ones., so this metric would not be entirely valid. This KPI is useful to compare with the ADR of other periods and check the evolution of the company. The relevance of this indicator also lies in the fact that it helps predict trends and adjust prices, as well as marketing.
ADR = rooms revenue / number of sold rooms (occupied)
- Revenue per availability (RevPar)
The RevPar is used to analyze the average revenue during a concrete period of time (usually daily average). It is based on the revenue of all bookings. To calculate this indicator, multiply the ADR by the occupancy rate; or by dividing the total revenue per night by the number of rooms available. This metric is one of the most important indicators for any hotel , it shows how much the company has earned in a specific period of time.
RevPAR = ADR x Occupancy Rate
RevPAR = Total revenue per night / number of rooms available
RevPAR creates a pricing metric to know the revenue generated per room. A high RevPAR (as well as a high ADR) usually means good occupancy rate.
- Occupancy rate
Thanks to this metric, the hotel staff can check the number of booked rooms, the number of the empty ones and the total number of rooms. It can be tracked on a daily, weekly, monthly or customizable basis. In order to obtain this indicator, it’s necessary to divide the occupied rooms by the total number of available rooms, and then multiply by 100 to obtain it. Once you get the occupancy rate, you can calculate other metrics like the RevPar previously mentioned.
Occupancy rate: (number of occupied rooms / total number of rooms) x 100
- Average length of stay (ALOS)
This one indicates the average length of stay of the customers. It’s calculated by dividing the number of nights of occupancy per room by the number of bookings. The score given represents the average length of stay of your guests. A bigger score is a better indicator, as it indicates a higher overall spend. One benefit of the ALOS is that it helps to make data-based pricing decisions. This metric is very important and can affect hotel revenue.
ALOS = number of nights of occupancy per room / number of bookings
GOPPAR stands for Gross Operating Profit Per Available Room. This formula makes it possible to identify if a hotel is working properly or not, it measures hotel performance in terms of the number of available rooms. A plus point of this metric is that it shows the profitability and value of a hotel property as a whole, which is very useful for hotel management. However, this metric does not take into account the revenue mix of the hotel, not allowing for an accurate assessment of the revenue generated per room. It provides a much better view than the RevPAR because it also considers the operating costs involved in generating revenue.
The way it is calculated is by subtracting the hotel’s expenses from the hotel’s revenue, and then dividing the result by the number of available rooms.
GOPPAR = (Gross operating revenue – Gross operating expenses) / Rooms available
- Guests rating
Although this may seem a little bit obvious, customer reviews and ratings are a key indicator of whether the hotel is performing well. The customers share their experiences on social media and specialized websites and it’s completely necessary for the hotel management to know how to monitor and measure those comments. It’s imperative to monitor their ratings and feedback on online booking platforms or search engines in order to use them to improve hotel’s performance and guest experience.
There are many more KPIs for the hotel industry, but we wanted to bring in this article the main ones. We live in a world in which practically everything we can think about is digitalized, so if we need help to track KPIs, we have a very large list of options that will make hotel management’s tasks easier. Contact us and tell us about your needs, we will help you find the best fit for you.