At the time of starting any type of business, it is necessary to know well the indicators that will help us to know the financial profitability of our company. The hotel and accommodation sector is no exception, so before launching into the tourism sector, you should know how the profitability of a hotel is calculated and what the general profitability of the sector is.
Knowing the indicators to calculate the profitability of your hotel will allow you to make the best strategic decisions, apply the necessary changes and follow the hotel trends that will have better results. But how can you tell if a hotel is profitable? And most importantly, how to improve the profitability of a hotel?
Hotel profitability indicators
Above all, hotel profitability indicators allow us to check if the business is on the right track or if, on the contrary, it is necessary to change course and modify procedures, services or even facilities. It can also be an indicator that you have to change your pricing policy, compare it with your competitors or to look for ways to optimize revenue. We are going to see different indicators of hotel profitability that will give us the keys for managing income to increase profits.
RevPAR (revenue per available room) is an indicator that estimates the average revenue per room in a hotel. It allows the managers of a hotel to know the average profit per room, a piece of information that is useful to establish the price per night. There are two ways to calculate RevPAR:
Formula 1: RevPAR = total hotel revenue / rooms available
Formula 2: RevPAR = ADR (average daily rate) x occupancy rate (number of rooms sold / number of rooms available)
The RevPAG (revenue per available guest), calculates everything a guest spends during their stay (not just the room), such as breakfast, room service, spa, parking… If this value increases, it means that the hotel’s services or experiences are interesting for guests.
RevPAG = accommodation revenue / available guests
The hotel profitability indicator GopPAR (gross operating profit per available room) calculates the overall performance obtained by a hotel. This index includes revenue per room and revenue from the services offered by the hotel.
GopPAR = (Gross Operating Revenue – Gross Operating Expenses) / Rooms Available
GopPAR is one of the most complete indicators for measuring the profit of a hotel accommodation.
How to improve hotel profitability
Now that we know how to measure hotel profitability, how is your hotel doing in financial terms? What are the conclusions you have drawn? Truth is that, even if the occupancy rate is high, the profitability might not be as expected.
So how can you improve the profitability of a hotel accommodation? Let’s see some keys.
Prepare a financial analysis
If we have our results, we can compare them with those of our competitors. and even with our history. That way we can make some changes, improvements, or include some services that we detect are working well in our environment or that worked for us in the past.
Changes related to certain supplies such as electricity or sustainable facilities and alternatives, will make us maximize our savings in the long term and thus improve our profitability.
Prioritize customer experience
As we have already mentioned in other posts, customer experience should be the main objective of any hotel establishment. To do this, keep certain keys in mind:
- Personalization of the hotel experience.
- Obtaining feedback from your customers.
- Big data.
- Technological facilities.
Knowing the guest
Getting to know your guests and potential guests as well as their preferences and needs will allow you to increase your profitability. It will allow you to improve guest loyalty (so that they return and to recommend you to other travelers) and offer them services that they are likely to hire during their stay.
Working on Revenue Management
If we seek to improve the income of a hotel, we automatically think of attracting more guests, of getting sold out for as long as possible. However, the truth is that more occupation does not necessarily mean greater profitability.
A good technique to increase revenue is to optimize the occupancy rate, that is, offering the rooms at a higher price during the periods of more occupancy, which helps to increase RevPAR. But we can do this not only with the rooms, but also with services such as breakfast, room service, massages, spa…
In short, knowing how to calculate different indicators of hotel profitability will allow you to know your scope, your possibilities and improve aspects that have remained outdated or do not work in your business model.