The key performance indicators(KPIs) for hotesl help hoteliers measure progress, enabling them to stay on track with their revenue and profit goals.
The more a hotel measures its KPIs, the more it can improve its efficiency, and use that intelligence to optimize their operations and increase profitability.
The good news is that tracking your KPIs isn't difficult; you just need the right system in place. Cloud-based hotel revenue management software like Aisoell enables hotels to simplify and automate KPIs and other key intelligent business capabilities.
New technologies allow hotels to measure hotel performance in ways that were previously not possible. Hotels can now quantify and measure KPIs that go beyond the traditional performance metrics. To paint a complete picture of the hotel performance, hotel KPIs can be extended to include:
1. Financial Performance KPIs
2. Operational cost KPIs
3. Guest Experience KPIs
In this article, we'll take a look at these hotel KPIs that we believe are essential for hotels to track:
- FINANCIAL PERFORMANCE
Hotels need to closely monitor these financial KPIs to ensure that they're maximizing their profitability:
- Occupancy Rate (OR)
Occupancy Rate for hotels is simply the ratio of occupied space to the total amount of available space. It is one of the most important hotelKPIs because it forms a foundation on which other KPIs can be measured, and it gives an overview of the hotel's occupancy performance.
The formula for calculating the Occupancy Rate is:
Occupancy Rate= Total Number of Occupied Rooms / Total Number of Available Rooms
- Gross Operating Profit (GOP)
GOP is a KPI that measures a hotel's profits after deducting all the operating expenses.
The formula for calculating GOP is:
GOP= Gross Operating Revenue – Gross Operating Expenses
GOP gives you the overall hotel's financial performance, but if you want to improve the performance or want to know the reason why it's fluctuating, you may have to go deeper into more specific aspects.
- Average Daily Rate (ADR)
Average Daily Rate (or ADR) is another useful KPI to measure and calculate the hotel's profitability. It's used in demand forecasting and predictive marketing as it offers insight into the rate a room can earn on average on any given day at any given period. With the help of ADR metric, hotels can predict trends, adjust room rate accordingly, and maximize their revenue per room.
The formula for calculating ADR is:
ADR = Room Revenue / Number of Rooms Sold
- Average Room Rate (ARR)
Average Room Rate is similar to ADR and measures the average rate the hotel is charging per available room. The fundamental difference between the two is that ADR measures the average rate on a daily basis while ARR measures the average room rate over longer periods (monthly, or weekly).
The formula for calculating ARR is:
ARR= Total Room Revenue (for a period) / Total Rooms
- Revenue per Available Room (RevPAR)
Revenue Per Available Room is calculated in 2 ways:
1. by dividing a hotel's total room revenue by the total number of available rooms during the period being measured, or
2. by multiplying a hotel's average daily room rate (ADR) by its occupancy rate
This number may fluctuate according to economic climate, seasonality, and consumer trends, making it difficult to track, but it's an extremely useful KPI when it comes to planning and preparing for peak and low seasons.
The formula for calculating RevPAR is:
RevPAR = Room Revenue / Number of Rooms Available
RevPAR = Average Daily Rate * Occupancy Rate
- Revenue per Occupied Room (RevPOR)
Revenue per Occupied Room is another variant of RevPAR. Unlike RevPAR, this KPI considers occupied room and provides a better understanding of how much profit a hotel can make from guests who are actually staying at the property.
With RevPOR, you can track income generated from other departments such as spa, food, beverage, other upsales and add-ons.
The formula for calculating REVPOR is:
RevPOR: Total Revenue* / Total Occupied Rooms
Where *Total Revenue = Accommodation + Room Service + Bar + Spa + Breakfast + Mini Bar + [Additional Revenue]
Net Revenue per Available Room (NRevPAR)
Net Revenue per Available Room is similar to RevPAR and monitors booking revenue, but it takes a more detailed approach. It factors in net revenues by considering distribution costs, transaction fees, OTA commissions, etc.
The formula for calculating NRevPAR is:
NRevPAR= (Room Revenue – Distribution Costs) / Available Rooms
- Gross Operating Profit Per Available Room (GOPPAR)
GOPPAR considers the revenue generated and also the costs incurred to generate that revenue. This KPI demonstrates the profitability and hotel property value as a whole.
The formula for calculating GOPPAR is:
GOPPAR = Total Room Revenue - Gross Operating Expenses / Number of Available Rooms
- Cost per Occupied Room (CPOR)
Cost per Occupied Room helps calculate the average cost per occupied room. This KPI helps hotels to assess whether the operating cost for any given room is reasonable.
The lower a hotel's CPOR, the higher its Profit per Available Room and the more profitable is the hotel business.
The formula for calculating CPOR is:
CPOR: Total Rooms Departments Cost / Number of Rooms Sold
- Marketing ROI
Fortunately, all the marketing efforts can be tracked, measured, and quantified in today's digital age.
Tracking marketing spends against other KPIs helps hotels to evaluate which methods work or don't work. Accordingly, the marketing budget can be directed to more profitable marketing efforts.
- OPERATIONAL COST KPIs
The following are the key operational cost KPIs; if monitored carefully, they can help hotels increase profitability by reducing costs.
- Water Consumption
You cannot ignore the costs associated with water consumption. From guest rooms, food/beverage service, to sanitation and pools, water consumption is unavoidable. By monitoring water consumption with the help of smart water management systems, hotels can significantly reduce their water consumption.
- Energy Management
The 2015 edition of Trends® in the Hotel Industry stated that electricity is the largest utility expense comprising 60% of total expenditures. You can consider using smart energy management systems to not only monitor energy consumption, but also optimize and adjust it in real-time, thereby reducing hotel energy costs.
Labour costs are traditionally one of the most costly overheads. That's why it is crucial to measure this KPI. By monitoring overall labour expenditures against revenue generated,hotels can avoid over-staffing during slow days, shifts or seasons.
Labour costs aren't just limited to salaries. Employee performance is a hidden cost. Each unit of labour comes at a cost. Are you able to get that much value from each of those units?
Understanding the optimal number of staff needed at any given point isn't enough; you need to also to understand each of these employees' optimal output. Therefore, you should develop KPIs to measure your employees' performance.
- GUEST EXPERIENCE KPIs
The following guest experience KPIs help hotels determine whether guests are likely to book or bring in repeat business:
- Online Reviews
Customers share their hotel experience online. By tracking your hotel's online rating, you can know how well your property delivered on different guest experience metrics.
Online ratings provide you feedback which you can use to improve your customer experience and operational standards.
- Customer Satisfaction Survey
Though the online review is a good indicator to understand the guest experience, it fails to provide a complete picture because not all guests leave an online review and all online reviews appear after the guest has left the property. Here, customer surveys can help. When using customer satisfaction surveys, ensure that your questions are framed to prompt a specific response that can be tracked.
- Loyalty Programmes
There's no business like repeat business. Tracking loyalty programmes can provide valuable insight into guest experiences and how they affect the hotel's revenue. If your loyalty programme isn't meeting its goals, it's time to revamp it to make it more ROI-driven.
Technology has made it easier to track and measure these KPIs. However, it's important that hotels take stock of the KPIs available to them, and look at KPIs,not in isolation but together or in context with others. This will make a big difference in doing a profitable business and hovering between profit and loss.