Running a successful hotel involves a lot of moving parts. Hotel owners want to deliver an exceptional guest experience and keep occupancy high—all while minimizing expenses. By identifying and measuring the right goals and metrics, you can evaluate different areas of your business and gauge your hotel’s overall performance. With these insights, you can focus on areas that need improvement to exceed guest expectations and stay ahead of competitors.
What you need to know
- KPIs can help you better understand and track your hotel’s performance throughout the year, as well as year over year.
- KPIs like occupancy rate and average length of stay can help you identify trends and seasonality.
- Use KPIs like average daily rate and RevPAR to see how your hotel is performing against local competition.
What is a KPI?
A KPI (or key performance indicator) is a measurable and quantifiable metric to track progress toward a specific goal. These indicators help you determine what your business is doing well and what you might need to improve, which helps you make decisions to maximize performance.
KPIs are often confused with metrics because both measure performance, but there are key differences between them. Metrics provide general information (raw data) without relevance or connection to a strategic goal. KPIs are strategically chosen and tied to a specific goal to help monitor progress and make decisions and improvements.
KPIs are not only useful for measuring grand-scale company-wide goals. You can also measure the progress of different departments, projects, and even employees over time. For example, department-level KPIs can focus on sales or marketing teams by measuring their achievements, or you can zero in on a specific project outcome or employee’s performance.
Why should you use KPIs to measure success?
There are many benefits to using KPIs, especially when it comes to understanding how your hospitality business is performing and what actions you can take to improve that performance.
KPIs are easy to understand and track
Focusing only on a few important variables gives you straightforward performance results. You can also leverage software to accurately and efficiently track KPI data and communicate the results through easy-to-understand dashboard or visualization tools.
KPIs can help streamline your operations
Keeping track of your KPIs in real-time can help identify and resolve problems as they occur. If you flag a problem that affects the productivity of a specific department or project, you can immediately make the necessary adjustments.
KPIs can help motivate your employees
KPIs are not all about revenue and profitability—you can also use them to motivate employees. For example, you can assign individual KPIs to each team member so they know how their performance contributes to your overall business goals. This helps each employee feel informed, engaged, and empowered. You can also award bonuses and extra perks to team members that reach or exceed their goals.
How to use KPIs to grow your hotel
The following tips can help you effectively use KPIs to grow your hotel business.
Focus on a few KPIs
Don’t get overwhelmed, and focus on a few KPIs relevant to what you want to learn or achieve. If you want insight into overall hotel profit, guest experience, or room revenue, focus on KPIs directly related to those goals.
Set realistic targets
When setting your objectives, make sure they’re realistic because inflated and unattainable goals can discourage employees. Use your past hotel data and historical performance as a reference point to identify attainable objectives. Targets should be ambitious but not impossible.
Use software to monitor your KPIs consistently
Accurate KPI tracking requires consistent, real-time data. Automation can help keep your KPI data fluid and up to date, so you can make adjustments on the fly.
Review results consistently
Establish a regular schedule to review and analyze your KPIs for ongoing initiatives and after certain projects are complete. Use software and analytics tools to make sense of the data, ensure the review process includes different stakeholders, and encourage open discussion and feedback.
Don’t substitute KPIs for strategy
While KPIs are extremely valuable, your strategic decisions should be based on additional data and input from experts with industry experience. Business decisions should typically be informed by data—not completely driven by data. Be sure to consider all factors that could influence performance, and only make big decisions once you have a comprehensive understanding of why you’re doing it and how it may affect your business, employees, and guests.
The 9 most important KPIs for hotels
The hospitality industry has many KPIs your hotel can use to measure different aspects of performance. However, it’s best to focus on just a few from the list below.
1. Average Daily Rate (ADR)
ADR = Room revenue / Number of rooms sold (occupied)
ADR helps calculate daily average revenue from occupied rooms. With this information, hotel owners can measure overall revenue, profitability, and competitiveness, as well as manage seasonal forecasting and price adjustments.
2. Average room rate (ARR)
ARR = Total room revenue (for a period) / Total rooms
ARR is similar to ADR but measures the average rate for longer periods (weeks, months, etc.), giving insights into pricing strategies, revenue performance, and market positioning. ARR tends to be lower than ADR because it uses total rooms vs. only occupied rooms.
3. Occupancy rate
Occupancy rate = (Number of occupied rooms / Number of available rooms) x 100
The occupancy rate shows the percentage of rooms booked over a period of time. This KPI helps you understand how your hotel is doing during different periods or seasons. Offering discounts or promotions might be a good idea if the occupancy rate is low during a certain time of year.
4. Cost per occupied room (CPOR)
CPOR = Total departmental operating expenses / Number of rooms sold
Measuring the operating cost for occupied rooms can help you understand how much your hotel spends on each room and if the cost is appropriately related to the profit. If cleaning, electricity, laundry, and marketing efforts are high, reevaluating your expenses or increasing the room price might be worthwhile.
5. Average length of stay (ALOS)
ALOS = Total occupied room nights / Number of bookings
ALOS gives you information about the average number of days guests stay at your hotel. This calculation can help you make strategic pricing decisions, especially if the KPI varies seasonally. For example, if your ALOS is low, consider raising prices for shorter stays or giving discounts for longer stays during a specific time of the year.
6. Gross operating profit (GOP)
GOP = Gross operating revenue – Gross operating expenses
Gross operating profit shows the operational profitability of your hotel by subtracting all your operating expenses—such as mortgage payments, insurance, taxes, staff salaries, and inventory—from the revenue. To keep your GOP high, consider lowering hotel operating costs or increasing room prices to offset these expenses.
7. Revenue per available room (RevPAR)
There are two ways to calculate revenue per available room, or RevPAR:
RevPAR = Average daily rate x Occupancy rate
RevPAR = Total revenue for night / Total number of rooms available
RevPAR shows the average revenue generated from each hotel room. Measuring RevPar over time can help determine if the room revenue is improving and can be compared to other hotels in the area to get a sense of how your hotel is performing. You can use this KPI to make strategic pricing decisions.
8. RevPAR room type index (ReRTI)
ReRTI = (% total RevPAR x Number of specific room types) / (% inventory x Number of specific room type)
ReRTI helps hotel owners determine how specific rooms (like high-value suites) contribute to RevPAR by calculating their performance. This KPI helps determine which room type is most profitable for your hotel and if any are actually losing you money.
9. Market penetration index (MPI)
MPI = (Hotel occupancy % / Market occupancy %) x 100
MPI can help you understand how your hotel performs compared to your competitors. A score lower than 100 means your hotel is performing below market average, and above 100 shows you are doing better than your competitors.
The hospitality industry is constantly changing, and understanding how to leverage industry KPIs can help you better understand and gain insights into different performance areas for your hotel. While there are many KPIs to choose from, focusing on ones that relate to your overall goals can help you make strategic decisions that make you a better option for travelers—and keep your business performing well year-round.
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