If a hotel wants to improve its business performance and stay in the game, measuring its performance is of utmost importance. Since the hospitality industry depends on many variables and aspects, each has to be measured individually to get an understanding of the bigger picture. There is where Hotel Key Performance Indicators, also known as Hotel KPIs, come into play.
KPIs are indicators that evaluate the performance of the various components or aspects of an organization or project. The KPIs then determine the overall success of the organization by looking at the success of each activity or indicator of the business. Likewise, the hospitality industry also uses hotel KPIs to evaluate the performance of their business.
There are many important hotel KPIs that measure the performance of hotels, resorts, homestays and other forms of hospitality properties.
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Why Are Hotel KPIs Important?
Every business organization has one cardinal goal, to earn maximum profits. However, to meet this cardinal goal, an organization needs to meet other various goals and parameters to increase the chances of earning profits. If profit maximization is the destination, then the other goals and parameters are the building blocks of the route that leads to profit maximization.
The hospitality industry is the best example of it. The hospitality industry is a complex service whose performance depends upon various factors such as revenue, cost, cost per sale, occupancy, resource management etc. Earning good profits is a herculean task for hotels as you have to work on these factors individually.
These indicators are interconnected as well, and one cannot be promoted at the cost of another. For example, revenue depends upon occupancy rate, and occupancy rate will depend upon customer satisfaction. There are many important hotel KPIs to be evaluated to get a holistic picture of the hotel.
We have listed the 8 most important hotel KPIs that are essential for the hospitality industry. By evaluating these indicators regularly, hotels will be able to meet their goals more efficiently.
8 Most Important Hotel KPIs
1. Total Available Rooms
Total Available Rooms is the number of rooms available for a particular time period - a week or a month. It is used to measure the total operational capacity of the hotel. It is the first important hotel KPI that one should measure.
Total Available Rooms = Total number of rooms - room out of service/out of inventory/out of order.
This metric is important because it gives a proper view of the total capacity a hotel has. It is the most basic parameter which is used in the measurement of other parameters for hotels. It represents the operational room inventory.
2. Average Daily Rate (ADR)
Hotel ADR measures the average price per room. It assesses the average amount of revenue an occupied hotel room generates during the day for a specific time period. Unoccupied rooms are excluded from his calculation to avoid unrepresentative figures. It is one of the most important hotel KPIs.
ADR = Total Revenue / Total Number Of Occupied Rooms
This measures the average revenue-generating capacity of an occupied room. Hoteliers can adjust the prices based on this indicator.
3. Revenue Per Available Room (RevPAR)
RevPar measures the average daily room revenue generated per available room. It measures how much revenue available room inventory is generating for the hotel. It is one of the most important hotel KPIs since it evaluates how much revenue a room is earning.
RevPAR = Total Revenue/Total Available Rooms
or
RevPAR= Average Daily Rate (ADR) * Occupancy Rate
4. Average Occupancy Rate
Average Occupancy Rate (AOR) is an important hotel KPI which measures the percentage of available rooms occupied during a specific time period. This metric is considered to be essential because the higher the occupancy rate, the more revenue a hotel generates.
However, this may not be always true, since many hotels may reduce rates to increase occupancy. Hence, the RevPAR, along with the average occupancy rate gives a bigger picture. It is one of the most prominent hotel KPIs.
Occupancy % = Paid Rooms Occupied/Total Available Rooms
Or
Occupancy % = RevPAR/ADR
5. Gross Operating Profit Per Available Room (GOP PAR)
It is one of the many hotel KPIs. It measures the gross operating profit each available room is generating. It is an important metric since it measures the performance of all revenue streams, including restaurants, bars, spas and other amenities with the total availability of the rooms.
This hotel KPI measures the profit-generating capacity of each hotel room. It gives a comprehensive view of the performance of the entire hotel, and hot just the rooms.
GOP PAR = Gross Operating Profit / Total Available Rooms
6. Average Length Of Stay (ALOS)
It measures the average length of stay of a hotel guest. It is a key performance indicator because it measures how long an average guest stays in their room. Longer the stay, the more the revenue generated from the guest.
If the ALOS is low, it means that the guest prefers to stay for a shorter duration. It can be due to external factors such as the nature of stay, etc. low ALOS is not always a bad thing, it can mean that your hotel can be a business hotel, located at a weekend getaway spot, or a place with very few but popular tourist attractions. You can increase the rates to make the most out of each night of stay or you can offer better deals for a longer stay.
ALOS = Total occupied room nights/Total number of bookings
7. Net Revenue Per Available Room (NRevPAR)
Net Revenue Per Available Room is a more accurate measure compared to RevPAR because it subtracts distribution cost from the total revenue. Revenue incurs distribution cost when you sell a product or a service and Net Revenue is Gross Revenue - Distribution costs. Distribution costs include transaction fees, commissions, and all other expenses.
NRevPAR = Net Revenue/Total Available Rooms
8. Cost Per Occupied Room (CPOR)
Cost Per Occupied Room (CPOR) is a KPI that measures the cost incurred per occupied room. It is one of the best important hotel KPIs on the cost side of things. Revenue and Expenses go hand and hand, and CPOR accounts for that.
CPOR = Cost Of Rooms Occupation Department / Total number of occupied rooms
Other Important Hotel KPIs
Along with these Room Inventory related KPIs, there are other KPIs a hotel needs to take care of to understand and improve its business.
1. Customer Satisfaction
A hotel will not be able to generate business with customer satisfaction. It is one of the most important hotel KPIs. You can measure this variable through hotel guest reviews and customer surveys. Hotel guest reviews are especially critical because a hotel guest will always judge the hotel based on the word of mouth of previous customers.
This is why hotels should improve their business to get good reviews. If a hotel gets a negative review, they should respond to them and understand the reasons, and if they can, sort out the issue. Also, be beware of fake reviews and reviews from competitors.
2. Utility Management
Hospitality has major energy requirements, such as electricity, water and fuel. Since these incur a significant cost for hotels, utility management is one of the most important hotel KPIs. To save cost, one needs to use these utilities judiciously to avoid wastage. These utilities need to be functional as well.
This can be measured by the cost of utilities and the performance of these utilities. Making use of efficient utilities and ensuring that they deliver results is one of the major challenges for hotels. Ensure that there is no leakage in any amenities that uses water and also ensure that the drinking water is clean.
3. Employee Performance
Since hospitality is a service-based industry, the employees play an even more important role. From the front office to housekeeping, to restaurant staff, to administrative staff, each plays an important role. That's why their performance is the key hotel KPI. Hotels need to measure the cleanliness of the rooms and amenities, the speed of service, the quality of food and many others.
By evaluating and working on these hotel KPIs, the hotels will be able to improve their performance and deliver the best results. Read our blogs to know more about the hospitality industry in detail!