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Like any business, operating a hotel takes hard work and constant analysis. To survive in the hospitality industry, hotels must benchmark their performance throughout the year and compare it to their competitive set.
Hotel metrics or key performance indicators (KPIs) are one of the best ways to understand what’s going right and wrong. This way you can course-correct and make informed, intelligent decisions.
In this post, we’ll explore fifteen hotel metrics — such as revenue per available room (RevPAR) and occupancy rate — and how to measure them.
Hotel metrics help various hotel departments examine overall performance, determine what success to your particular property looks like, and help track your progress toward achieving a core business objective.
Hotel metrics can be overall or specific to a department or campaign. Finance departments, for example, track different metrics than marketing.
Whose area of responsibility the metric falls under depends on what is being measured. For example, any metric that relates to revenue is the responsibility of the Director of Finance to measure and improve.
While there are many different hotel metrics, KPIs are ones associated with goals. This is how you can use metrics to not only track your hotel’s performance and also your personal/employees’ performance.
Once you understand the key hotel metrics that make sense for your hotel as effective KPIs, you can begin to set quarterly or yearly goals to improve them. They’ll also help you set goals for your departments and team members, as well as allow you to determine what success looks like for your particular property.
Your hotel metrics can be influenced by the performance of your employees and it’s helpful to use them to identify areas of improvement.
For example, if your occupancy rate is declining, it may be an indication that your marketing team needs to rethink their strategies and campaigns. If your market penetration index is low, it may be an indication that your revenue manager/department is not setting room rates in relation to competitors.
A hotel’s occupancy rate, one of the most important metrics, is the number of rooms occupied compared to the number of rooms available.
The higher the occupancy rate, the busier the hotel is, which means that over time, this metric will highlight patterns critical to understanding how your occupancy changes throughout the year. For example, if your average occupancy rate in February is 32%, it might be useful to find ways to reduce operating costs or amp up your marketing.
How to calculate your Occupancy Rate:
Number of Booked Rooms / Total Number of Rooms
How often to evaluate occupancy rate: You can measure by any given night, week, month, or year, for example.
How to improve your hotel’s occupancy rate:
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Average daily rate, or ADR, measures the average revenue generated by rooms sold in a given time period. Complimentary or vacant rooms should not be included in this metric. ADR is also factored into revenue per available room (RevPAR). However, where RevPAR is based on all available rooms (supply), ADR is based only on rooms sold (demand).
The reason hotels calculate ADR is to get an idea of the maximum different types of guests are willing to spend and is an important part of benchmarking. It will help find out if your ADR is impacting your occupancy levels, for example.
How to calculate ADR:
Average Revenue Earned / Number of Rooms Sold
How often to evaluate ADR: Monthly
How to improve your hotel’s ADR:
Revenue per available room, or RevPAR, uses both ADR and occupancy rate to measure performance in any given period as well as potential gains or losses in revenue. This percentage can be compared to your competitive set, allowing you to see how you stack up against the competition.
RevPAR can help you assess performance, set rates, and better evaluate your marketing campaigns and promotions.
How to calculate RevPAR:
Rooms Revenue / Rooms Available or Average Daily Rate x Occupancy Rate
How often to evaluate RevPAR: Monthly
How to improve your hotel’s RevPAR:
Gross operating profit, or GOP, refers to a hotel’s profit after subtracting operating expenses across departments. This is how you calculate the operational profitability of a hotel. This calculation does not take into account non-operating expenses such as tax, however.
This metric helps you determine whether your property is spending more revenue than it is earning or vice versa.
How to calculate GOP:
Gross Operating Revenue – Gross Operating Expenses
How often to evaluate GOP: Monthly or yearly
How to improve your hotel’s GOP:
Gross operating profit per available room, or GOPPAR, measures the relationship between a property’s revenue and expenses from a rooms-available basis. Unlike RevPAR, this metric provides a much clearer picture of a hotel’s profitability as it takes into account revenue and operating costs across departments.
GOPPAR helps hotels determine when and if their expenses outweigh revenue, and if there are any times of year where this occurs, such as off-season periods.
How to calculate GOPPAR:
Gross operating profit (GOP) / Total number of available room nights
How often to evaluate GOPPAR: Monthly or yearly
How to improve your hotel’s GOPPAR:
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Your market penetration index (MPI) — also sometimes called an occupancy index — determines your market share of occupancy compared to competitors. An MPI greater than 100 indicates that your hotel has a larger share than expected compared to the comp set. If it is lower than 100, you have less than the expected share. For example, if your occupancy rate is 70% and the occupancy of your comp set is 70%, then your MPI would be 100.
Your MPI helps you understand how your occupancy rate stacks up to competitors in your local market so you can analyze and adjust your pricing.
How to calculate MPI:
(Your occupancy rate / Aggregated group of hotels’ occupancy rate) x 100
How often to evaluate MPI: Monthly or yearly
How to improve your hotel’s MPI:
Your average length of stay, or ALOS, is the average number of nights guests stay at your hotel. This is an important metric to consider as shorter stays are usually less profitable due to operating costs.
Hotels should look for ways to increase the average length of stay in order to reduce the costs per room occupied.
How to calculate ALOS:
Total Occupied Room Nights / Total Number of Bookings
How often to evaluate ALOS: Monthly or yearly
How to improve your hotel’s ALOS:
Your revenue generation index, or RGI, measures your hotel’s performance and occupancy rate against that of your comp set. This metric will help you determine your share of market revenue compared to competitors.
How to calculate RGI:
Your RevPAR / Your Competitors’ RevPAR
(Note: Be sure you’re comparing yourself to properties similar to your own for more accuracy).
How often to evaluate RGI: Monthly or yearly
How to improve your hotel’s RGI:
While your average daily rate calculates your rates per day, your average room rate, or ARR, allows you to calculate them over a specified period of time.
This metric allows you to measure the success of particular months or seasons, and compare that with your comp set.
How to calculate ARR:
Total room revenue / Total rooms occupied
How often to evaluate ARR: Weekly, monthly, yearly
How to improve your hotel’s ARR:
Total Revenue per Available Room, or TrevPAR, gives a more holistic view of your overall hotel revenue. Unlike RevPAR, it calculates the total revenue generated per room, including amenities and add-ons etc., rather than room bookings alone. Note, however, that TrevPAR does not take expenses into account, meaning it cannot be used alone.
How to calculate your TrevPAR:
Total Revenue / Rooms Available
A hotel’s earning before interest, taxes, depreciation, and amortization, or EBITDA, evaluates your hotel’s net income with interest, taxes, depreciation and amortization added back. This is a great metric to help you compare the financial performance of multiple properties in different countries, for example.
How to calculate your EBITDA:
Net Income + Taxes + Interest Expense + Depreciation & Amortization or Operating Income + Depreciation & Amortization
Net revenue per available room, or NRevPAR, helps you understand how much revenue you generate from available rooms with costs associated with commissions, transaction fees, and loyalty expenses subtracted. This metric is typically used alongside other hotel revenue management metrics in order to adjust pricing.
How to calculate NRevPAR: (Room Revenue – Distribution Costs) / Number of Available Rooms
Revenue per occupied room, or RevPOR calculates how much revenue your rooms generate without considering seasonality. It considers upsells such as dry cleaning, mini bar, or spa treatments.
How to calculate RevPOR:
Total Revenue / Number of Occupied Rooms
Cost per occupied room, or CPOR, helps hotels to assess hotel expenses and work out a minimum room rate to ensure enough is being charged to cover costs and create a profit margin.
How to calculate CPOR:
Gross Operating Expenses / Total Number of Rooms Sold
Your revenue per available seating hour, or RevPASH, is a great metric to use if you have restaurants or bars in your property. It allows you to calculate the usage and revenue of a seat per hour, which allows you to better schedule labor, food ordering, and marketing during times of low occupancy.
How to calculate RevPASH:
Total Outlet Revenue / (Available Seats x Opening Hours)
Hotel metrics, benchmarking, and KPIs are essential for the success of a hotel. After all, guesswork can only get you so far in a highly competitive environment. When you base your decisions on data and metrics, you’re more likely to hit your goals and beat the competition.
Tracking and evaluating these hotel metrics will help you understand things like how your hotel is performing, how your rates compare to your comp set, and how operating expenses impact revenue. Together, these data points help hoteliers make informed business decisions regarding their properties.
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