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What are KPIs in the hotel industry?

8 Feb, 2022

The hotel industry is arguably one of the most unpredictable industries in the world today. The massive industry comprising the food & beverage sector, travel and tourism, lodgings, and accommodations and recreational facilities employs a substantial percentage of the global population and directly and indirectly contributes a significant percentage of the global economy. To counter the volatility of the hospitality industry, stakeholders use technology tools to manage establishments, provide guests with interactive experiences and meet emerging consumer trends.

As a hospitality service provider, using Key Performance Indicators (KPI) can help you evaluate the performance of your hotel by showing which areas you can improve to make a profit. If you monitor your hotel KPIs well and use their data efficiently, they can help you improve your hotel performance.

What are KPIs in the hotel industry?

Key performance indicators (KPIs) refer to values that a business can use to evaluate its performance. In particular, hotel KPIs refer to the values that hoteliers can use to evaluate a hotel’s performance. KPIs enable hoteliers to collect data they can exploit to make informed financial and operational decisions to achieve set objectives.

What are the qualities of a good KPI?

The right KPIs can help you improve the overall performance of your business. To ensure your hotel is using the right KPIs for evaluations, check if they have the following qualities:

Specific

Use a KPI that can give a clear description of what your business wants to achieve. For instance, improve the gross profit for available rooms by the end of the first quarter of a financial year.

Measurable

Consider using KPIs that you can measure and quantify. This is because a quantifiable KPI can help you calculate your success for a given period.

Relevant

Consider using KPIs that relate to the business area you may want to improve. For example, you can use the occupancy rate to evaluate hotel operations.

Time-bound

A good KPI can help you achieve your business objectives, given a realistic timeline to achieve them. For instance, improving the average length of stay in your hotel might take anywhere between a month to six months.

What are the essential key performance indicators?

The goal of any hotel is to increase revenues while reducing expenses. As a hotelier, you can achieve this aim by using KPIs that allow you to group and measure part or overall performance of the hotel. The following can be some essential hospitality KPIs.

Average daily rate (ADR)

This KPI metric can measure the average room revenue over a specific period. This means hotel owners can evaluate the average revenue amount a room collects every day whenever it’s occupied. The data you collect from this metric can help you make the right marketing decisions. For instance, you can use it to adjust room pricing according to seasonal trends. 

ADR = Rooms Revenue/number of Occupied Rooms

Revenue Per Available Room (RevPar)

This metric measures your hotel operational performance by helping you to evaluate the average revenue you generate per every available room over a specific period. Data from this metric can help you evaluate how successful your rate is at filling rooms. A high RevPAR means that your room occupancy in your hotel is high or the rates you charge are high.

RevPAR = Total Room Revenue / Total Rooms Available

Or

RevPAR = ADR * Occupancy Percentage

Average Length of Stay (ALOS)

The data from this performance metric can tell you the average number of nights guests booked a room in your hotel. ALOS data can help you make informed pricing and marketing decisions. A low ALOS shows that you can do more to increase the duration of guests in the hotel. You can run promotional programs or adjust pricing to entice guests to stay longer. For instance, your hotel can offer complementary services such as spa treatments and discounts for extended bookings.

ALOS = Length of stay (Date of departure-date of arrival)/ number of bookings.

RevPAR Room Type Index (ReRTI)

This hospitality KPI is one of the latest metrics that hotel managers can use to evaluate how the performance of higher value rooms compares to other room types in respect to revenue per available room. The ReRTI performance metric helps hoteliers assess which room types are most profitable. Rooms that rate higher than one indicate that they proportionally contribute more revenue than other rooms in the hotel.

ReRTI = % total RevPAR x number of specific room type / % inventory x number of specific room type

Gross Operating Profit Per Available Room (GOPPAR)

This hotel KPI is a helpful metric to assess a hotel’s overall performance because it gives you an overview of the gross operating profit for all available rooms in the hotel. As a hotelier, GOPPAR can show you the profitable parts of a hotel by comparing their operational costs and the revenues they generate. You can also use GOPPAR to measure the value of your hotel’s underlying value because the metric provides not only the operational cost of a business but also its potential profit.

GOPPAR = Gross operating profit (total revenue – operation costs) / number of available rooms

Which is the most important KPI for a hotel that is trying to attract more business?

The most important KPI can vary depending on the driving objective of the hotel business. If you want to attract business, the two KPIs that might be useful to you are the Net Operating Income (NOI) and market penetration index (MPI). This is because both metrics can give you crucial business insights that can affect your hotel survival. A NOI can show whether the business is making profits and by how much, which can help you plan for expansions to attract new customers. The MPI highlights how you are performing compared to competitors, which can help you create strategies to expand your market occupancy.

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KPIs help businesses meet their objectives. Players in the hospitality industry have a variety of key performance indicators which can help hoteliers improve an area or the overall hotel performance. KPIs can help you make an informed decision regarding your hotel finances, operations, and customer experiences, which can improve the performance of the hotel, leading to an increase in profit. The data you derive from your KPIs of choice can help you improve business processes, giving you a considerable advantage over your competitors.

8 Feb, 2022