Tracking performance across your hotel, as well as within specific areas, is critical. Without performance-related information, you have no way to determine how well (or poorly) you’re performing in comparison to your competitors or to your previous year’s numbers. That information is critical for making decisions as wide-ranging as whether you need to hire more staff, if your marketing is effective and if you’re reaching your target audience.
With the right hotel key performance indicators (KPIs), you can track performance across your entire hotel, or you can drill down into specific areas, such as dining, spa, housekeeping, and more. That information then provides you with the ability to analyze and develop strategies and improvements that bolster performance and enable you to compete in today’s market. However, which KPIs should you be tracking?
Hotel managers and owners must track not just conventional KPIs that all other businesses do but also very specific ones unique to the hospitality industry. These hospitality KPIs form the backbone of any performance improvement plan, whether we’re talking about your front-of-house, changes to your marketing, or financial management for the property.
While there are many different KPIs required for measuring hotel performance, we’ll cover some of the most critical ones below.
ADR
ADR stands for an average daily rate, and it’s useful for measuring the average rate per occupied room. In other words, it allows you to take a cross-section of all your hotel’s rooms across different types and rates and then develop an average for each day. What good does an average do you?
You’ll find that it allows you to measure an essential component of your property’s financial performance, as well as ensure that your pricing and marketing are as accurate as possible. With accurate marketing and pricing, management will be able to strategize and create flexible, seasonal pricing.
So, how do you get your ADR? It’s a simple formula that looks like this:
ADR = room revenue / number of rooms sold
You always exclude unoccupied/unsold rooms from this figure, so you’re able to get an accurate average for the rooms that were sold.
Occupancy Rate
Your occupancy rate is important in its own right, but it also figures into other hotel key performance indicators, such as RevPAR. This one is pretty self-explanatory – you just need to track your occupancy rate for specific periods. You can do this daily, but also weekly, monthly, annually, or any other way that makes sense for your needs.
Your occupancy rate is a measure of the total number of rooms, with both occupied and unoccupied rooms accounted for. However, it’s more than just the total room count. To determine this KPI, you’ll need to divide the total number of occupied rooms by the number of rooms available. Then, multiply that answer by 100.
Why do you need to track this KPI? It will help you determine daily performance, as well as performance for specific periods. You can then identify low occupancy trends during the week, as well as during specific times of the year. With this information in hand, you can then tailor your marketing so that your promotions fall during periods of lower occupancy to boost your overall performance.
The formula looks like this:
Occupancy Rate = total number of occupied rooms / total number of rooms available * 100
RevPAR
RevPAR, or revenue per available room, is another invaluable KPI to track. You’ll use this number to analyze the average revenue for specific periods based on the earnings from all bookings during that span.
As mentioned, other metrics will play a role in determining this one, including your occupancy rate. However, you can also get this number by dividing the total revenue per night by the number of rooms available at your hotel.
Why do you need to know RevPAR? It’s all about making sure that your rooms are generating the amount of revenue they should. If this KPI is high, it usually indicates that you have a good overall occupancy rate and that your ADR is also high. However, if it’s low, it indicates that you have work to do in those areas.
To calculate RevPAR, use this formula:
RevPAR = average daily rate * occupancy rate / total number of rooms available (you can substitute total nightly revenue for occupancy rate if necessary)
Average Length of Stay
The average length of stay, usually abbreviated ALOS, is a useful metric for figuring out how long your guests tend to stay with you. You’ll find it by dividing the total number of occupied rooms by the number of bookings within a specific period. This figure gives you the average length of stay for guests.
Why does ALOS matter, though? With this information, you can make important decisions about promotions, specials, and more. If your guests are only spending a night or two, maybe you need to do more work in promoting things to do in the local area and tying in with festivals and conferences. You can also use this information to make important choices when it comes to financial matters. For instance, if your ALOS score is low, you can bump up your short-term stay rate while reducing your rate for longer-term stays.
To calculate it, use this formula:
ALOS = total number of occupied room nights / total bookings
Other Hospitality KPIs of Note
We’ve covered some of the most important hotel key performance indicators, but there are others that you should know. For instance, the RevPAR room type index (ReRTI) helps you understand which of your rooms are most profitable, while online reviews give you actionable information gleaned from guests to help you make necessary changes. Market penetration index (MPI) helps you determine where you stand in comparison to your competitors.
Put the Most Important KPIs to Work
By this point, you should have a better understanding of the most important hotel key performance indicators. They can and should be used to form strategies that allow you to grow your business and compete on a more even footing. Track these KPIs daily, weekly, monthly, and annually to develop a better idea of where your hotel stands, what rooms perform best, how long your guests remain with you on average, and more. Then use that information to create a strategy that will move you forward.
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