Think… what hotel performance metrics do you use? Once you dive below the image of beautiful rooms, guest services and great experiences, hotels exist to achieve operating profits and capital gains for their owners. It’s easy for independent hoteliers and owner-operator hoteliers to get sucked into a daily operational vortex, versus strategy by data.
Life morphs from working ‘on the business’ to working ‘in the business’.You must never forget about hotel performance metrics. Here’s hotel performance metrics you can use.
You can also download the Hotel Performance Metrics E-Book.
It’s the simplest hotel performance metric. Occupancy is a percentage of the available rooms occupied for a specific period (i.e. annual, quarterly, monthly, daily or summer).
Occupancy % = Paid Rooms Occupied / Rooms Available
Occupancy % = Revenue per Available Room / ADR
Occupancy % = 50,000 / 100,000 = 50% OCC
Revenue per Available Room (RevPar)
The Hotel Performance Metric of ‘RevPar’ measures hotel utilisation or the average daily rooms revenue generated per available room. This metric doesn’t account for other revenue centres such as F&B, retail, conferencing and many ore. Hoteliers who use RevPar often compare their results with other hotels, but the authenticity and accuracy of comparative data may be questionable. As a hotel performance metric, it differs by market, segment and timing and is a time-based snapshot of your hotel performance.
RevPar = Total Room Revenue / Total Rooms Available
RevPar = Occupancy % X Average Daily Rate (ADR)
RevPar = $ 5,000,000 / 100,000 = $50 RevPar
Average Daily Rate (ADR)
Hotel ADR simply measures the average price paid per room. This hotel performance metric assesses the total guest room revenue for a specific period versus the total amount of room revenue paid and occupied hotel rooms within the same timeframe. It solely focuses on paid rooms and might sometimes be labelled the Average Room Rate.
ADR = Rooms Revenue / Paid Rooms Occupied
ADR = Revenue per Available Room / OCC %
ADR = 50 / 0.50 = $100 ADR
Hotel Supply & Demand
These hotel performance metric figures identify the average number of room nights available and used in a specific market. A resort hotelier in Saas Fee, Switzerland may research (via online research and tourism office statistics) the total number of rooms available in town and the total rooms used over a period. Depending on data available, a hotelier can then measure their performance against local market average supply and demand, and benchmark direct competitors (eg. other 3 star hotels within a 10km radius).
Market OCC = Rooms Night Demand / Available Room Nights
Services like HotStats offer hotel performance metrics data
Where available, serious hotel performance metrics data can help hoteliers compare their performance to their competitive market set. Depending on the segment, that might be the local, regional or even national market. Many tourism offices and government bodies require reporting of room nights (for tourism related taxes and market insights), which allows hoteliers to determine market levels. Finding competitor RevPar and ADR hotel performance metrics is difficult, but services like HotStats exist.
Market Penetration Index (MPI)
This hotel performance metric measures how your hotel’s occupancy compares to a competitive set. This measures your ‘piece of the pie’. Naturally, every hotelier wants to increase their market share and win more business. Ensure you have accurately determined the competitive set. Results above 1 indicate above market performance.
MPI = Hotel Occupancy % / Market Occupancy %
MPI = 50% / 40% = 1.25 MPI
Average Rate Index (ARI)
This hotel performance metric measures how your hotel’s average daily rate compares to a competitive set. An ADR Index of 100 means you have a fair share of the competitive set’s ADR performance. Like MPI but depending on your hotel’s business goals, you would typically aim for ARI above 1. For our hypothetical hotel, the total room revenue by market is unknown. Without data, you can’t calculate the ARI measures.
ARI = Your Hotel’s ADR / Hotel Market ADR
Revenue Generation Index (RGI)
This hotel performance metric measures how your hotel’s RevPar compares to their competitive set. Most of the international and branded hotel operators use the RGI hotel performance metric obsessively. Enhancing the RGI is often a great way to maximise hotel profitability. RGI results should exceed 1 (a 100 base index) otherwise hotels in your competitive set are converting more business than you. If so, look at your daily RGI results and analyse trends, benchmark competitors and revenue management tactics.
RGI = Your Hotel’s RevPar / Hotel Market RevPar
Need some extra help? Leave a comment or get in touch. Ask a question about your hotel.