The Important Hotel Performance Metrics and Industry Benchmarks

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measuring hotel performance ROI metrics

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.

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Occupancy (OCC)

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
OR
Occupancy % =    Revenue per Available Room      /    ADR
EG.
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
OR
RevPar = Occupancy %    X   Average Daily Rate (ADR)
EG.
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
OR
ADR = Revenue per Available Room     /    OCC %
EG.
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

  hotel performance metrics industry ROI-2hotel performance metrics industry ROI
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 %
EG.
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 extra help? Leave a comment or get in touch. Ask a question about your hotel.

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The Best Websites for Hoteliers and Awesome Online Productivity Tools
Write a Powerful Hotel Business Plan by Analysing Key Questions
Mike Metcalfe About Mike Metcalfe

Mike started Hoteliyo as a resource for hotel professionals. Previously, he founded Snotels, a branded network of 30 alpine hotels across Europe. Mike's worked for Virgin Group, IHG, Intrawest Resorts and Princess Cruises, and has an MBA in Hotel & Tourism Management    Linkedin | Facebook | Twitter | Google+

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