Hotel KPIs: How should hotels be measuring success?
Key performance indicators (KPIs) permeate every successful hotel; it’s crucial that you know at all times how you’re tracking towards any key goals and objectives you have outlined for your business over a certain period of time.
KPIs help you evaluate whether your strategy is working and also give your whole team something to focus on and drive towards on a day-to-day basis. For example, you might have set a goal of achieving 300 room night sales in the month of May. Your KPI would be how many room nights you have sold at any point during May.
Quick tips to develop your KPIs:
- Limit the amount of KPIs you have; keep it to big priorities
- Clearly define how you will measure each KPI
- Set a specific target for your KPI
- Ensure you have accurate data sources and tools
- Run reports that detail data analysis and operational activities
Inextricably linked to your KPIs are the key metrics which help you measure your performance and progress – of which there are many!
In this blog we’ll look at a variety of the ways your hotel can measure success and why some KPIs are so vital.
Revenue is what keeps your hotel open so having a goal aligned with your income is obviously important.
How you measure your success is dependent on what targets you set. For example, you might set out to achieve a revenue lift of 10% year-on-year. Or you might have the goal of boosting RevPAR by 5%.
There are many metrics that support revenue KPIs. Consider the following when actioning a revenue management strategy:
- RevPAR – Revenue per available room gives you an idea of your ability to fill your rooms at an average rate. It can be calculated by multiplying your average daily rate by your occupancy rate.
- TrevPAR – Total revenue per available room takes into account all the revenue from your property, not just your room sales. It can be calculated by dividing your total revenue by your available rooms in a set period.
- TrevPEC – Total revenue per client can be used to look at individual guest expenditure and how this applies to your hotel’s overall revenue performance. Simply divide your total revenue with the number of guests staying at your property for any given period.
- NRevPAR – Net revenue per available room takes into account the expenses incurred by you in order to fill your rooms and can be calculated by dividing your room revenue, minus costs, by available rooms.
- RevPOR – Revenue per occupied room only considers filled rooms so gives you a better understanding of the profit you make from guests who are actually staying with you. It can help you track revenue from other departments such as food and beverage. Calculate it by dividing your total revenue by occupied rooms.
- ReRTI – RevPAR Room Type Index is quite a newly developed metric that helps hoteliers see which room types are the most profitable, and how promotions might affect overall performance.
- RevPAM – Revenue per available metre is a metric that takes the entire space of the property into the equation; total revenue / divided by the total available square metre(s) of the space (m2). It lets you get ever more granular with how you drive revenue.
The emphasis on certain metrics fluctuates with what’s happening in the market at a given time. Once, RevPAR may have been a gold standard metric to apply to revenue KPIs but now other metrics are seeing greater prominence, while brand new metrics continue to emerge.
You certainly don’t want to run a business that puts you into bankruptcy so driving and measuring profit is incredibly important for the longevity of your hotel.
You might set a goaI that addresses monthly profit, knowing if you hit your target each month your annual figure will take care of itself.
There are a number of ways to track profit KPIs, including how you track your costs. Here are some of the more popular metrics you can use:
- GOP – Gross operating profit is simply a calculation of your profits after acquisition costs have been deducted.
- GOPPAR – Gross operating profit per available room measures the distinction between your profit and available rooms. GOPPAR equals GOP / total available rooms
- NOI – Slightly different to GOP, Net operating income calculates your income after operating expenses have been deducted but before interest and taxes have been applied.
- CPOR – Cost per occupied room lets you identify the average cost per occupied room to give you an idea of how healthy your cost of acquisition is. How much are you spending to secure a booking?
- ALOS – Average length of stay tells you how long your guests stay with you on average. The higher the better since, the less turnover there is the less labour costs you incur. Divide your total occupied rooms nights by the number of bookings to get your ALOS.
Without tracking these metrics it would be impossible to know if any tactics you are employing are impacting your profit or not. There are so many ways you might try to manipulate profit so you may want to carefully manage how you measure performance.
Sentiment and brand reputation
Basically, how popular you are will have a direct impact on how much revenue you can earn. Improving your brand recognition and reputation is a big KPI to focus on because it will heavily influence your sales and marketing activities.
You can track your performance by:
- Looking at online review scores
- Analysing customer feedback forms/surveys
- Tracking social media follower numbers
- Reporting on social media engagement
- Measuring uptake of loyalty or rewards programs
- Measuring share of voice
Much of this adds to how likely a guest is to stay with you and how likely they are to recommend you to friends, family, and peers.
Setting targets and working towards growing all of these metrics will leave your hotel in a much better position when it comes to your revenue and profit KPIs. After all, if people love you they won’t mind paying a little extra for a guaranteed great experience.
If you can find ways to beat your closest competitors you’re probably doing something right. In that respect benchmarking KPIs are key to tracking your success within the market and to understanding what adjustments you should make to your overall strategy.
A high level example might be that you are aiming to achieve a higher average occupancy rate than your competitors.
To help you move towards benchmarking KPIs, check out the following metrics:
- Occupancy rate – As business as usual as metrics get, your occupancy rate is determined by dividing your occupied rooms by your total available rooms. A healthy occupancy rate is certainly an indicator of success but is much too general to rely on.
- MPI – Market penetration index is a way to directly compare yourself with your competitors. This is calculated by: your occupancy rate / market occupancy rate x 100. Essentially a score below 100 means you are being outdone by your competitors and a score above 100 means you’re performing better.
- ARI – Average rate index is similar to MPI, but for your rates instead of your occupancy. Divide your ADR by the competitive market’s ADR to get your ARI. A result higher than 1 shows that you are priced above your competitors.
To truly understand the impact of these metrics you would be best served comparing them alongside each other. For example, you may think having a high ARI is great news, but it’s not if your occupancy rate is critically low due to guests perceiving you as too expensive.
Other hotel KPIs your property can utilise
Sometimes the things that go in the background are the most crucial. We’re talking about operational KPIs that have nothing to do with occupancy or room rates, but can have significant impacts on your bottom line.
When developing KPIs for your hotel make sure you include:
- Energy management – Electricity is a huge expense, particularly for larger hotels. Anything you can do to lower this cost will be an automatic win for your bank account. You should also consider the rising trend of guests wanting to book with environmentally responsible and sustainable brands. Think about long term investments in smart technology and sensors that will help you save on energy when lighting or other services aren’t being used.
- Labour – Naturally you have staff and you have to pay them. Increasing efficiency at your hotel will allow you to lower labour costs without having to let any staff go. Using software to manage your hotel doesn’t replace staff, but rather it allows them to do their job more effectively. For example, using hotel tech to manage housekeeping schedules can save hours of time every week, allowing you to check guests in and out faster and more often.
- Water – Just like power, water can be a hefty expense for a hotel which runs 24/7. You can’t necessarily control this as much as electricity but tightening the screws as much as you can goes a long way over the course of a year.
- Health and safety – Guests and staff alike want to enjoy a clean, safe, environment at your hotel. Any indication that this is slipping should be addressed because word of mouth spreads quickly and your reputation can free-fall if people think your property’s safety or cleanliness is compromised.
As you can see, this blog has only scratched the surface and already there is so much to take in when it comes to how you should manage success at your hotel.
While it’s clear KPIs are essential, it’s not always so apparent what’s going to be most crucial in the long run. This is why it’s non-negotiable to set only a handful of goals that you want to achieve over a particular period of time. This will make it much easier for you to identify what to track and evaluate how successful your efforts have been.