Industry  |  8 February 2021 |  Tom Brown

The 7 most important KPIs for hotel industry

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KPIs for the hotel industry are values or metrics that measure the performance of a particular area of hotel operations – or the property as a whole. They ensure clear visibility on the functionality and sustainability of your business within the hospitality landscape.

KPIs allow you to analyze and develop significant improvements that will help to boost your property’s performance. Below, we’ll examine some of the most important KPIs for hotels that play a pivotal role in understanding and defining success within our industry.

What is the meaning of KPI?

A key performance indicator is a measurable value that illustrates how an organization or company is doing in relation to its set objectives, such as average room rate. A KPI often demonstrates how the targets are achieved using data and calculations that guide owners and managers to know how their business is performing.

Key performance indicators cover all aspects of the hotel industry, from financial management, operations, and all departments with measurable outcomes, such as marketing or front-of-house. It’s important to note that you have to select the KPI relevant to the specific sector you’re dealing with in order to find accurate data and metrics to improve performance.

Why is the data from KPIs important to track?

Any industry should have a good record of previous performance and success. The hospitality sector isn’t an exception, and it’s KPI data that’s one of the biggest helps when it comes to analyzing and evaluating hotel performance.

Keeping track of KPI data allows hotel owners to make effective decisions based on previous performance. Being able to compare past findings provides a clear view of the hotel's progress. Furthermore, the hotel data analytics allows the business to identify the number of factors that affect its performance.

KPIs are not only insightful, they’re a great learning tool for hoteliers. You can get to know your strengths and weaknesses and how you can use this for your property’s gain. KPIs also help hoteliers see how far they’ve come, and challenge them to go even further.

What are the most important KPIs for the hotel industry?

By now, it should be obvious that there’s a real need to identify the most prescient key performance indicators and how they assess the hotel industry. Here are some of the top KPIs for hotels, and how you can measure them to drive your own business decisions.

Average daily rate (ADR)

This is one of the topmost metrics that’s used to measure the average rate per occupied room. This means you can examine the average amount of revenue collected daily for all of your rooms that are occupied. ADR always excludes unoccupied rooms to prevent unrepresentative figures.

This KPI will enable you to measure a key element in the financial performance of your hotel. ADR also plays a significant role in forecasting pricing and marketing. This allows management to plan and work with flexible prices, depending on the seasons.

Here’s the calculation:

ADR = room revenue / number of rooms sold (occupied)

Revenue per available room (RevPAR)

This is the measure used to analyze the average revenue for a certain period of time (usually given as a daily average), based on your income across all bookings. To calculate this KPI, you have to multiply the average daily rate by the occupancy rate. Another option is dividing the total revenue per night by the number of rooms available.

RevPAR creates a price metric for how much revenue is being generated per room. A high RevPAR typically means a good occupancy rate as well as a high ADR.

Here’s the calculation:

RevPAR = average daily rate x occupancy rate or total revenue from night / total number of rooms available

Average length of stay (ALOS)

This is a measure used to determine the occupant’s length of stay by dividing the total number of occupied rooms by the number of bookings. It’s important to note that the occupied spaces are counted in terms of the number of nights the guests stay at the hotel.

The final score represents the average length of stay of your clients in your hotel. A higher score normally is a better indicator than a lower score, as it’s an indicator of higher overall spend.

An advantage to ALOS is that you can use the data to make pricing decisions. For example, if you have a low ALOS, you could increase your room rate for short stays or offer better deals for longer stays. The length of stay is a big variable in affecting the revenue for the hotel.

Here’s the calculation:

ALOS = total occupied room nights / number of bookings

Occupancy rate

For occupancy rate, you can track the results daily, weekly, monthly, or annually. This metric involves identifying the total number of rooms, the empty rooms, and the booked ones.

You can divide occupied rooms by the total number of rooms available and multiply by 100 to get the occupancy rate. This KPI is important in evaluating your hotel’s daily performance, giving you a constant flow of data. If you notice low occupancy trends on certain days of the week, you can run promotions to encourage more bookings on these days, or alternatively streamline your staff if not everyone is needed.

Here’s the calculation:

Occupancy rate = total number of occupied rooms / total number of available rooms x 100

Online reviews

In this era where everyone can access the Internet and share our experiences about a hotel, it’s essential to take a look at the reviews. Star ratings being left by clients can indicate how efficiently the hotel is operating and which areas improvements can be made.

By following ratings and reviews, hoteliers can make changes accordingly to increase customer satisfaction and as a result, attract new clients.

RevPAR Room Type Index (ReRTI)

Because of the changing hospitality landscape over the last year, a new metric has emerged to help revenue managers determine whether the sale of higher value rooms contributes proportionally to the inventory of each room type to the RevPAR.

The main aim of ReRTI is to analyze which room types are the most profitable, and assess whether promotions like free room upgrade can help or hinder a hotel. If the room type scores higher than 1, it means that the room type contributes proportionally more than it should based on the number of rooms you have of that type. If the score is less than 1, it means that that room type is contributing proportionally less than you’d expect.

Here’s the calculation:

RevPar Room Type Index = % total RevPAR x number of specific room type / % inventory x number of specific room type

Market penetration index (MPI)

MPI is an important metric when measuring KPIs. This shows your hotel performance with respect to your competitors in terms of industry.

If your score is less than 100, then it means you are doing poorly and under the market average. On the other hand, if your score is more than 100, it shows that you’re performing better than most of your competitors.

Here’s the calculation:

MPI = hotel occupancy % / market occupancy % x 100

Conclusion

Understanding the hotel industry's new metrics is important as it allows business owners to track their hotel's performance. Additionally, to strengthen customer service, increase sales and profits, it’s important to identify and select the correct hotel KPIs.

Once you’ve identified them, make sure you keep tracking them and analyzing them regularly. These metrics will give you a strong base from which to make business decisions and achieve success in the hospitality industry.

 

KPIs for the modern hotelier

The metrics we've just explored are among the most common in hospitality, but that doesn't mean they're the best. We've put together a report, Metrics that Matter, that will help you to maximize revenue and boost the guest experience, all by tracking the right data. Click the button below to find out how you can be more efficient across operations, revenue and marketing:

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Tom Brown
8 February 2021