Hoteliers use a variety of metrics to measure their success. The most important metrics include occupancy rate, average daily rate, revenue per available room, and debt service coverage ratio. Hotel managers can use these metrics to compare performance with other hotels in the same market. You will find it necessary to have an excellent business plan in place to contextualize this information, so if you don’t have one already use this hotel business plan template to get off to a great start.
1. Occupancy Rate
In the hotel industry, the occupancy rate is one of the most important metrics to measure success. It is calculated as the percentage of rooms occupied in a given period of time and is used to determine how well a hotel business is doing. Occupancy rates can vary depending on seasonality and other factors, so it’s important to track your occupancy rate regularly.
2. Average Daily Rate
This metric tells you how much you are generating, on average, for your rooms each night. Ideally, you’re able to increase this rate over time as the higher the rate, the higher the profitability of your hotel will be.
3. Revenue Per Available Room
This metric measures the total amount of money generated from room sales and is calculated by dividing the total revenue generated by the number of rooms available. This is a great way to measure how successful a hotel’s marketing efforts are in terms of booking customers.
6. Debt Service Coverage Ratio
This ratio indicates how easily a hotel can cover its debt payments. It is calculated by dividing a hotel’s operating income by its debt service payments. A ratio of 1 or higher indicates that a hotel can comfortably cover its debt payments.
In conclusion, tracking and understanding important metrics such as occupancy rate, average daily rate, revenue per available room and debt service coverage ratio is vital for hoteliers to measure the success of their efforts. By regularly monitoring these metrics and utilizing a business plan, hoteliers can make informed decisions about how to better serve their customers and maximize profits.