The Hotel Industry’s
14 Most Critical Metrics
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The article does not include metrics such as Profits and Sales that are critical to companies in all industries; rather the focus is on metrics more specific to the Hotel Industry.
By tracking your metrics, you will dramatically improve your business results.
Why? Because not only is the old saying “If you can’t measure it, you can’t improve it” true, but visibility into your metrics allows you to identify WHERE you can make the easiest and most impactful improvements.
For each metric, we will answer the following questions:
– What is the metric?
– How do you calculate this metric?
– Why is this metric important?
Let’s get started…
1. Total Available Rooms
What is this metric?
Total available rooms represents the number of rooms available multiplied by the number of days in the reported period. It is used as a measure of capacity in the system of hotels.
Calculation:
Total number of rooms – Number of rooms out of order/not in service/out of inventory
Why is this metric important?
This metric is essential for proper inventory calculations, which lead to proper number bookings. It also is important for all of the hotel’s financial calculations as it determines how many operable rooms there to base revenue formulas off of. For example, if a hotel has 300 rooms, but only 290 are in service, then for that period, 290 is the base to use for metrics like RevPar.
2. Average Daily Rate (ADR)
What is this metric?
Hotel ADR 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.
Calculation:
Rooms Revenue / Paid Rooms Occupied
Why is this metric important?
The ADR is useful to measure a property’s financial performance, as well as to compare the hotel’s performance to its competitors.
3. Revenue Per Available Room (RevPar)
What is this metric?
This accounts for the average daily rooms revenue generated per available room. This metric doesn’t account for other revenue centers such as F&B, spa or retail. Average RevPar varies widely by market. As a hotel performance metric, it differs by market, segment and timing and is a time-based snapshot of a hotel performance.
Calculation:
Total Room Revenue / Total Rooms Available
Why is this metric important?
RevPAR represents the success the hotel is having at filling its rooms. Increasing RevPAR means either that rates or Occupancy Rate are rising, or both.
4. Average Occupancy Rate
What is this metric?
Occupancy is a percentage of the available rooms occupied for a specific period. It is calculated as total paid rooms occupied divided by total available rooms.
Calculation:
Occupancy % = Paid Rooms Occupied / Rooms Available
OR
Occupancy % = Revenue per Available Room / ADR
Why is this metric important?
Usually, the higher the occupancy the better because the company is earning more revenue than companies with low occupancy. However, this may not always hold true if the company cuts prices to boost its occupancy. The rate is also key to the operational side of the business to ensure proper staffing and inventory.
5. GOP PAR
What is this metric?
Gross operating profit per available room.
Calculation:
GOP (gross operating profit) / (per) Available Rooms
Why is this metric important?
The metric measures performance across all revenue streams. Hoteliers are able to see profit across all revenue centers/the sum of all the parts- not just rooms.
6. Market Penetration Index (MPI) or Occupancy Penetration Index
What is this metric?
This hotel performance metric measures how a hotel’s occupancy compares to a competitive set. The index is designed to measure a hotel’s share of either a comp. set, a market set or tract.
Calculation:
Hotel Occupancy % / Market Occupancy %.
Why is this metric important?
The metric serves as a guide to understanding a hotel’s dominance and demand in the marketplace. Increasing demand, naturally leads to more revenues.
7. Average Rate Index (ARI)
What is this metric?
This hotel performance metric measures how a hotel’s average daily rate compares to a competitive set.
Calculation:
Hotel’s ADR / Hotel Market ADR.
An ADR Index of 100 equals fair share of ADR, compared to the aggregated group of hotels. An ADR Index greater than 100 represents more than a fair share of the aggregated group’s ADR performance. Conversely, an ADR Index below 100 reflects less than a fair share of the aggregated group’s ADR performance.
Why is this metric important?
This metric serves as a metric to pricing right in the marketplace as well as an illustration of a hotel’s rate performance against its competition, helping determine whether rates needs to be lowered or elevated.
8. Revenue Generation Index (RGI) or RevPar yield index
What is this metric?
This hotel performance metric measures how a hotel’s RevPar compares to their competitive set. It measures a hotel’s fair market share of their segment’s (competitive set, market, submarket, etc.) revenue per available room. If a hotel is capturing its fair market share, the index will be 100; if capturing less than its fair market share, a hotel’s index will be less than 100; and if capturing more than its fair market share, a hotel’s index will be greater than 100.
Calculation:
Hotel’s RevPar / Hotel Market RevPar
RGI results should exceed 1 (a 100 base index) otherwise hotels in a competitive set are converting more business than you.
Why is this metric important?
Enhancing the RGI maximizes hotel profitability. The index figure illustrates how a hotel’s RevPar figures are performing in comparison to their comp. set. This helps determine where costs need to be decreased and/or rates needs to be increased.
9. MCPB (marketing cost per booking)
What is this metric?
This tracks actual production vs the cost of each S&M channel
Calculation:
Each channel carries a wide range of distribution costs that can run from 10% to 50% of revenue. These costs are subtracted from the total booking amount to get the MCPB.
Why is this metric important?
This metric measures ROI. It illustrates the cost of acquisition, which is a huge factor in computing gross profits. The goal is to explore each and every channel to create demand, awareness, increase booking, and thus increase revenue. However, there needs to be the perfect mix across all channels with the best, most affordable solutions. Hotels cannot overspend on a marketing channel to simply obtain customers, there needs to be a balance between acquisition costs and profit.
10. Sentiment score on TripAdvisor
What is this metric?
Using a reputation/social media monitoring tool allows you to measure guest satisfaction/sentiment.
Why is this metric important?
This reflects product acceptance, issues, complaints and/or alerts you to product deficiencies. It also allows you to respond in real time and publicly to customer issues.
11. DRR (direct revenue ratio)
What is this metric?
This metric measures the percentage of online revenue coming in directly vs expensive third-party channels
Why is this metric important?
In order to maximize profitability, you need to get at least 40% of revenues from an own hotel website/booking engine. Travel agent bookings and other third party bookings come at a high price and decrease overall profit.
12. Website conversion rate
What is this metric?
This calculates the number of unique website visitors that convert into bookings. Revenue originates from potential guests researching a property online. As a hotel’s digital front door, a website influences guests’ impression more than any other marketing asset.
According to Hospitality Times, the average conversion rate for hotel websites is about 2-3%. In other words, approximately 97% of visitors to a hotel’s website leave without making a reservation.
Why is this metric important?
Converting a higher percentage of visitors is critical to reducing the cost of revenue and MCPB. The conversion rate also provides insight into how a visitor interacts with their website and what measures can be taken to capitalize on visitors’ interest.
13. Segmentation
What is this metric?
Segmentation data displays performance relative to three customer segments. These are:
- Group: Group rooms are sold simultaneously in blocks of a minimum of ten rooms or more.
- Transient: Transient rooms include rooms occupied by those with reservations at rack, corporate, corporate negotiated, package, permanent guests, government, or foreign traveler rates. Also includes occupied rooms booked via third party web sites.
Why is this metric important?
Segmented data provides insight into what type of visitors make up a hotel’s guests/revenue base and can demonstrate a clear pattern between group and transient guests. If there are dates that are historically slow for group business, that might be an area of focus moving forward. Similarly, the data may validate that an event your destination hosted resulted in a significant amount of group business leading to high occupancies at area properties.
14. TrevPar
What is this metric?
This is the total revenue per available room. This metric is the sum total of net revenues from all operated departments plus rentals and other income per available room for the period divided by the total available rooms during the period.
Why is this metric important?
This metric helps determine the overall financial performance of the property, whereas Revpar only considers rooms revenues. TRevPAR is especially useful for hotels where rooms are not necessarily the largest component of the business.
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