The performance review, guided by hotel key performance indicators (hotel KPI), is an indispensable part of running a profitable hotel in the hospitality industry. Yet it frequently falls to the sidelines in favour of more immediate day-to-day tasks. The hotel industry relies heavily on KPIs to measure success and profitability.
Keeping track of key performance indicators (KPI) can be invaluable for developing a successful hotel revenue management strategy. For convenience, let us break down the KPI every hotel manager should track. Owners depend on these hotel KPIs to assess hotel performance, make informed decisions, and improve operational efficiency.
1. ADR & REVPAR
The two main profit metrics in the hotel industry relating to room rates are the average daily rate (ADR) and the revenue per available room (RevPAR). Other important hotel KPIs is the average room rate, which averages the revenue generated from room sales over specific periods, like weekly or monthly, and provides insights on various strategies to improve this metric, including adjustments in room pricing and offering tailored packages to guests. These metrics are part of the broader set of hotel KPIs that help hoteliers measure their property's performance and success.
The ADR allows hoteliers to find the golden mean of their rooms’ going rates, by dividing their overall room revenue by the number of rooms occupied.
This way rooms are always priced in accordance to demand and hoteliers can compare metrics across seasons in order to understand better how the demand for their hotel has changed over time.
But ADR’s key purpose also makes it insufficient when trying to map out a more comprehensive view of the hotel’s performance due to the fact that it excludes unoccupied rooms. This is where revenue per available room (RevPAR) comes in.
It calculates as follows, the overall room revenue is divided by all available rooms, regardless of your hotel's occupancy rate. A hotel’s REVPAR essentially double-checks the predictions of its ADR, allowing hotel managers to adjust their pricing to better meet their hotel’s seasonal goals.
While RevPAR goes a long way into creating a more comprehensive image of a hotel’s revenue metric, it still does not offer a full picture, as it does not account for cost.
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2. CPOR & Occupancy Rate
In the hospitality industry, cost per occupied room (CPOR) summarizes the expense of a room, including operating expenses such as maintenance, marketing, and management. By dividing the full cost of a room by all rooms sold, a hotelier can come to a clearer conclusion as to whether a room’s rate matches what the hotelier has spent on it, and whether it truly profits the hotel.
But to understand the cost per occupied room better, we must first look at a hotel's performance through its occupancy rate. The occupancy rate is as simple as metrics go, all occupied rooms on a given day are divided by the overall number of rooms in the hotel.
As a rule the higher a hotel’s occupancy rate the higher the ADR, but the average room rate have been dropping in an attempt to remain relevant when faced with online travel agency driven competition. This has created a vicious cycle of room rate slashing in an attempt to keep occupancy high.
This has changed how many hoteliers view CPOR as it is no longer deemed profitable to invest in room maintenance. As a result, many hotels have moved away to a more minimalistic and eco-friendly approach to their accommodation and service, as a way to cut down on long term CPOR.
3. Average Lenght of Stay (LOS)
In the hotel industry, being aware of a hotel’s occupancy rate allows hoteliers to track the average length of stay (LOS). Guest and customer satisfaction is crucial in understanding LOS, as it provides insights into guest behavior and preferences. LOS allows us a look into how room cost is accumulated. By dividing the number of occupied nights for a certain period to the number of rooms booked we get the average length of stay. If the average length of stay is low then that means that the hotelier is spending more on room maintenance which reduces revenue.
In order to improve their LOS metric, many hoteliers simply raise the rate per room for shorter stays, which incites guests to book for long periods of time, increasing revenue in the process.
4. Gross Operating Profit Per Available Room and Adjusted Revenue Per Available Room
But these KPI’s are too narrow, so when it comes to a more comprehensive indicator of the relationship between occupancy and profit we must look at the Gross Operating Profit Per Available Room (GOPPAR).
We calculate it by taking the gross operating revenue per room minus the expenses and divide it by the number of available rooms. Gross operating revenue is essential for determining the profitability of a hotel by subtracting gross operating expenses, and it serves as a basis for analyzing various aspects of a hotel's financial health. Gross operating profit, or GOPPAR, factors in expenses and the full room availability which makes it a strong indicator of what generates revenue in a hotel.
The Adjusted Revenue Per Available Room (ADPAR) has something that REVPAR misses as a KPI, an actual overview of the hotel’s profit margin.
It is a much more complex calculation, as it adds the average daily rate, subtracts the cost of maintaining a room, but adds auxiliary sources of revenue per occupied room and multiplies it by the occupancy rate.
5. Market Penetration Index and Average Rate Index
The internal key performance metric is a great way of seeing how hoteliers can improve their hotels on their own terms, but hospitality is a highly competitive field and it would be an incredible lack of foresight not to compare metrics between properties. Understanding hotel performance is crucial as it involves tracking various metrics to benchmark and optimize against competitors. Additionally, understanding the hotel industry's new metrics is essential for effectively tracking a hotel's performance, particularly the Market Penetration Index (MPI).
This is done by calculating a hotel’s Market Penetration Index (MPI) by dividing the occupancy rate of one or more hotels against another and then multiplying it by a hundred. If the final result is less than a hundred, the property being compared is not as in demand as its competitors.
As such, a hotel’s MPI is a vital metric as it allows hoteliers to determine if their revenue management strategy requires adjusting before the competition has managed to completely push them out of the spotlight.
Another way of assuring that your business is keeping up with the competition is to keep track of competitors’ ADR and to calculate an average rate index which is the result of dividing your ADR by your competitor’s.
This metric has the capacity to make rate management rather black and white, especially if it has not been tracked over a longer period of time. Many hospitality providers have learned the hard way that playing catch up by drastically cutting down rates in order to draw business away from the competition can have long-lasting effects on a hotel’s REVPAR.
Tracking consistently can make or break a hotel in the hotel industry. Which is why this task has been relegated to integrated property management systems such as Clock PMS+ which can collect data from distribution channels and effectively automate revenue management for any number of locations. Utilizing new technologies to measure hotel performance is essential for enhancing efficiency and profitability across various operational aspects.
Summary
Tracking key performance indicators (hotel KPIs) is vital for hotel owners who want to optimize financial performance, improve guest satisfaction, and stay competitive in the hospitality industry. By understanding metrics like the average daily rate (ADR), revenue per available room (RevPAR), and gross operating profit per available room (GOPPAR), hoteliers can gain valuable insights into room revenue, operational costs, and market positioning.
Hotel KPIs such as ADR and RevPAR help evaluate room pricing strategies and occupancy rates, but they offer limited scope without considering costs. Metrics like cost per occupied room (CPOR) and adjusted revenue per available room (ADPAR) provide a clearer picture by factoring in operating expenses and auxiliary revenue. These calculations are critical for understanding profitability, operating expenses, and fine-tuning resource allocation.
Guest satisfaction and behaviour also play an important role. The average length of stay (LOS) reveals patterns in guest preferences and helps refine pricing strategies to encourage longer visits. Additionally, tools like the Market Penetration Index (MPI) and Average Rate Index (ARI) allow hotel owners to benchmark their performance against competitors, identifying opportunities for revenue growth and refining marketing strategies.
Automating the tracking of these hotel KPIs through integrated property management systems simplifies the process, allowing hotels to efficiently collect data, adjust pricing strategies, and enhance operational efficiency. By leveraging these metrics, hoteliers can focus on providing exceptional guest experiences while maximizing revenue and staying ahead in a competitive hotel industry.
Article updated January 2025.