10 Essential Hotel Metrics to Monitor

To succeed in the hotel industry, you’ll need to examine each of these KPI’s extremely closely…

There are a multitude of hotel performance metrics that you can examine on a regular basis; but you need to focus your efforts. Today we’ll focus on the essential hotel metrics that you need to focus on to optimise your hotel management, and to promote your hotel effectively.

If you’re looking for bland metrics such as “profits” and “sales” you can find those on any business website. There are hundreds of ecommerce guides detailing those metrics.

We, on the other hand, will examine performance metrics that relate directly to hotels and the hospitality industry specifically.

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Vital Hotel Performance Metrics

• Total Available Rooms (TAR)
• Average Daily Rate (ADR)
• Revenue Per Available Room (RevPar)
• Occupancy Rate
• Gross Operating Profit (GOP)
• Gross Operating Profit per Available Room (GOPPAR)
• Market Penetration Index
• Average Rate Index (ARI)
• Average Length of Stay (ALOS)
• Revenue Generation Index (RGI) 

Need Help to Improve Your Hotel Metrics?

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Vital Hotel Performance Metrics

So where should we start? Is one metric more important than the other? Should your ARI take priority over your MCPB? (If you’re lost, don’t worry; you’ll understand these terms by the end of this article). 

Each of the metrics that we’ll discuss today are important. However, their order of importance will depend upon your hotel’s unique situation. For some, marketing efforts and payoffs will be more important than their overbooking strategies to fill up empty rooms. 

As we say, each to their own.

So, in no particular order, let’s examine the most important hotel metrics for your hotel.

Total Available Rooms

Yes, we’re starting off small, but you’ll need this metric later for more complex hotel metrics such as RevPar. It’s essential for proper hotel inventory calculations.

Your total available rooms is the number of available rooms – number of rooms out of order OR not available OR out of inventory.

Easily done, it lets you know the reality of the number of rooms available. If, for example, you have 200 rooms, but only 185 of them are available, you will calculate your hotel metrics with the 185 rate to achieve a more accurate overview of your hotel operations.

Average Daily Rate (ADR)

Your average daily rate tells you the average amount each guest paid for rooms within the same day. It is calculated as:

Room Revenue / Number of Rooms Occupied

How to Improve Your ADR

As this is the average daily rate of your rooms, you can get a better understanding of which level of room is most sold within your hotel. You can charge more for your rooms, certainly, but it’s better to use promotions to improve your ADR.

For example, start promoting bundles for guest stays. These can include complimentary breakfasts for upgraded rooms, or free bottles of wine, or discounted activities. 

Every upgraded room is a little more in your profit margin!

Revenue Per Available Room (RevPar)

This is usually the highest priority on any hotelier’s list of hotel metrics. More comprehensive that ADR, your RevPar metric considers occupancy, rate and revenue for your hotel across a time frame of your own choosing.

Calculate your RevPar with:

Room Revenue / Total Available Rooms

If you choose a time frame longer than a single night, be it weekly or monthly, remember to compensate for the time difference by multiplying your Total Available Rooms by the number of days within your time frame.

Improve Your RevPar

To improve your RevPar you either need to increase your occupancy, your room rates, or both. 

This can be done by implementing a strong hotel marketing plan to increase bookings and by creating a flexible pricing strategy. Your rate plans can become more expensive during high demand seasons and offer better offers at low seasons. At the same time, you can reward early cancellations and penalise last minute cancellations in an effort to keep as many rooms filled up as possible.

Occupancy Rate

Your occupancy rate is how many of your hotel rooms are occupied, versus the amount of rooms that you have available. It goes without saying that full occupancy is best, as every room left unoccupied at night is a resource that you are not exploiting.

Calculate your occupancy rate with:

Number of Occupied rooms / Total Available Rooms

While this is technically a ratio, you can multiply it by 100 to get a percentage; they are usually much easier to understand at a glance.

Improve Your Occupancy Rate

The only way to improve your occupancy rate is to attract more guests.

There are a huge range of potential options that you may or may not be capitalising on. These can range from Hotel SEO, to combatting brandjacking, to outdated social media strategies, or failing to implement an effective overbooking strategy.

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If you’re curious to know about where your hotel may be falling behind:

Book a Free Hotel Marketing Audit!

It comes with zero-charge and you’ll have a one-on-one meeting with one of our specialists as we explain our findings. After the meeting we’ll email you the complete copy so that you can learn where to improve your marketing efforts!

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Gross Operating Profit (GOP)

Your GOP takes into account not just your rooms, but the profits and costs across all of your operations. You can calculate this hotel metric like this:

GOP = Total Revenue – Operating Costs

While this is a pretty strong indicator of the profitability of your hotel, it isn’t entirely comprehensive. It doesn’t take into account expenses such as taxes, which are a heavy part of running a successful hotel.

Improve Your GOP

You have two options to improve your GOP. Either increase revenue or reduce costs. 

While it pays to have an excellent hotel marketing strategy to drive bookings, you can also reduce simple costs which can add up across the financial quarter. 

Throw away the shampoo bottles you place in every room and replace them with dispensers instead. You’ll not only reduce your expenses but take a step towards becoming a sustainable hotel, which brings its own benefits.

Gross Operating Profit per Available Room (GOPPAR)

Our acronyms are beginning to sound like tongue twisters at this point. Your GOPPAR is one of many hotel metrics that are useful for hotels that also contain a restaurant or bar on the premises.

 

To calculate your GOPPAR use this formula:

GOPPAR = GOP (Monthly) / Total Available Rooms (Monthly)

This hotel performance metric demonstrates how well you manage the combination of bookings, pricings, costs and additional revenue to achieve the highest possible profits for each room on your hotel premises.

Improve Your GOPPAR

As your GOPPAR is a representation of your entire hotel as a whole, measured by the success per available room, it’s a great way to measure progress and success. However, when it comes to specifically improving your GOPPAR, you’ll have to explore other hotel metrics to improve in order to raise the GOPPAR itself.

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Market Penetration Index

Your market penetration index demonstrates your hotel’s market share of occupany in relation to your competitors. Or in other words; are you filling as many rooms as your compset?

You can calculate your MPI like this:

MPI = Occupancy Rate / Market Occupancy Rate

Again, you can multiply this by 100 to create a percentage, rather than a ratio. However, in order to access market information like this, you’ll need to subscribe to a data service such as STR Global.

In these terms, an MPI of over 100 means that you are raking in more than your fair share of bookings compared to your competitors. In contrast, an MPI of less than 100 demonstrates that you are losing out to your competitors.

Improve Your MPI

Hotel benchmarking your occupancy rate against your competitors demonstrates how good of a job you are doing at attracting guests. The only way to attract more guests will be with a revised pricing plan, revamped hotel website, or new hotel marketing plans that either attract new guests or bring back return ones.

Average Rate Index (ARI)

If you understood the hotel metrics for MPI and ADR, this one should be a breeze for you.

Essentially it’s ADR, packed into the MPI formula. You measure your ADR in relation to the average market share in order to get your Average Rate Index. The formula looks like this:

ARI = ADR / Hotel Market ADR

Once again, multiply by 100 to get a percentage and you have a fair comparison of your hotel’s ADR compared to your competitors. Over 100 is a great ADR, below 100 shows that you have room for improvement.

Improve Your ARI

Your ARI is a valuable metric used for hotels to determine their positioning within their compset. However the only way to improve on this value is to improve your ADR as we’ve stated before.

Average Length of Stay (ALOS)

Your average length of stay lets you see the average number of nights your guests sleep at your hotel.

But why is this important?

Because, overall it is more expensive for guests to only engage in short stays. The acquisition costs of booking, the servicing of rooms, all of these factors add up. In short; longer stays = lower costs for your hotel. 

You can calculate ALOS like this:

ALOS = Nights of Occupied Rooms / Number of Bookings

Now while some hotels may be geared towards short stay guests (airport hotels etc.) most hotels will be looking to have guests with longer stays.

Improve Your ALOS

Incentives, incentives, incentives. 

Once you’ve captured a guest’s attention, you need to offer them something more that will make them want to stay another night or two at your hotel. 

These can include scalable discounts for a set amount of extra days;  this method is extraordinarily effective for capturing the interest of Bleisure guests. Those business guests that look to stay on just a little longer so that they can relax and wind down after a hard trip!

Revenue Generation Index (RGI) 

Your RGi is a measure of your hotel business performance and occupancy rate against your competitors’ RevPar. 

Once again, this is the same principle as calculating other hotel metrics such as ARI and MPI. 

RGI = Your RevPar / Market RevPar

As before, simply multiply by 100 in order to receive a percentage of your RevPar market performance. 

Improve Your RGI

To improve your RGI relies on multiple other factors, not least of which is your share in market revenue. You will have to make your property more attractive to prospective guests, rebrand your website, reevaluate your pricing strategies and more in order to improve this metric.  

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Need Help to Improve Your Hotel Metrics?

Understanding these important hotel metrics is essential, but what’s more important is how you approach improving these performance metrics.

Once you see that your MPI is low; what do you do then?

You still need a marketing plan that’s defined and structured in order to maximise your market reach and attract more guests. Not to mention that increasing direct bookings is the best way to combat high OTA cancellation rates and improve your profit margins!

If you’re curious about how your hotel marketing stands, then request a free hotel marketing audit from one of our specialists! We’ll arrange a one-on-one meeting with you to discuss our findings of your hotel and once that’s completed we’ll email you a copy of our audit report!

Remember to check out our hotel marketing guides page for the latest tips and tricks in the hotel industry!