There are a wide variety of KPIs that hoteliers use as metrics to measure performance: marketing ROI, labor costs, occupancy, overall profit, and many more. Hotel KPIs allow hoteliers, revenue teams and brand managers to determine if a property is performing better or worse than it has in the past, and how well a hotel is performing compared to local competition.
Many hotel sales managers use hotel KPIs to measure strategy and marketing success. Successful sales strategies commonly include tracking rate changes, market penetration, RFP success and the ROI of different marketing campaigns.
Keep reading to learn more about hotel KPIs and get tips to boost your hotel’s performance!
What are hotel KPIs?
KPI is a term that transgresses industries. Meaning “Key Performance Indicator,” there are KPIs that measure financial performance, marketing efficiency, customer satisfaction, employee retention, labor costs and various other areas of business management. In the hospitality industry, KPIs are used to measure how well a hotel performs year over year, as well as against the comp set.
Hotel KPIs measure everything from a property’s ability to sell rooms and maintain rate integrity to their ability to appeal to groups and satisfy customers. Hotel owners, managers and department heads rely on these metrics to track the success of marketing strategies, how well managers are performing, identify market trends and forecast growth.
Nine Essential Hotel KPIs for Tracking Performance
In general, hotel key performance indicators should be simple to understand and relevant. They should be easy to see, easy to measure and be coupled with goals that are achievable. Below, we’ve detailed nine of the most prominent hotel KPIs used to measure and track performance.
1. Occupancy (OCC)
Often the first hotel KPI that comes to mind, occupancy measures the number of rooms that are booked, or “occupied.” Occupancy can be used to measure a single night’s bookings, capacity over a specific period of time, or to get a look at overall weekday/weekend trends. Occupancy metrics help hoteliers track how travel demand changes over different seasons as well as assist in forecasting future occupancy patterns.
To calculate occupancy, divide the total number of rooms occupied by the total number of hotel rooms available. Multiply that number by 100 to create a percentage.
Occupancy % = (Occupied Rooms / Available Rooms) X 100
If your hotel’s occupancy rates are falling behind the competition’s, take a look at your rate patterns and length of stay restrictions. Are travelers able to find better rates at other hotels in the area? To help increase hotel occupancy rates, ensure that your property is priced well against the comp set.
2. Gross Operating Profit (GOP)
Gross operating profit is a widely used KPI in the hotel world. It is used to determine the operational profitability of a hotel. GOP takes operating expenses into account to determine the actual gross profit of a hotel.
To calculate gross operating profit, subtract the hotel's gross operating expenses from their gross operating revenue.
GOP = Gross Operating Revenue - Gross Operating Expenses
Hotel operating expenses can include mortgage payments, property insurance, property taxes, staff salaries, insurance premiums, F&B costs, inventory expenses, and monthly fixed payments like internet and cable bills.
Hotels can work to increase their GOP by lowering the cost of goods purchased without changing room rates. GOP can also be increased by raising room rates to offset the cost of a hotel’s expenses, but charging guests more for room rental without providing additional value could negatively affect your guest satisfaction scores.
3. Cost Per Occupied Room (CPOR)
Instead of measuring the amount of money a room rental brings in, CPOR is used to measure the operating cost for each occupied room. It is another helpful hotel KPI used to determine if the amount a hotel spends on each occupied room is reasonable, or if the cost is too high.
In order to accurately determine the profit of a hotel room, the business expenses incurred should be taken into consideration.
To calculate hotel CPOR, divide your gross operating expenses by the total number of rooms sold over a determined date range.
CPOR = Gross Operating Expenses / Number of Rooms Sold
A hotel room may rent for $125/night, for example, but expenses like cleaning services, electricity, laundry and in-room marketing materials should also be taken into consideration. With this KPI, hoteliers can determine the minimum rate they can sell each room for and avoid renting a room for less than they spent on it.
4. Average Daily Rate (ADR)
ADR measures a hotel’s average rate for all occupied rooms per night. On any given night, hotels can run a variety of rates. ADR averages a hotel’s best available rate, membership rates, AAA discounts, corporate rates, extended stay rates, package rates and other SRPs.
Calculated by dividing the total room revenue earned by the number of rooms sold, ADR issued to measure the average rental revenue for a given day.
ADR = Total Room Revenue / Total # of Occupied Rooms
Low ADR could indicate a missed opportunity for rate increases or could be the result of taking too many group rooms. Tracking this KPI can help identify areas for improvement in a hotel’s rate strategy.
5. Average Room Rate (ARR)
While ADR measures the average daily rate for a hotel, ARR is used to calculate the average room rate. Typically, ARR is used to track room rates over a longer period of time, whereas ADR is most frequently used to determine a daily average.
The same formula used to calculate ADR is used to calculate ARR. The only difference is that ARR includes the total room revenue for a period of time, as well as the total number of rooms sold over that period. Many hotels use the average room rate KPI to monitor average rates from a weekly, monthly, or quarterly perspective.
To calculate ARR, specify the date range that you’ll be looking at. Add together all of the room revenue earned during those dates. Then, combine the number of rooms sold each night during the same time period. Divide the total earned room revenue by the total number of rooms sold to determine your hotel's average room rate.
6. Average Length of Stay (ALOS)
Hotels measure average length of stay to determine the median number of days people stay at their hotel over a certain time period. By monitoring ALOS, hotels can work to boost room and occupancy rates by maximizing the number of nights travelers book at their property.
To calculate average length of stay, determine a date range, and divide the total number of occupied room nights by the number of individual bookings over the same dates. For example, if your hotel had 114 occupied room nights last week, but only 22 separate bookings, the ALOS last week was 5.18. From this calculation, you can infer that numerous guests stayed with you for most of the week.
ALOS = Total # of Occupied Room Nights / # of Bookings
To help increase ALOS numbers, many hotels offer deeper discounts for longer stays. By promoting a healthy mix of extended stay business and targeting bleisure travel, hotels can work to increase their occupancy levels without sacrificing rate integrity.
7. Revenue Per Available Room (RevPAR)
While ADR measures the average rate for each room sold, RevPAR measures the average rate based on the total number of rooms available. Revenue Per Available Room is used to measure a hotel's ability to fill its rooms while maintaining a certain average rate. RevPAR is one of the most common KPIs used to measure a property’s overall success.
There are a few different ways to calculate RevPAR. The quickest way is to multiply the hotel’s average daily rate by the occupancy rate.
RevPAR = Average Daily Rate X Occupancy Rate %
Strong RevPAR is achieved when both occupancy and ADR rates are strong. Selling at a lower rate in an attempt to boost occupancy could lead to a lower ADR, ultimately damaging your RevPAR. High occupancy percentages don’t necessarily lead to high profits.
8. Market Penetration Index (MPI)
Used to compare your hotel against the competition, Market Penetration Index is a KPI used by hotels to determine if they are getting their “fair share” of the total business in their market. Also referred to as Occupancy Penetration Index, this metric compares a hotel’s occupancy against the comp set’s occupancy.
To calculate MPI, divide your hotel’s occupancy percentage by the total occupancy percentage in the market, and multiply that number by 100.
MPI = (Hotel Occupancy % / Market Occupancy %) X 100
An index over 100% shows that your hotel is outperforming the competition, or getting more than their “fair share.” If your MPI is below 100%, you’re booking less than your competitors. Ensure that your hotel is priced competitively.
9. Online Reviews/Ratings
Make social media management and digital marketing a priority. Hoteliers that need to improve online ratings, search result rankings or improve their reviews should monitor and update their online accounts regularly. Respond to all negative reviews in a prompt and professional manner, and commit to making improvements where needed. Keep a close eye on ranking changes to spot potential issues early.
Hotel KPIs can vary across various platforms, so hoteliers should track their ratings across social media, TripAdvisor and other sites. Committing to online reputation management can help ensure potential travelers see the best your hotel has to offer.
More info to make sure you hit your 2023 KPIs
What tools help measure hotel KPIs?
From hotel to hotel, software services, reporting and KPI subscriptions will vary. Boutique hotels, for example, may not use high-powered sales software. Some hotels may operate primarily from a simple property management system. Your ownership company may subscribe to performance reporting, or they may not. Work with the tools that are available to you to get started.
● Your Team
Gather department heads and meet with your hotel’s revenue management team. Have an open discussion about the software, reports and other tools each department uses to track performance. Identify the most beneficial KPI tools available, and create a comprehensive KPI strategy with specific objectives for each department.
Take some time to explore the programs your hotel uses and research available reports and tracking information. Search online for video tutorials or guides on using your systems to their fullest potential.
● SWOT Analysis
Create the ultimate hotel SWOT analysis comparing yourself against your comp set. A SWOT analysis analyzes a hotel’s strengths, weaknesses, opportunities, and threats. Compare the size of your property, room types, amenities, age, rewards, and other specifics against the competition.
Are you surrounded by newer, more modern properties? If so, that could be a threat to your hotel KPI metrics. Try to offset your property’s age by highlighting unique amenities or experiences you offer that more modern hotels do not.
Perhaps your hotel lacks a large quantity of double rooms, which could make hosting large groups difficult. What benefit do you boast that you can turn into a marketing opportunity to offset your room type threat? Create a marketing strategy focused on your hotel’s unique attributes and how they may appeal to groups.
● PMS Reports
Spend some time exploring your hotel’s property management system. Whether your hotel uses a brand-wide PMS system like OPERA or a smaller system like Frontdesk Anywhere, there are likely built-in KPI tools and reports. Set aside a few hours to do some exploration and see what other users recommend for tracking KPIs in your PMS system.
● Sales System Reporting
Hoteliers can connect with their sales managers to see what reports are available in the system used by the sales department. Are they using Salesforce, Revinate, or Amadeus Advanced Delphi? Sign up for webinars or complete tutorials that cover your CRM’s built-in KPI reporting options, and research customizing your own reports.
● STR Report
If you struggle to track changes in your market, consider subscribing to the Smith Travel Accommodations Report, or “STR Report.” The STR Report is a benchmark report that collects data from subscribing hotels and analyzes metrics like ADR, RevPAR, and occupancy.
By analyzing information from participating hotels, the STR Report shows the overall business in the area and calculates a hotel’s performance as an index percentage. For any given metric, an index above 100% indicates your hotel is getting more than its fair share of business. Indexes below 100% indicate that your property is performing worse than others in the market.
● Guest Satisfaction Scores
Regularly review TripAdvisor, OTA sites, and your social media accounts for guest feedback. If your brand or ownership company offers guest satisfaction reports, be sure to sign up for notifications and ensure satisfaction scores are monitored daily.
FAQs
1. What does KPI mean in the hotel industry?
The term KPI is used in the hospitality industry the same as it is in any other business. Key Performance Indicators are used to measure how well a company is achieving a specific objective. KPIs are measurable values that track changes in performance over time and are commonly used when setting quarterly or annual goals.
2. How is hotel success measured?
There are a wide variety of metrics available to measure a hotel’s performance. KPIs (key performance indicators) are data points that hoteliers use to measure revenue growth, occupancy trends, room rate averages, event performance, marketing ROI, and other success factors.
3. What are the best KPIs for hotels?
When it comes to tracking hotel success and performance, occupancy, ADR, RevPAR are three of the most commonly used hotel KPIs. Focusing on these three KPIs can help hoteliers get a better sense of how well they are moving toward their “big picture” goals.
4. What KPIs do hotels use for social media reporting?
Visitor frequency, conversion rate, audience engagement rate, audience growth, customer service scores, and brand scores are used to measure a hotel’s success with social media marketing. Hotels looking to improve their online presence and boost engagement scores should add social media KPIs to their regular performance reviews.
