Measuring Success in the Hotel Business: Key Metrics and Strategies

Today I would like to share some of the main KPI’s (Key Performance Indicators) for the hotel industry. Unfortunately, most of the hoteliers in Turkey are not aware of such terms and they do not know how to use these metrics to measure their performance.

Hopefully this article will help them to have a better understanding about these terms.

RevPAR

Revenue Per Available Room: Rooms revenue in relation to rooms available.

Average Daily Rate (ADR)

Hotel ADR simply 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. It solely focuses on paid rooms and might sometimes be labelled the Average Room Rate.

Occupancy (OCC)

It’s the simplest hotel performance metric. Occupancy is a percentage of the available rooms occupied for a specific period (i.e. annual, quarterly, monthly, daily or summer).

Market Penetration Index (MPI)

This hotel performance metric measures how your hotel’s occupancy compares to a competitive set. This measures your ‘piece of the pie’. Naturally, every hotelier wants to increase their market share and win more business. Ensure you have accurately determined the competitive set. Results above 1 indicate above market performance.

Average Rate Index (ARI)

This hotel performance metric measures how your hotel’s average daily rate compares to a competitive set. An ADR Index of 100 means you have a fair share of the competitive set’s ADR performance. Like MPI but depending on your hotel’s business goals, you would typicallyaim for ARI above 1. For our hypothetical hotel, the total room revenue by market is unknown. Without data, you can’t calculate the ARI measures.

Revenue Generation Index (RGI)

This hotel performance metric measures how your hotel’s RevPar compares to their competitive set. Most of the international and branded hotel operators use the RGI hotel performance metric obsessively. Enhancing the RGI is often a great way to maximise hotel profitability. RGI results should exceed 1 (a 100 base index) otherwise hotels in your competitive set are converting more business than you. If so, look at your daily RGI results and analyse trends, benchmark competitors and revenue management tactics.

Hotel Supply & Demand

These hotel performance metric figures identify the average number of room nights available and used in a specific market. A resort hotelier in Saas Fee, Switzerland may research (via online research and tourism office statistics) the total number of rooms available in town and the total rooms used over a period. Depending on data available, a hotelier can then measure their performance against local market average supply and demand, and benchmark direct competitors (eg. other 3 star hotels within a 10km radius).

Market OCC = Rooms Night Demand / Available Room Nights

Ps. Source:hoteliyo.com, about.com, failteireland.ie