Hotel KPI Guide: Most Important Hotel Key Performance Indicators That Can Make Your Business Successful
May 27, 2021
Article by Ayna Gonzales
Hotel KPI or key performance indicators for hotels are the values or metrics that measure the performance of your business. A KPI in hotel industry often demonstrates how the targets are achieved using data and calculations that guide hoteliers to know how their business is performing.
From financial management to operations, and all departments with measurable outcomes, hospitality KPIs cover all aspects of the business. Keeping track of the KPI in hospitality industry allows hoteliers to make effective decisions.
In this article, we will discuss everything you need to know about the hotel KPI examples and how you can calculate them.
Important Hotel KPIs That Will Help You Maximize Revenues
It’s important to note that you have to select the KPI in hotel industry relevant to the specific sector you are dealing with in order to find accurate data and metrics to improve your hotel’s performance. So, we will discuss the most important hotel KPI examples you should monitor for you to generate maximum hotel revenue.
Total Available Rooms
Average Daily Rate (ADR)
Revenue per Available Rooms (RevPAR)
Average Length of Stay (LOS)
Average Lead Time
What’s inside this blog?
Hotel KPI: 6 Essential Metrics to Monitor for Your Hotel’s Growth
Frequently Asked Questions About Hotel KPI
1. Total Available Rooms
The Total Available Rooms is the number of rooms in your hotel that are ready to be booked. It does not include the rooms that are not in working condition or undergoing renovation. This metric in KPI Hospitality is important for the proper planning of your inventory which would lead to the proper number of bookings. Having this number wrong might lead to misleading numbers for your occupancy rates and other KPIs. With this data, it would help you determine how many operable rooms there to base revenue formulas off of.
2. Average Daily Rate (ADR)
Average Daily Rate or ADR is the average rate at which each room at the hotel was sold on any given day. It is essential because it reveals the average rental income connected to occupied rooms each day, which is valuable for revenue management. With these figures, you can get an idea of your financial performance, as well as compare your performance to your competitors, especially to other hotels with similar characteristics.
You can get this number by dividing total room revenue by total rooms occupied. It can be used as an indicator where your hotel is standing among competitors in the area, and also how much guests are willing to pay for a room in your hotel. However, this metric cannot work alone as ADR does not take into account how many rooms are sold and the occupancy rate of your hotel.
3. Occupancy Rate
This hotel key performance indicator is the figure obtained by dividing the number of occupied rooms in totality with the number of rooms available. Occupancy Rate shows the percentage of your rooms that are occupied for a period of time. It assists you to know how the property is performing in different seasons and time periods. Identifying this KPI is important as it helps hoteliers to plan the operations of the hotel business, forecast revenue, and predict the costs and number of staff required to maintain your hotel.
4. Revenue per Available Rooms (RevPAR)
Revenue per Available Rooms (RevPAR) is one important hotel key performance indicator metric to measure how much revenue that each room in your hotel generates. In short, it shows the success or failure your hotel gets at filling your rooms.
There are two methods of using the RevPAR formula i.e. either, divide total room revenue by total rooms available or multiply your ADR by the occupancy percentage. It is very important to know this information as a measure whether your overall performance of your hotel is increasing or decreasing, as it also takes into consideration the available rooms instead of just the total revenue, making the metric much more accurate than just measuring the total revenue or ADR.
5. Average Length of Stay (LOS)
Average Length of Stay (LOS) is calculated by dividing the occupied rooms by a number of bookings. As the term suggests, the Average Length of Stay shows the average number of days a guest stays in your hotel. It is important to know this information to measure what kind of market your hotel is targeting so that you can adjust your promotions or campaigns accordingly.
6.Average Lead Time
Average Lead Time is not commonly used, but it is actually very pivotal in determining whether you should increase or decrease your price. For some hotels, having half of your rooms empty one week before the check-in date is a disaster, and you have to reduce the price immensely to boost the bookings. On the other hand, for other hotels, more than half of the rooms can be filled within 3 days of the check-in date. Therefore, there is no need to decrease prices if half the rooms are still empty one week before the check-in date. Understanding your guests’ behavior and when they book the rooms in your hotel is important to maximize your hotel’s revenue.
KPIs don’t require that much effort or time consuming as many hoteliers would think. In fact, when done properly, and with a correct system, you can simplify your work, stay ahead of your competitors, and generate maximum revenue for your hotel.
However, even if you already have the figures mentioned above, you still need to incorporate other data such as competitor’s pricing, seasonality factors, demand trend, and other qualitative factors. Doing all these using human resources is definitely impossible and prone to errors. This is where the challenge comes in. So, the best way to knock this out is by equipping yourself with a reliable technology, such as the ZEN eManager Express, which can help you cut costs and time by having all that data analyzed automatically by this Artificial Intelligence (AI) backed tool.
Frequently Asked Questions About Hotel KPI
Q: What are the important KPIs that I need to know to maximize my hotel’s revenue?
A: There are tens or even more KPIs in hotel industry that you might find online regarding your hotel’s performance. However, we have identified 6 of them which play important roles in maximizing revenue. The 6 hotel KPI examples are Total Available Rooms, Average Daily Rates, Occupancy Rates, Revenue per Available Rooms, Average Length of Stays, and Average Lead Time
Q: What is RevPAR?
A: RevPAR, or Revenue per Available Rooms, is the indicator which informs you how much revenue that each of your available rooms generate for a period of time. It does not include non-operational rooms, i.e. under renovations, so it shows the accurate performance measurement of your hotel.
Q: What are the uses for the KPI for hospitality industry and why do I need to know them?
A: These KPIs are important especially for determining the most optimal pricing strategy. For example, if you realize that a worse hotel nearby is selling at higher prices compared to your ADR, you might want to increase your price. Another example would be if the ADR is high, but your RevPAR is low, you might want to decrease prices as not a lot of rooms are sold in your hotel.
Q: How do I incorporate these hotel KPIs in analysis of my hotel’s pricing strategy?
A: It is not easy to incorporate all this data in a quick analysis to determine the best pricing strategy for your hotel. On top of that, you still need to take into account external factors such as competitor’s pricing and other qualitative factors such as demand trend and seasonality. Therefore, it is much easier to use software developed by an experienced company in the industry to do that for you. And, emanager express is your answer to it. With years of experience and AI-backed technology, emanager express takes into account all these factors into your pricing strategy to maximize your hotel’s revenue.
Article by Cielo Fernando