ADR, RevPAR, and other Important KPIs in Hotel Marketing
March 23, 2022
Keeping track of hotel KPIs gives hotel managers an objective view of how well their hotels are performing, what they can do better, and aids in smart decision-making in the future.
Every business, whether big or small, needs to keep track of their key performance indicators (KPIs). Not only does the data provide a clear snapshot of how well the business is doing, it also gives owners insight on how to improve in the long run.
It’s the same in the hospitality industry. Every hotelier needs to know and keep track of at least the most important hotel KPIs. And while there are numerous data sets available, especially when using hotel management systems, mastering the essentials can go a long way in creating a successful hotel.
Below are the top 8 hotel KPIs that can help hoteliers improve their hotel’s performance.
1. Establish hotel baseline with Total Available Rooms and Hotel Capacity
Total Available Rooms (TAR) and Hotel Capacity (HC) are the most essential metric for any hotel because almost all other KPIs are measured against them. Being aware of the number of rooms available and total capacity helps managers make decisions on how to best maximize efforts.
It’s important to keep real-time data of hotel TAR and occupancy for proper inventory calculations, staff scheduling, and to maximize hotel bookings. They also help hoteliers make quick decisions about last-minute room reservations, cancellations, and promotions.
How to calculate Total Rooms Available:
Total Available Rooms = Total Number of Rooms – Total Rooms Unoccupied
How to calculate Hotel Occupancy:
Hotel Occupancy = TAR x Specific period of time (weekly, monthly, etc.)
Find out how effect your room rates are with Average Daily Rate
A hotel’s Average Daily Rate (ADR) is the average room rate paid per room over a specific timeframe. The ADR is usually used as the base metric for financial performance in the hospitality industry.
ADR reveals what is the general range of room rates guests are willing to pay and can indicate how much wiggle room hoteliers have to increase or decrease room prices without lowering their occupancy. However, ADR is used only for revenue generated from rooms and excludes other revenue from the hotel’s other income streams.
How to calculate Average Daily Rate:
Average Daily Rate = Rooms Revenue / Rooms Occupied
Know if you are maximizing resources with Hotel Occupancy Rate
Increasing a hotel’s occupancy rate is one of the top goals of managers. Keeping track of the occupancy rates provides an idea how much room revenue is being generated at any given time. As a rule of thumb, having at least a 70% occupancy rate is a good indication of a well-performing hotel.
Occupancy rates helps hoteliers prepare hotel inventory, staff needed on-site, and also helps them create strategies marketing plans using previous occupancy rates as benchmarks. Occupancy rates also help hotel analysts test their revenue management strategies.
How to calculate Hotel Occupancy Rate:
Hotel Occupancy Rate = (Rooms Occupied / Rooms Available) 100
Try out different room type-rate combinations to increase Revenue Per Available Room
Aside from ADR, Revenue Per Available Room (RevPAR) is a constant in all hotel KPIs. RevaPAR is the average room revenue generated across all hotel rooms and displays how effective inventory distribution and room rates are at increasing hotel bookings.
While ADR measures the average daily rates, RevPAR is mostly measuring how effective the room and rate pairings are during specific periods. Hoteliers often try different combinations of room rates, room type, and promotions during different seasons to get the best RevPAR results.
How to calculate Revenue Per Available Room:
Revenue Per Available Room = Total Room Revenue / Total Rooms Available
Optimize your hotel resource management with Gross Operating Profit Per Available Room
To measure how much money is earned in generating hotel bookings, hoteliers check their Gross Operating Profit Per Available Rooms (GOP PAR). This KPI is indicative of how well hotels are using their resources and maximizing potential profit.
Generally, a higher GOP PAR is preferred. Hoteliers need to minimize expenses and work to strategically increase their RevPAR. GOP PAR can also be used in forecasting profits and budget planning in the hospitality industry.
How to calculate Gross Operating Profit Per Available Room:
Gross Operating Profit Per Available Room = Gross Operating Profit / Total Available Rooms
Improve Average Length of Stay with long-stay campaigns and minimum hotel booking policies
Guests’ Average Length of Stay (ALOS) is the average duration of days reserved during hotel bookings. The ALOS helps hotels predict the number of staff, food, and inventory needed during a specific period of time. ALOS can also help optimize room reservations and revenue management by indicating what rates are best for longer stays.
Guests with longer ALOS generally are better because they generate the same revenue but consume less of the hotel’s resources. Hotels can improve their ALOS by offering attractive long-stay packages or having a minimum hotel booking policy.
How to calculate Average Length of Stay:
Average Length of Stay = Total Occupied Room Nights / Number of Bookings
Find out how your hotel bookings compare to others with Market Penetration Index
Hotel KPIs are not only useful for monitoring your own hotel’s success against previous performance. They can also be used to compare your hotel against other players in the hospitality industry. One such metric is the Market Penetration Index (MPI) which measures a hotel’s occupancy rates against competitors.
The MPI serves as a guide to how much market share a hotel has compared to others. Many hoteliers use this KPI to know whether guests prefer their hotel over others in the hospitality industry. If the index is above 100, hotels have more than fair share of the market. Below 100 means hotels have less share than other players.
How to calculate Market Penetration Index:
Market Penetration Index = Hotel Occupancy Rate / Market Occupancy Rate
Have a benchmark for room rate comparisons using Average Rate Index
Similar to the MPI, the Average Rate Index (ARI) measures a hotel’s rates against others in the hospitality industry. This metric can give hoteliers an idea whether they are charging too high or low on room rates compared to other hotels.
The same MPI rule applies to hotel ARI. Hoteliers should strive for an above-100 score if they want their hotels to gain dominance in the market. This can be achieved faster by using a hotel revenue management system to get the most attractive rates.
How to calculate Average Rate Index:
Average Rate Index = Hotel ADR / Market ADR
Continuously improving and staying competitive in the hospitality industry is a challenging task. However, monitoring and managing hotel KPIs can significantly put hotels at an advantage because of the wealth of information and insight they provide about guests preferences and hotel booking preferences. Not only do hotel KPIs show each hotel’s strengths and weaknesses, they also serve as guideposts for making the best decisions in an ever-changing market.
Interested in hotel management systems that can help improve your hotel KPIs? Check ZEN Hospitality Solutions. We have the latest software in hospitality technology that are designed to increase revenue, maximize hotel resources, and boost hotel performance. Talk to an expert today.
Frequently Asked Questions About Hotel KPIs
What is a hotel KPI?
A hotel key performance indicator (KPI) is a metric used by hotel analysts to measure how well their hotel is performing. There are several KPIs used in the hospitality industry to measure room rates, online hotel bookings, occupancy rates, and profitability.
Q: How can hotels measure their KPIs?
Hoteliers can opt for manual calculations using their record books or use advanced hospitality technology. Hotel management systems like property management systems, revenue management software, and hotel reservations systems have built-in capabilities that monitor and manage KPIs better and faster than human hotel analysts.
Q: What are examples of hotel KPIs?
The most popular hotel KPIs are Average Daily Rate (ADR), Revenue Per Available Room (RevPAR), Hotel Occupancy Rate (OR), and the Average Length of Stay (ALOS). Many hoteliers refer to these metrics to determine their hotel’s profitability and effectiveness.
Q: What is ADR?
ADR is the Average Daily Rate of hotels. It is the average room rate that hotel guests pay for each room on a daily basis. It is one of the go-to hotel KPIs because many other metrics are measured against it. It provides a good snapshot of how much revenue a hotel can expect.
Q: What is RevPAR?
Revenue Per Available Room or RevPAR is the average room revenue generated across all hotel rooms. It measures how effective the combination of room rates and room types is in increasing hotel bookings and occupancy rate.
Article by Ayna Gonzales