KPIs that hotels should choose to measure performance
There is massive support for the control of sales and its advantages. There are some important KPIs that hotels should choose to measure performance.
Hotel administrators aren’t always in agreement when it comes to picking the ideal index for measuring performance.
As the industry became more and more volatile, occupancy, the oldest and most widely used metric, was rapidly outgrown by hotels, and words like ADR were gradually added.
And even these simple indexes aren’t able to do the job in today’s digital age of minute appointments and sudden demand.
In fact, hotels that focus too deeply on improving the RevPAR could actually be making a very costly error!
A high RevPAR isn’t always an indication of high profitability – that’s because there are several other factors to revenue management
This metric doesn’t account for, such as the CPOR (costs per occupied room) and additional revenue brought in by POS terminals.
We’ll attempt to dissect each in order to better understand how they could help in your strategic decision making.
Revenue per available room
The RevPAR provides managers with the average daily revenue produced per available bed, the most widely used hotel performance metric today. Since the metric essentially incorporates occupancy and ADR details to provide a more comprehensive image of the success of a hotel.
It has its disadvantages. RevPAR does not account for the costs of preparing occupancy rooms (CPOR) or the additional revenue provided by other income centers, such as restaurants, bars, spas, etc. RevPAR can differ widely across markets and is better considered to be a time-based snapshot of the performance of the hotel.
Gross operating profit per available room
Defined as the total daily gross operational profit generated per available room, the GOPPAR is a derivative of RevPAR.
By estimating the total revenue produced and subtracting departmental and operational expense, the gross operating profit is estimated. Since it accounts for all costs, both fixed and variable costs.
GOPPAR gives leaders with a good view of the profit potential of the property and the measure usually better reflects management performance and the hotel’s intrinsic value.
Market penetration index
The market penetration index is useful for calculating how the occupancy numbers of a particular hotel relate to the competitive set, enabling managers to deduce the share of a market set or tract of the land.
Although this measure is great for recognizing the superiority of a hotel in the marketplace, since it does not account for sales at all, it is not the best index for assessing success as a whole.
Hotels that drop rates can increase their MPI, but suffer from a lower RevPAR reduction and therefore a lower GOPPAR.
Average rate index
This performance index, similar to the MPI, calculates how the average daily rate of a particular hotel compares to a competitive collection.
Compared to the aggregate group of properties that the market comprises, an ADR index of 1 usually means a fair share of the ADR-an index greater than 1 represents a better than average share, while a figure below 1 implies below average results.
The metric lets managers get an understanding of the rate success of their hotel on the market, and whether rates can be raised or lowered.
Revenue generation index
The RGI tests how the hotel’s RevPAR compares with other hotels in the competitive set as a further comparative index such as MPI and ARI. The metric accounts within their category for the equal market share of the land, be it a competitive collection, market, sub-market, etc.
An index of above 1 is ideal, anything lower suggests that competing hotels are outperforming your property. The metric helps managers determine whether costs need to be lower or if rates need to be boost.
Adjusted revenue per room available is the aggregate gross revenue generated by all departments running in hotels.
It includes upselling activities, with all operating expenses subtracted, divided by the total number of rooms available during the time.
It’s hard to underplay the significance of revenue management in today’s modern setting.
With new segments of travelers emerging all the time and spending patterns constantly fluctuating. The once-simple industry seems to be growing in entropy with every passing year. And it’s no surprise, really.
We live in a digital area, where almost all travelers has with their own smartphone. Who are accessing guides, planners, and can even book rooms on the go.
OTAs, ever-hungry to maintain their dominance, spend exorbitant amounts of money to optimize and market their services . Guests today can pick and choose from dozens of rooms and make a booking for the same day!
In such a highly fragmented marketplace where OTAs produce the most bookings, counter-intuitive as it can sound. So they are filling up rooms for independent hotels and proving to be an expensive affair.
Conclusion
For owners and as a consequence, raising the bottom line without impairing the guest experience is now an important problem.
The management of sales has found its way to the forefront of strategic planning for business.
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