Nowadays, it has become quite challenging to keep up with the ever-changing market trends in the hotel industry to maintain the stability of the business. A number of tools can be used for business and organizational performance management and tracking in the hotel industry.
Surviving in the market is possible through the use of multiple business performance tracking tools like KPIs due to technology and informational excellence.
In this article, we are presenting a clear understanding and information on 16 Essential Hotel KPI to maintain clarity, sustainability, and transparency in business operations and performance in the hotel business.
What is KPI in Hotel Industry?
The full form of KPI is a key performance indicator and it helps to understand and supervise the progress of performance towards the achievement of specific objectives from the departments associated with organizational activities in the business sector to individuals.
In the business sector of the hotel industry, KPIs facilitate quantitative measurement of organizational performance by aligning its short-term goals with business objectives.
At the same time, effective decision making and performance management in the provision of hospitality services is also possible through Hotel KPI. It also identifies the critical aspects to be considered in the hotel industry to keep pace with market trends.
5 importance of Hotel KPIs to evaluate Hotel Performance.
Hotel KPI play a special role in several ways by helping the business organization to assess its current performance for potential improvement. Below we discuss the 5 key importance of hotel KPI to achieve performance and business growth potential in the hotel industry.
- Hotel KPIs help the business organization to increase excellence and reliability in its data driven decision making in terms of pricing, business strategy making, marketing etc.
- Due to the presence of access to up-to-date data through KPIs, managers in the hotel industry are capable of effective decision making in the shortest possible time.
- Hotel KPIs help hotel managers take an effective approach to maximizing revenue and performance by facilitating real-time tracking and monitoring of their daily activities.
- Also, KPIs help hotel companies in building a clear and transparent business goals and objectives.
- Hotel KPIs are also important in providing a systematic and measurable approach to performance management and tracking in the hotel industry.
List of Hotel KPIs to Track Hotel Performance
KPIs help the business organization in multiple ways in observing and evaluating its performance and in this case, it is possible to get support from financial to execution of daily business activities. Here you are provided with complete information about 35 different hotel KPIs effective in playing a role in the hotel industry and guidance on their application.
1. Environmental Social Governance Score – ESG:
One of the most progressive and new tools among hotel operational KPIs is the Environmental Social Governance or ESG score. These KPIs help to satisfy the three main pillars of corporate social responsibility in the hotel business context namely social, ethical and environmental responsibility. Through ESG, hoteliers play a special role in facilitating corporate governance by the board of directors through building an effective social culture through the inclusion of a diverse workforce in the corporate sector along with the reduction of environmental impacts such as carbon emissions in their business activities.
2. Energy Management KPIs:
The hotel industry spends as much as $3.7 billion annually on energy consumption alone, and this adds to the overall operating costs of the establishments. It is possible to monitor the amount of energy consumed by the hotel organization through the technological tools included in the Energy Management KPI. Along with this, hotel operational KPIs like energy management help hotel organizations in decision making regarding effective strategies for its reduction by optimizing their real time patterns of energy usage.
3. Water Consumption Tracker:
Along with energy, water is an example of a consumption KPI to manage operations in the hotel industry on a daily basis. Since water consumption accounts for about 25% of the utility costs of the entire hotel operations, from room cleaning to beverages, etc., it is necessary to monitor it. By using KPIs related to water consumption management, modern hotel managers can reduce water waste and related damages by tracking the rate of water consumption.
4. Utility Consumption Rate:
Apart from just energy and water in the hotel industry, there are many different utility related costs and hotel organizations use a number of different monitoring KPIs to reduce their negative impact. These KPIs help hotel organizations in identifying and monitoring the usage of their resources. Also, the use of hotel KPIs for monitoring utility consumption rates helps hoteliers in the identification and mitigation of areas of high utility consumption and waste.
5. Labor Cost as Percentage of Sales:
Labor is one of the major and expensive overheads involved in running daily operations in the hotel industry. The need and role of labor in the hotel industry is undeniable as hotel companies require sufficient number of staff to manage and execute day-to-day activities even if energy and water supply is uninterrupted. Hotel operational KPIs include a matrix of labor costs as a percentage of sales, allowing hotel companies to control for costly issues and situations such as overstaffing in relatively low seasons by comparing actual labor expenses versus revenue.
6. Employee Performance:
Hidden expenses such as employee salary as labor cost as well as employee performance rate are also involved. In order to maximize the return and investment i.e. ROI in the hotel business sector, it is possible to ensure a valuable return on the labor related investment made by the organization by using KPI of employee performance tracking. At the same time, this Hotel Operations KPI plays a special role in helping the hotel industry in terms of appropriate employee and talent acquisition.
7. Employee Turnover:
One of the key factors in hotel operations KPIs is employee turnover, which helps measure and monitor costs associated with recruiting new employees. Hiring new employees involves relatively more hidden costs related to training and development, so in this case hotel organizations spend more on relatively less output during training and may face losses. Hotel KPIs like Employee Turnover Hotel organizations have the opportunity to identify and reduce employee expense-related changes by tracking employee turnover.
8. Employee Productivity:
Hotel companies use Employee Productivity Major KPIs to measure employee efficiency and dedication to the business. It helps hoteliers identify their role in providing value to the overall business by measuring the commitment and contribution of its associated employees to fulfilling their own responsibilities. Employee Productivity KPI helps hotel companies in employee efficiency tracking as well as data driven decision making.
9. Average Daily Rate – ADR:
Hotel revenue management KPIs such as Average Daily Rate allow hotels to measure and track the profitability achieved by their daily business activities. It helps hoteliers monitor the average revenue generated by an average room on a given day in a given timeframe and also helps in effective demand forecasting. Hotel KPIs like ADR also help in seasonal market trend adaptation and effective pricing selection by hotel organizations.
You can calculate ADR of your hotel by using the formula below:
ADR = Total Room Revenue / Number of Rooms occupied
10. Average Rate Index – ARI:
A hotel revenue management KPI like ARI or Average Rate Index enables hoteliers to compare their average daily rate with a competitive set of hotels over a specific period of time. In the hotel business, competitive sets comprise the combination of multiple brands and competitors targeting a specific similar product or market segment. So, in this case, using ARI, hotel organizations get the opportunity to maintain fair market share by real-time analysis of their competitive sets.
11. Average Room Rate – ARR:
Hotel KPIs like ARR or Average Room Rate work somewhat like ADR and ARI and are tracking the average rate charged per room by hotel establishments. Although the function of ADR and ARR is almost the same, there is a difference in the application of its activity. ADR calculates the hotel’s average rate on a daily basis, and hotel revenue management KPIs such as ARR provide opportunities for monitoring the average rate of a particular room on a monthly or weekly basis.
You can use the formula to calculate your hotel’s ARR:
ARR = Total Room Revenue Earned for a given period / Number of Total Available Rooms
12. Cost Per Occupied Rooms – CPOR:
The name CPOR or Cost Per Occupied Rooms indicates a hotel KPI that helps provide flexibility to the cost management system at the specific room level in a hotel. This hotel revenue management KPI helps hoteliers to calculate their average cost per occupied hotel room. Also, through CPOR KPI, hotel managers are able to maintain reasonableness in pricing per occupied room by evaluating the overall operating cost.
You can use the formula to calculate CPOR of your hotel:
CPOR = Total Department Cost of Rooms/ Number of Rooms Sold
13. Earnings Before Interest, Taxes, Depreciation, and Amortization – EBITDA:
EBITDA or Earnings Before Interest, Taxes, Depreciation, and Amortization is identified as a KPI used by hotel companies to compare their revenue with net expenses. These hotel KPI’s are usually used to measure the profit achieved through the product or service marketed within the hotel property. Apart from this, hotel revenue management KPIs like EBITDA help the hotel to evaluate the profitability of its net income.
You can calculate your hotel’s EBITDA using the formula below.
EBITDA = Revenue – Expenses
14. Gross Operating Profit – GOP:
GOP or Gross Operating Profit is one of the most effective hotel revenue managements KPI and it mainly helps in building a quick outline of the hotel’s financial performance in the hotel industry. In general terms, GOP is a hotel KPI used to measure the ultimate hotel profit after subtraction of all operating expenses. This KPI helps the hotel organization to identify the causes of fluctuations in its financial performance.
You can use the following formula to measure your hotel’s GOP:
GOP = Gross Operating Revenue – Gross Operating Expenses
15. Gross Operating Profit per Available Room – GOPPAR:
GOPPAR stands for Gross Operating Profit per Available Room is one of the hotel revenue managements KPIs and through this it becomes possible to build a relatively deep insight of hotel performance in the hotel industry. This hotel KPI helps in monitoring the revenue generation rate of the hotel as well as the operational costs involved in its generation. In simple language GOPPAR or Gross Operating Profit per Available Room helps the hotel in comparing the revenue earned with the operational cost.
The following formula can help you calculate the GOPPAR of your hotel.
Gross Operating Profit / Total Number of Available Rooms = GOPPAR
Gross Operating Profit = Gross Revenue – Operating Expenses
16. Revenue per available room – RevPAR:
RevPAR or Revenue per available room is a measure of the revenue generation capacity of each available room through the total revenue achieved through the rooms available in a specific hotel within a specific period of time. Hotel revenue monitoring through hotel revenue management KPIs like RevPAR focuses only on the calculation of generated revenue instead of inclusion of utility expenses like spa, laundry, beverages.
The following formula can help you calculate your hotel’s RevPAR.
RevPAR = Total Revenue Per Night / Number of Available Rooms
RevPAR = Average Daily Rate of Bookings/Occupancy Rate of Rooms for a Certain Period
16. Revenue per Occupied Room – RevPOR:
RevPOR or Revenue per Occupied Room is one of the variants of RevPAR but their applicability is different. While RevPAR measures revenue in terms of overall available rooms in a hotel, RevPOR measures revenue generation capacity only by occupied rooms. Hotel revenue management KPIs like RevPOR help hoteliers to get a much clearer idea of the profit earned through guest stays in their available rooms.
You can measure your hotel’s RevPOR KPI by applying the following formula.
RevPOR = Total Revenue / Total Number of Occupied Rooms
where, Total Revenue = Accommodation + Bar + Room Service + Breakfast + Spa + Bar + Mini Bar + [Other Revenue]