Top 8 Hotel KPIs: How to Measure Hotel Performance

05th Jan 2023

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You want to increase revenue, protect your margins, and forecast more accurately as you try to source staff during a labor shortage.

But if you lack visibility over business performance and operational efficiency, how can you—or your team—trust your decision-making?

That’s why you need a clearer understanding of hotel KPIs. You’ll gain insights into the efficacy of your tools and processes, identify where you need to improve, and be better at communicating the thinking behind your choices and recommendations.

 In this article, we discuss the eight most important hotel KPIs to track and how to calculate them, so you can better evaluate how well you’re meeting your goals and challenges, and where you need to make changes.

KPIs for hotels: How using them can help you maximize performance

Effectively managing hotel operations requires having a clear understanding of performance, strengths, and weaknesses. But until you have a grip on what metrics to track, how to interpret them, and how to improve them, your insights are limited. 

This not only presents daily challenges in your work, but also makes it difficult to gain buy-in on key decisions from other stakeholders.

And while keeping track of your occupancy rate, revenue, and costs is important, you need to dig deeper if you want a clear understanding of how you can improve performance and be sustainably profitable.

That’s where hotel KPIs come into play, which you can use for quick snapshots on how well a department is coping, or to assess how well your own strategies and tactics have worked over time.

With a better knowledge of what metrics to use and why, you can inform your choices on areas like where you need to save on costs, how to better support your front office, marketing and sales, if you need a better pricing strategy, and where investment could have the biggest impact.

Top 8 KPIs to measure hotel performance

We’ve put together a list of eight key metrics you should be monitoring at your hotel. Track these KPIs to better understand operational performance and make informed strategic choices for your staff, guests, and business:

  • Gross operating profit (GOP)
  • Gross operating profit per available room (GOPPAR)
  • Revenue per available room (RevPAR)
  • Cost per occupied room (CPOR)
  • Occupancy rate
  • Average daily rate (ADR)
  • Average length of stay (ALOS)
  • Earnings before interest, taxes, depreciation, and amortization (EBITDA)

1. Gross operating profit (GOP)

If there’s one KPI you need to be tracking, it’s gross operating profit (GOP). GOP tells you how much net profit you have left over after subtracting all your operating expenses, and you can use this KPI to determine how sustainable your operations are, as it tells you whether your hotel is spending more than it makes.

Calculate and track GOP

To calculate GOP, subtract your gross operating expenses from your gross operating revenue. In order to do this, it’s essential to closely track your operating costs so you know exactly how much you’re spending on each facet of your operations.

GOP performance improvement plan

While increasing revenue may seem like a straightforward way to improve GOP, another effective approach is minimizing operating expenses. Pinpoint where your operations are lagging, and optimize those areas for reduced expenses.

For example, if your cleaning team isn’t as productive as it should be, use cleaning scheduling software that helps with task management and route optimization to ensure cleans are as efficient as possible.

The key is to find the weak areas in your operations where improvements can be made the easiest in order to reduce operational costs and maximize GOP.

2. Gross operating profit per available room (GOPPAR)

While GOP tracks the gross profit across your hotel, gross operating profit per available room (GOPPAR) is a measure of profits per room you have available to rent. While it is similar to RevPAR (which we will talk about next), it takes into account operational costs rather than just focusing on revenue.

Calculate and track GOPPAR

To calculate GOPPAR, you first need to calculate GOP by subtracting your gross operating expenses from your gross revenue. Then, divide this amount by the number of available rooms at your hotel. 

Be aware that you can only take into account variable costs (like room supplies, commissions, and cleaning costs) when calculating GOPPAR. Fixed costs (like rent, online travel agency (OTA) fees, and subscriptions) cannot be included when calculating GOPPAR, though it is still important to keep a close eye on these expenses.

GOPPAR performance improvement plan

The steps you can take to improve GOPPAR are similar to how you can improve GOP. By minimizing operational expenses, especially on a more granular level, you’ll be able to improve GOPPAR and your overall profits. Also look at how to optimize your occupancy and nightly rates, which we discuss below.

3. Revenue per available room (RevPAR)

RevPAR is a key target of profitability in the hotel industry. This is a metric that banks will often look at when making financing decisions, which is one of the reasons why maximizing RevPAR is so important. 

Calculate and track RevPAR

Calculating RevPAR is similar to calculating GOPPAR. However, instead of subtracting your expenses from your total revenue as you do with GOPPAR, calculating RevPAR is more straightforward: Simply divide revenue generated by room reservations by the number of rooms available at your hotel. 

RevPAR performance improvement plan

If you need to put your hotel on a RevPAR improvement plan, you’ll have to find ways to either increase your hotel’s occupancy or bump up your average daily rate (ADR). By boosting bookings or raising your pricing, you’ll be able to improve RevPAR and show banks the figures they want to see.

Consider using an automated dynamic pricing tool or revenue management system (RMS) to ensure you’re setting the optimal nightly rates depending on seasonality, historic demand, competitor pricing, special events, and economic fluctuations among other factors.

4. Cost per occupied room (CPOR)

Another key hotel KPI when it comes to effective revenue management is cost per occupied room (CPOR). While we often think of revenue metrics as the most important ones to follow, it’s also essential to follow KPIs related to expenses if you want to optimize pricing and business performance.

Calculate and track CPOR

To calculate CPOR, you’ll need to divide your gross operating costs by the total number of rooms sold over a period of time. To calculate this cost, you’ll want to use just room-related operating costs, like cleaning, heating/cooling, and guest supplies.

CPOR performance improvement plan

Improving your CPOR also comes down to streamlining your operations, which you can achieve by implementing hotel automation tools to optimize cleaning schedules.

Additionally, you can find other ways to reduce your hotel operating costs, like changing toiletry providers, installing an automated boiler control system to maximize energy savings, or using a smart thermostat for enhanced temperature and energy control.

5. Occupancy rate

As a hotelier, you obviously want your occupancy rate at a maximum. While it’s one of the easiest KPIs to track, occupancy rate can be one of the most challenging to improve.

Calculate and track occupancy rate

To calculate occupancy rate at your hotel, divide the number of occupied rooms in your hotel on any given day by the total number of rooms at your hotel. This will give you your occupancy rate percentage.

Occupancy rate performance improvement plan

Improving occupancy rate is a job for your marketing and sales teams, and there are many tactics you can use to boost this metric. First off, make the most of your former guests and turn them into loyal customers through email marketing strategies and by offering special deals and incentives.

Additionally, make sure you’re optimizing your OTA presence by creating the most detailed, enticing listings possible. But because booking platforms can be an unreliable source of bookings (it isn’t uncommon to see OTA reservation cancellation rates nearing 30%), you also need to have a strong direct booking strategy.

That means creating an attractive branded website that provides guests with a frictionless, engaging booking experience. And to minimize cancellations, employ a pre-stay engagement strategy via digital guidebooks and upsells.

Finally, closely track cancellation rates so you can use overbooking as a strategy for improving occupancy, but have an SOP in place for when cancellations drop below the average. Just be wary of driving down prices to drive up occupancy, as this could cause the ADR (our next KPI) to suffer.

6. Average daily rate (ADR)

Average daily rate (ADR) helps you measure the success and sustainability of your operations. 

Calculate and track ADR

To calculate ADR, divide the total room revenue from any given day by the number of rooms rented out that day. Since different rooms have different prices, this gives you an overview of the average figure across all your rooms.

ADR performance improvement plan

There’s one obvious way to increase average room rate: By boosting your room rates. However, you don’t have to raise rates across all your rooms to improve ADR.

One approach is to make it easy for guests to upgrade their rooms when they check in. If you use an online check-in tool, for example, and offer a room upgrade during the check-in process, putting the opportunity right in front of their eyes.

Or offer special room and meal or experience packages for certain guests depending on the purpose of their visit. This could be appropriate for visitors on their honeymoon, celebrating a special anniversary, or on a birthday trip.

7. Average length of stay (ALOS)

Average length of stay (ALOS) is a hospitality-specific KPI that tells you how long guests tend to book their trip for. By looking at ALOS, you’ll see if your average guest has a short or long stay so you can decide if you need to take steps toward increasing reservation lengths.

Calculate and track ALOS

To calculate ALOS for any given month, divide the total occupied room nights during that month by the total number of bookings. This will give you the average amount of time your guests stay with you.

ALOS performance improvement plan

Improving ALOS can be a great shortcut toward increasing hotel profitability. To do so, make it easy for guests to extend their stay, which you can do via a convenient guest web app.

Additionally, you can offer discounts for longer stays that incentivize guests to lengthen their visit, and strengthen your direct booking strategy, since reservations via OTAs are generally shorter.

8. Earnings before interest, taxes, depreciation, and amortization (EBITDA)

Earnings before interest, taxes, depreciation, and amortization (EBITDA) is another metric that banks look at when evaluating your business performance. This KPI is a widely used measure of a company’s profitability, and you’ll find it discussed across a variety of industries.

Calculate and track EBITDA

To calculate EBITDA, just follow the acronym: Add your net income (earnings), net interest expense, taxes, depreciation, and amortization together.

EBITDA performance improvement plan

Improving EBITDA requires a similar approach to improving other revenue-based metrics: Increasing earnings. To do so at your hotel, you’ll want to look for ways to increase other KPIs like occupancy rate, ALOS, and ADR.

Other key hotel performance indicators to measure

While the hotel KPIs listed above are some of the most important ones you’ll want to keep an eye on, they’re not the only metrics you can track to measure the health of your hotel. The following KPIs can also be helpful for benchmarking and optimizing your hotel revenue and performance:

  • Pickup: Pickup measures the future rooms/nights that were booked during a given time period (day, week) in the past. Pickup reports help you keep track of how your hotel performance is trending and what you can expect for performance in the near future.
  • Conversion rates: Sales conversion rates are a key sales KPI for your hotel to track, and they can be especially helpful if your hotel hosts large events like receptions or reunions. Calculate conversion rates by dividing the number of events booked at your hotel by the number of inquiries.
  • Food and drink margin: If you run a bar and/or restaurant, you need to keep track of your food and drink margin, as this can be a very profitable area of your operations. Equally, costs can quickly spiral if your restaurant isn’t carefully managed. To do so, simply subtract your total food and beverage expenses from total food and beverage revenue.
  • Online reviews: While they may not be directly related to revenue, online reviews can give you the “why” behind your hotel’s performance. Keep an eye on your average review score on Google and across OTAs, and dig deeper into the reasons why guests leave negative reviews so you can address those issues as soon as possible.
  • Staff sentiment: Finally, it’s just as important to keep an eye on staff sentiment as it is to track average guest sentiment. Send out regular employee satisfaction surveys to measure how your staff members feel about their job so you can give them the best possible working environment and, in return, have happy, productive employees, and a lower rate of staff turnover.

Keep profits up and costs low by tracking hotel KPIs

The pressures you’re experiencing at this time are not unique to your hotel. Throughout the industry, labor shortages, inflation, a looming recession, and tight margins are affecting the ability of small, independent hotels to operate profitably amidst the combined competition of major hotel brands and the short-term rental market.

So, whether you rely on a comprehensive management structure or are stuck in the weeds of daily operations, being able to focus on the most important KPIs is critical if you’re to accurately assess the sustainability of your operations and pinpoint how to improve your bottom line. 

By doing so, you’ll be in a stronger position to provide your guests with the experience they expect, and your staff and management team with the support and tools they need to optimize their performance and service.

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