How do you know if your hotel is successful? How can you identify areas of opportunity? While some hoteliers might make decisions based on gut feelings, savvy owners and operators use KPIs to drive decisions, measure performance, and find opportunities for improvement. But understanding which metrics should drive which decisions, and knowing who is responsible for them, can be confusing. In this article, we’ll introduce you to a glossary of hotel KPIs that hotel owners, general managers, asset managers, executive teams, revenue teams, and operations leaders rely on to make decisions. We’ll explain why each KPI is important, where to find them, and who cares about them.
Before we dive in, let’s take a step back. What is a KPI? A key performance indicator, or KPI, is a quantifiable measure of progress toward a goal. KPIs should be objective and based on reliable data. Metrics like occupancy, ADR, and RevPAR are some of the most important KPIs in the hotel industry because they help hotels track their progress over time and toward their goals. These KPIs are also universal; every hotel has an ADR, so this KPI helps one hotel benchmark itself against the competition while also measuring performance for past and future dates. KPIs guide decision-making in the hotel industry, too. Hotels are bought and sold based on metrics like RevPAR and operating margin, and many employees’ performance reviews and bonuses are based on metrics that they can influence. Knowing what these KPIs measure, how they’re calculated, and how they contribute to the overall picture of a hotel’s performance will help you make more informed decisions.
Occupancy: Occupancy is expressed as a percentage, like 85%, and it’s calculated by dividing the number of occupied rooms by the total number of available rooms (85 occupied rooms in a 100-key hotel yields an occupancy rate of 85%). Occupancy is one of the most important metrics for a hotel, and this metric can be found in your property management system. Nearly all operational departments need to know current and future occupancy rates to appropriately schedule staff, order supplies, and forecast guest needs. Revenue managers also use occupancy rate to inform their pricing decisions for future dates.
ADR: Average daily rate, or ADR, is the average room rate sold on a given night or time period. You can calculate it by dividing the room revenue on a given night by the number of rooms occupied on that night, or you can find this metric in your PMS. ADR is important to revenue managers because it shows how much guests are willing to pay: a high ADR shows that guests are willing to pay high rates, but when ADR is low, it illustrates softness in the market.
RevPAR: Revenue per available room, or RevPAR, is calculated by multiplying ADR by occupancy rate, and it’s commonly found in your PMS and on a profit and loss statement (P&L). RevPAR is one of the most popular metrics in the hotel industry because it contextualizes ADR against occupancy and helps hotels measure their overall success.
tRevPAR: Total revenue per available room, or tRevPAR, is similar to RevPAR, but it factors in not only room revenue, but also other types of revenue like F&B or spa spend and ancillary fees. tRevPAR can be found in your PMS or on a P&L statement, and it’s most relevant for hotels that generate significant revenue from outlets and fees. Department heads for non-rooms departments may use tRevPAR to track their departments’ contribution to the hotel’s bottom line over time.
GOPPAR: Unlike RevPAR and tRevPAR, gross operating profit per available room, or GOPPAR, takes expenses into account. GOPPAR is calculated by dividing gross operating profit (revenue minus expenses) by the total number of rooms available during a given time period. This metric is often found on the P&L. Finance leaders, general managers, and hotel owners or asset managers will pay attention to GOPPAR because it shows a more comprehensive picture of the hotel’s profitability compared to topline-focused metrics like ADR and RevPAR.
EBITDA: Earnings before interest, tax, depreciation, and amortization (EBITDA) is one of the most crucial metrics to gauge a hotel’s profitability. It is usually found at the bottom of a profit and loss statement. EBITDA is calculated by subtracting all expenses (except interest, tax, depreciation, and amortization) from total revenue, which gives a comprehensive picture of a hotel’s bottom line. EBITDA can help investors, owners, asset managers, and general managers make big strategic decisions about hotels since it can be measured over time and benchmarked against other hotels.
Interest Coverage Ratio: Hotel investors and asset managers use interest coverage ratio (ICR) to determine how easily a hotel can pay the interest it owes on any debt. ICR is calculated by dividing a hotel’s EBIT (earnings before interest and taxes) or EBITDA by the interest expense during that time period. It’s usually expressed as a multiplier, like 2.45x. ICR is typically calculated in a financial reporting system or in business intelligence software.
Cap Rate: Capitalization Rate, also known as Cap Rate, is one metric that helps investors assess the risk level of an investment. A hotel’s cap rate is calculated by dividing the annual net operating income by the asset value, and it’s expressed as a percentage, like 3.9%. A higher cap rate means that an investment carries more risk, but the potential upside is higher too. A hotel with a lower cap rate is deemed a safer investment but has a smaller potential return.
Operating Margin: Calculated by dividing operating profit by total revenue, operating margin (OM), also known as return on sales, is a good way to measure how effectively a hotel can generate profits. In general, a hotel with a higher operating margin would be seen as a more attractive investment than a hotel with a lower operating margin, with all other factors being equal. Looking at operating margin over time can also help you determine whether a hotel’s operations have become more or less efficient.
NOI: Net operating income, or NOI, is calculated by subtracting a hotel’s operating expenses (payroll, maintenance, etc.) from its revenue. In the real estate industry, investors and asset managers use NOI to assess a hotel’s profitability. If expenses are greater than revenue, then it’s likely not worthwhile for the owner to continue operating the property. NOI can be found on a hotel’s P&L.
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Revenue management KPIs
Booking Pace: Revenue managers use booking pace to measure the rate at which reservations are booked for a certain stay date. Booking pace can be tracked in your PMS or revenue management system, and many revenue managers use Excel sheets or business intelligence tools to create graphs that show booking pace over time, looking up to a year in advance of a particular travel date. As the travel date approaches, revenue managers can monitor when new bookings are made to determine if they need to raise or lower rates to control the pace of new bookings, with the goal being to avoid selling out too early and to prevent too much unsold inventory when the check-in date arrives.
Average length of stay: This metric can be found in your revenue management system or PMS, and it’s calculated by adding up all the reservation nights in a given time period, divided by the number of reservations. Average length of stay is usually expressed as a number with one decimal place, like 2.1 nights. Revenue managers pay close attention to average length of stay to better understand stay patterns and guest profiles over specific dates and to achieve maximum occupancy and revenue during compression periods.
Market Penetration Index: Also known as Occupancy Index, Market Penetration Index (MPI) compares your hotel’s occupancy against the average occupancy of your compset. MPI is found on your STR report, and revenue managers, sales managers, and general managers often pay attention to this metric. If your hotel is capturing the same occupancy rate as your compset, then your MPI will be 100. If your hotel is getting less occupancy than your compset, your MPI will be below 100, and if you’re capturing more than your fair share, then your MPI will be greater than 100. To a revenue manager, low MPI might mean you set rates too high and guests booked your competitors, while high MPI might mean your rates were too low and you left money on the table.
Revenue Generation Index: Also found on the STR report, your hotel’s revenue generation index, or RGI, compares your RevPAR to the average RevPAR of your compset. Like MPI, an RGI of 100 means your hotel captured exactly its fair share of RevPAR, while a low RGI means your compset captured higher RevPAR and a high RGI means you captured higher RevPAR than your competitors. Revenue managers will watch this metric closely and use it to determine the success of their pricing strategies.
Average Rate Index: Like RGI and MPI, average rate index (ARI) is found on the STR report and measures a hotel’s ADR performance compared to the compset. It’s also expressed as an index, so a hotel that captures exactly the same ADR as its competitors would have an ARI of 100. By looking at ARI, RGI, and MPI together, a revenue manager can make educated pricing decisions that take competitor performance into account.
CPOR: Cost per occupied room, or CPOR, is calculated by dividing the total operating costs (housekeeping, maintenance, utilities, etc.) by the number of occupied rooms during a given time period. This metric helps operational teams understand and control expenses. Finance managers will also be focused on this metric to ensure the hotel remains profitable. This metric appears on the P&L and is usually reported monthly, quarterly, and yearly.
Labor expense as percentage of sales: General managers and finance managers will be interested in this metric, which shows how labor expenses stack up against revenue on the P&L. Many hotels have a benchmark ratio of labor expenses to revenue and try to avoid dropping below that benchmark. This metric also illustrates the bare minimum room revenue a hotel must generate to cover labor costs.
Room attendant cleaning time: This metric simply tracks the amount of time it takes for a room attendant to clean a room. Housekeeping managers use this metric to schedule housekeeping staff; for instance, if it takes a housekeeper 30 minutes to clean a room, then one housekeeper should be able to clean 16 rooms per shift. This metric can be shown in your PMS or housekeeping software.
Time from vacant clean to vacant inspected: This metric measures how quickly housekeeping teams can inspect clean rooms and move them to “inspected” status. Housekeeping managers will be interested in decreasing this metric, and front desk managers are also stakeholders in this metric because they want to be able to check guests into clean rooms as quickly as possible. Your PMS or housekeeping management system can calculate this metric by comparing the timestamps between “clean” and “inspected” status on a given room or for all rooms during a certain time period.
Guest satisfaction scores: Arguably one of the most important metrics to a general manager and many department heads, guest satisfaction scores quantify how guests feel about staying at your hotel. Some hotels rely on guest review scores from sites like Tripadvisor, Google, Expedia, and Booking.com, which show average review scores on a scale from 1 to 5 (or 1 to 10 on Booking.com). Other hotels might use an internal guest sentiment tool, such as TrustYou, to gather their own data about guest satisfaction. Either way, guest satisfaction scores provide valuable intelligence about what your hotel is doing well and which areas have room for improvement.
Website conversion rate: Digital marketers who want to drive more direct bookings will pay close attention to their website conversion rate, which is calculated by dividing the total number of website bookings during a specific time period by the total number of website users during that same time period. This metric is expressed as a relatively small percentage, often around or below 2%. You can find your website conversion rate in your website’s content management system or in an analytics tool like Google Analytics.
Return on ad spend: Marketing and sales teams will use return on ad spend, or ROAS, to assess the performance of advertising programs like display ads, pay-per-click ads, or press placements. ROAS is the ratio of the total revenue generated by the ads versus the advertising cost. It’s usually expressed in ratio form; advertising that cost $500 and led to $2500 in revenue would have a ROAS of 5:1. You can find ROAS on the advertising platforms you use, such as Google Ads or Expedia TravelAds, or your digital marketing agency can report on it for you.
Direct bookings mix: The share of direct bookings in your channel mix is calculated by dividing the number of direct bookings by the total number of bookings during a given time period. Direct revenue share can be calculated the same way, only by using revenue totals instead of number of bookings. Marketing and revenue teams usually monitor direct share to understand how heavily the hotel relies on third-party channels, and general managers and owners often use direct booking mix as a proxy for brand power or brand awareness, since a hotel with more direct bookings may also have more repeat guests or a stronger brand name.
Cost per acquisition: Cost per acquisition, or CPA, is the average cost spent to acquire a new guest, and it’s calculated by dividing all marketing spend by the number of new guests during a certain timeframe. CPA can help your marketing team understand the efficiency of your marketing spend. Some marketing teams use CPA as a guardrail metric, like by deciding they will not spend more than $60 on acquiring a new user.
Bounce rate: Bounce rate can be tracked in your website’s CMS or analytics dashboard such as Google Analytics, and it measures how many website visitors quickly leave your website. A high bounce rate might signal that your ads are targeting users who don’t align with what your hotel offers, while a low bounce rate means that you’re getting very relevant traffic. Marketing managers will be most interested in bounce rate when assessing performance of ads or other strategies to drive traffic to your website.
Pages per visit/time on site: Like bounce rate, you’ll find statistics about your website user behavior in a reporting dashboard like Google Analytics. Studying KPIs like pages per visit, time spent on each page, and add-to-cart ratio can help your marketing team better understand how guests use your website and the steps they take before successfully booking a reservation. These metrics can uncover potential user experience improvements and areas where you might want to remove friction so you can generate more direct bookings.
Hotel managers need to understand hotel-specific KPIs, or key performance indicators, because these metrics help measure and assess the financial and operational performance of the hotel business. Some of the most important KPIs in the hospitality industry include occupancy rate, ADR (average daily rate), RevPAR (revenue per available room), TREVPAR (total revenue per available room), GOPPAR (gross operating profit per available room), MPI (market penetration index), ALOS (average length of stay), and customer satisfaction metrics such as online reviews. These metrics help hoteliers to optimize their revenue streams, benchmark against competitors, forecast demand, and assess their property’s performance over a specific period of time. By tracking KPIs such as room revenue, total revenue, operating costs, and cost per occupied room, hotel managers can automate certain functionalities such as revenue management, hotel operations, and hotel marketing to improve the bottom line of their hotel property.
These metrics will help you interpret a hotel’s P&L and better understand performance from a data-driven, objective standpoint. Whether you’re making an investment decision or seeking to boost ADR, hotel KPIs can help you understand where you are and how you can achieve your goals.