The Three Essential Hotel KPIs You Need to Relax in Style
Posted on 27th October 2016 in Reporting
Written by Ross MacLeod
Grab the elevator to the Penthouse with our guide to the three essential KPIs your hotel needs for business success.
If you want to upgrade your hotel from Fawlty Towers to the Ritz then this is the guide for you. Hand-picked by our Industry Experts, these are the three KPIs every hotel-owner needs for business success and our recommendations for what else you should monitor. Don’t forget the power of the full picture when setting KPIs, a combination of financial and non-financial drivers must be used in combination. At FUTRLI, we’re obsessed with Key Predictive Indicators, not just reviewing ‘performance’ which is past-tense. Read all about Key Predictive Indicators.
These are your headline metrics. In the hotel industry there are three KPIs, which should be prioritised above all others. Occupancy Percentage, Room Revenue per Available Room and Average Daily Rate. Each should be viewed together (ideally in a dashboard created in FUTRLI) in order to inform marketing, pricing and operational strategy. Use these to get a clear picture of the health of the business. Poor performance across any of these KPIs should be seen as a warning sign that requires further investigation. Whilst success should be celebrated…with Champagne; in the Penthouse; in the largest hot tub you can find!
As the name implies, Occupancy Percentage is concerned with your ability to keep the rooms in your hotel occupied. This metric calculates the percentage of rooms in use by guests, relative to the total number of rooms which you have available. In so doing, it reflects how successful you have been in attracting consumers to stay in your establishment – important information which should be fed into your marketing and operational strategy.
In the hotel industry your rooms are your main resource. Therefore a low percentage indicates that you are making poor use of your available resources. By devising strategies to increase this percentage you could generate additional revenue from those rooms which are currently being under-utilised. Find out how to measure it in FUTRLI.
Room Revenue per Available Room
Commonly referred to as REVPAR, this is a core Hotel industry KPI, which examines how much revenue is being generated from all of your hotel’s rooms – occupied or not. As with all revenue-based metrics a higher figure should be aimed for. Low revenue and a high Occupancy Percentage may indicate problems with your pricing strategy. Whilst the converse – high revenue but a low Occupancy Percentage – is less damaging for the business, it nonetheless shows room for improvement. You may wish to consider offering discounts or running promotional offers during periods of lower Occupancy. Find out how to measure it in FUTRLI.
Average Daily Rate
Unlike REVPAR, which examines revenue generation relative to all of your available rooms, Average Daily Rate concentrates purely on how much you are receiving from your Occupied rooms. This allows you to see how efficiently the hotel is translating room occupancy into revenue for the business. By examining Daily Rate as an average over time, periods of higher and lower occupancy are combined together, thus giving a truer picture of how much revenue is being generated on average each day. The higher this figure, the more you are earning over time. As with REVPAR and Occupancy Percentage, it is important to set benchmarks for your Average Daily Rate to ensure that the business remains on track to achieve its financial goals. Find out how to measure it in FUTRLI.
Best of the Rest
Once you’ve started monitoring your core KPIs, you can begin to look at what additional information would add value to your firm. The best metrics to record alongside ‘the essentials’ will vary depending upon the scale, size and particular nature of your business. You may be a Startup funded by external investment, in which case, managing and growing Cash Flow will be of key importance. We’d therefore recommend utilising FUTRLI’ forecasting engine to map your business’ future and the use of metrics such as Cash Runway, which is designed to show how long your business can continue to operate before its Cash reverses will be exhausted.
Alternatively, you might be a large, established operation with a large workforce, who would benefit more from examining Staff Turnover and Wages to Revenue. A high Staff Turnover may point to problems with Staff Retention, Training or poor Staff management. Whilst a high Wages to Revenue indicates that your Staff costs are too high relative to your firm’s turnover. If you sell food and drink, or maintain a kitchen or bar, then it’s important to stay abreast of your Dry and Wet Sales Gross Profit in order to maximise your return. By setting appropriate benchmarks you can ensure that items are always priced appropriately. Advertising rooms via multiple websites or booking channels? Then set tracks around room bookings by channel.
The key is to identify the areas which matter most to your business and set appropriate metrics around them to ensure you meet your long-term goals. Speak to our team for further information as to how FUTRLI can help you better understand your business or sign up for a trial today.