Important KPIs for the Hospitality Industry — 2023

The hospitality industry is fast-paced and ever-changing, making it one of the most challenging environments to navigate. To be successful, having a firm grasp of the most important KPIs for the hospitality industry is a must-do for businesses.

The rapidly-expanding hospitality industry today covers multiple categories, from hotels and resorts to restaurants and event venues. KPIs (Key Performance Indicators) make it easier for hoteliers to measure and track progress, identify areas of improvement, and set goals. However, with such diversity at play, identifying which KPIs are most important to track can be challenging, to say the least.

Let’s be clear — KPIs vary from hotel to hotel, and even within an organization’s varying departments, campaigns, or projects (solely depending on its goals). Despite this fact, various KPIs are also universally fundamental for hospitality businesses of all sizes.

What Does KPI Mean? Why Is It Important?

Before we delve into why KPIs are important, let’s understand what it stands for:

Key performance indicators are a set of specific, measurable values that companies use to track and assess how close they’ve reached towards achieving key objectives — from sales and marketing to product development and customer service perspectives.

Some common examples of KPIs include measures of sales performance, marketing effectiveness, customer satisfaction, and operational efficiency. While KPIs can be useful growth tools, they should only be used as part of a larger strategy for assessing progress and making decisions, not in isolation.

In the hospitality industry, KPIs are considered different from metrics and are highly encouraged to track to stay ahead of the flooding competition. Although metrics share an overview of a hotel’s overall performance, KPIs dissect it into subcategories for a clearer, detailed look into their business performance.

In most cases, hoteliers track the number of guests, revenue, occupancy rate, customer satisfaction, etc. to gain insights and locate areas of improvement in their services. For instance, if you receive a low rating, analyzing the key indicators will help understand how dissatisfied your customer was with the cleanliness, room service, food, amenities, etc.

11 Important KPIs To Track For Hoteliers

Here are some of the most important KPIs for the hospitality industry that hotelier professionals use frequently, from a financial standpoint:

• Occupancy Rate: Occupancy rate is a measure of how many rooms in a hotel/lodging property are being used at any given time, typically expressed as a percentage.

A high occupancy rate is generally a positive sign, indicating that the hotel is attracting more clients and generating revenue. A low occupancy rate, on the other hand, can be a sign of declining profits and revenue.

Hoteliers can try the following tips to optimize their occupancy rates:

• Offer excellent guest experience, including high-quality rooms to the friendly staff.

• Be more visible on online booking sites/easy to find by potential guests searching for accommodations.

• Email special deals and promotions to attract past customers

• Average Daily Rate (ADR): As the name suggests, the Average Daily Rate (ADR) falls under the fundamental hotel performance metrics used to find out the average rate paid for rooms booked every day. Hoteliers measure the ADR by dividing the overall revenue generated from hotel bookings by the total number of rooms sold, typically expressed in USD currency.

  For example, let’s say Hotel X has successfully booked 100 rooms at an average price of $150/night — here, the ADR stands at $150. The ADR metric is highly useful when it comes to tracking and benchmarking a supposed hotel’s performance against competitors, and identifying trends and seasonality in demand.

• Revenue Per Available Room (RevPAR): Revenue per Available Room (RevPAR) helps measure how much revenue a hotel can raise for every available room; it’s typically used to compare how different hotels are performing against each other.

  RevPAR is calculated by multiplying two vital hospitality industry KPIs, i.e., the Average Daily Rate (ADR) by the Occupancy Rate. For instance, if Hotel X projects an ADR of $100 and an Occupancy Rate of 80%, its RevPAR amount would sum up to $80..

  Note: Various factors can affect a property’s RevPAR amount, including the location, seasonal hype, the type of guests the hotel usually attracts, etc.

• Average Length of Stay (ALOS): ALOS metrics help calculate how long guests stay at a property by dividing the overall number of nights stayed by the total number of guests checking in/out during a period. Suppose five individual guests booked Hotel X for ten nights — the average length of stay, in this case, would be two nights.

  One of the most important KPIs for the hospitality industry, ALOS, helps property owners get an idea of their guests’ purpose of stay. For example, a longer ALOS might indicate leisure, while a shorter ALOS is generally inclined toward business motives. While booking durations can vary depending on the property type, location, and time of year, the ALOS for all hotels is generally between two-three nights.

• Room Type Index (RTI): Hoteliers commonly use the Room Type Index to count how many rooms are available for bookings, compared to the total.

  If Hotel X has a total of 100 rooms and an RTI of 80%, it means that eighty rooms are open for booking, while the other 20 aren’t. Besides, this hospitality industry KPI also helps identify the rooms that typically stay in high demand. Lastly, it helps make more informed decisions, such as whether or not the hotel needs expansion or more rooms of a certain type.

• RevPAR Room Type Index (ReRTI): When it comes to hotel bookings, not all room types perform similarly. The RevPAR Room Type Index (ReRTI), in this scenario, helps measure the revenue that a certain room type pools in, compared to the average revenue that all room types typically generate.

  To calculate ReRTI, simply divide the total room revenue by the number of rooms of that type. For instance, if Hotel X projects an RTI of 80 for its standard rooms and a RevPAR of $100, its ReRTI stats would be 1.25. This further implies that the hotel is generating 1.25 times more revenue from its standard rooms than the average hotel. Again, if Hotel X has earned $100,000 in revenue from its 100 deluxe suites, the ReRTI for those suites would be $1,000.

  Fundamentally, these hotel performance metrics enable hoteliers to easily point out which room types (e.g., standard, deluxe, presidential) are performing poorly and require special attention.

• Market Penetration Index: The Market Penetration Index (MPI) shares insights into the relationship between the number of rooms available and the number of rooms/nights sold in a specific hospitality market. It is calculated by dividing the total number of hotel rooms available in the market by the number of rooms available for rent.

  For example, if HOTEL X has a 10% market share in a location with 99 other competitors, its MPI would be 0.1. Being one of the important KPIs for the hospitality industry, it allows hoteliers to track their progress in penetrating a target market and provides insight into which markets are most lucrative to focus on.

• Returns of Market Investment (ROMI): Market ROI (ROMI) is the incremental revenue that a hotel generates through its marketing efforts, or for each dollar spent on its promotional campaigns and initiatives. For example, if a property owner spends $100 on marketing and pools in $500 in revenue, its market ROI would stand as 5:1.

  Hoteliers typically pool in ROMI by driving reservations through their website, third-party booking sites, and offline channels such as travel agents. By tracking the bookings generated from each of these channels and comparing them to the marketing costs associated with every channel, the marketing returns can be easily calculated.

• Online Reviews & Ratings: Speaking of hospitality industry KPIs that make a massive difference, we cannot overlook online reviews. When planning a trip, travelers first search for nearby hotels for accommodation purposes. Once they find an option they’re interested in, one of the first things they do is check the online reviews left by previous guests. And while a negative review can hurt business, a positive review can be just as valuable.

  As per reports, 70.9% of tourists admit that a hotel’s online presence (reviews and ratings) influences their purchase decision the most. Five out of ten travelers stray away from booking rooms in a hotel with zero online reviews. Positive reviews help to build trust with potential customers, encourage them to book with your hotel over others, and help to improve your hotel’s ranking on search engines.

• Gross Operating Profit (GOP): Defined as the difference between a hotel’s total revenue and its total operating expenses, GOP is a hotel performance metric that projects the total profit earned, before deducting taxes and other expenses.

  GOP helps hotel owners and managers have a clear picture of how much money their hotel is making (or losing). It also helps compare their profitability to their competitors, and make changes to their business operations that essentially improve their bottom line.

• Gross Operating Profit per Available Room (GOPAR): Speaking of GOP, here’s a sub-KPI to be aware of, i.e. Gross Operating Profit per Available Room (GOPAR). This metric is calculated by dividing a hotel’s gross operating profit by the number of rooms available for guests.

  GOPAR falls under vital hospitality industry KPIs to pave a way for property owners to compare the profitability of hotels of different sizes in a granular view. For example, two hotels may project a similar GOP at a time. However, if one hotel has twice as many rooms as the other, it’d naturally have a lower GOPAR. Besides, a small hotel with a GOPAR of $100/room may be more profitable than a bigger property with a GOPAR of $50/room.

Conclusion

The multi-billion hospitality industry boasts various KPIs to determine how well a property may perform in a market – from occupancy rates to online reviews. That said, following our list of aforementioned metrics will surely keep you ahead of the curve.

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Digital Marketer & Content writer at Innquest.