Setting KPIs for long term success
by Sarah Cade
Last year we launched Rezcontrol, a complete cloud-based property management system (PMS) for every aspect of hotel management. Our system provides hotels with an online reservation platform which is easily integrated into your hotel website, online travel agency or GDS. Hotel management teams can measure hotel performance in real time and track KPIs such as average daily room rates (ADR) and revenue per available room (RevPar).
What is a KPI?
A key performance indicator is a measurable target that provides insight on how your hotel business is performing. Your targets may include occupancy levels, average length of stay, and revenue per available room to name just a few of the standard industry metrics.
KPIs for hotels impact many departments from operations and marketing to finance and guest relations.
How do KPIs help my hotel?
KPIs give you the ability to analyse your outputs and, based on the learnings, can improve your hotel’s performance. Below we have highlighted five suggested KPIs for your hotel that are fundamental to measuring your successes and knowing your shortcomings.
Which KPIs should I be monitoring?
1. The average daily (room) rate or ADR – This is one of the main KPI drivers for your hotel. The average daily rate allows you to calculate the daily average amount of revenue generated by your occupied rooms. It is calculated by dividing the total room revenue by the total number of occupied rooms.
The data from this KPI will give insight on your property’s financial performance as well as support forecast pricing and setting targets for marketing.
ADR can be used to support your marketing efforts, including initiatives to increase your occupancy, and price increases to maximise top line sales.
Conversely, if your property sees a reduced ADR you can deep dive into the source of the problem. Perhaps a marketing activation has increased your occupancy rate and concurrently reduced the daily revenue per available room? Track ADR changes over time so you can build up a picture of your hotel’s performance.
2. Occupancy rate – This KPI tracks the total number of occupied rooms, vacant rooms, and rooms with upcoming reservations. This should be monitored daily to provide data to form a ‘like-for-like’ monthly comparison. To calculate, divide the number of occupied rooms by the total number of available rooms, multiply the result by 100 – this is your occupancy rate as a percentage.
This KPI provides an invaluable view of your hotel’s daily performance.
If you notice a poor occupancy trend at certain times of the year you can focus your marketing efforts to encourage reservations during these periods. Alternatively, by understanding seasonal fluctuations, you can manage your staffing levels over quieter periods.
3. The average length of stay or ALOS – This measures the average number of nights guests stay with you. It can be calculated by dividing the total number of occupied rooms by the total number of reservations. The resulting number represents the average stay length of your guests – with a higher score being more desirable. Longer stays mean less check-ins, check-outs and room turns to be done. Guests who stay longer will also be more likely to purchase additional services such as meals and drinks, spa treatments etc.
This measure can be influenced by factors not always in your control. For example, the type of hotel e.g. leisure or business, and location – city or rural. City hotels will most likely have shorter stays where people are visiting on city breaks than those in coastal or rural areas where guests are more likely to stay for longer holidays.
You can use ALOS data to make informed pricing decisions. If you have a low ALOSL, you could look to increasing your room rates for the shorter stays and offer more competitive deals for clients looking for longer stays. Therefore, the average stay length is an essential KPI that is directly linked to your hotel’s revenue.
4. Daily revenue per available room or RevPar – This is used to provide a daily revenue average based on income across all reservations and room types. To calculate, multiply the average daily room rate by the occupancy rate (see above).
A high daily revenue per available room typically means a healthy occupancy rate as well as a high daily average room rate.
It is important to note that this KPI does take into consideration the size of your property. As a result, your RevPAR should not be viewed in isolation from other metrics. Your property could have a below average RevPAR however, you may still have an availability of vacant rooms capable of superior revenues.
At the same time, a spike in RevPAR does not directly correlate to a growth in your property’s bottom line and reliance on RevPAR could lead to a decline in both revenue and profitability. It is common for hotel management to use the ADR, mentioned earlier in this article, as a performance measure since it is among the main pillars for driving traffic to your property.
In summary, with a precise room pricing policy in place, the occupancy rate should rise, and your property’s RevPAR should also rise in correlation.
5. Benchmarking your online reputation – Our world and our businesses are all online. It is important to monitor your online reputation, read reviews, thank guests for positive reviews and address the negative ones.
The scoring provided by websites such as TripAdvisor and Booking.com should be included within your KPI reporting. These written reviews and guest feedback on the efficiency and public perception of your property.
You should also review your social media channels – growth, reactions and engagement with the posts and content that you are pushing out to your online audiences.
How can I find out more about Rezcontrol?
You can find out more about Rezcontrol here on the Avondata website. The next step would be to book an online demonstration and let us show you that the proof is in the product!
Alternatively, please contact the sales team on 0330 223 1456 or email sales@avondata.co.uk