To manage your hotel effectively, here are the 12 key metrics that you need to understand. In the challenging year of 2021, improving the following 12 metrics is even more essential to growing your business.
1. Average Occupancy Rate – AOR
What is the AOR?
AOR is the percentage of occupied rooms compared to the total number of hotel rooms in a given period. The AOR is one of the most important indicators as it shows the hotels’ performance. The AOR index is the foundation to calculate the GOPPAR index. Ideally, the AOR should be 65% or more in a year.
(Total number of rooms occupied) ÷ (Total number of available rooms) x 100 =% AOR
In one month, your hotel has 65 rooms occupied out of 100. So, your AOR for that month will be:
65 used rooms ÷ 100 existing rooms = 65% AOR
How to improve the average occupancy?
- Special treats for returning guests
Collect and save your customer information to build a personalized experience, loyalty program to attract more returning guests.
- Hotel chain
For business travelers, you can consider opening a hotel chain with properties in strategic locations. This tactic will diversify your brand.
- Special promotions
Create an exclusive offer for each targeted group of customers to attract them to your property.
2. Average Daily Rate – ADR
What is ADR?
ADR describes the average daily income per paid occupied room. ADR is used to measure the business performance of your hotel.
The formula for calculating ADR index:
(Average room revenue earned) ÷ (Number of rooms booked) = ADR
Example: If your hotel makes $20,000 in room revenue by booking out 200 rooms, then your ADR would be: $20,000 room revenue ÷ 200 rooms booked = $100 ADR
Note: When calculating ADR, do not include the formula for unpaid rooms, non-paid rooms for staff, etc.
How to improve ADR?
- Increase room rates
One of the simplest ways to improve your ADR is to increase room rates. However, you need to carefully consider the pricing strategy to come up with a reasonable increase.
- Focus on potential customers
OTA sites are great sources of information about potential customers who have a high ADR. Business travelers, for example, are often seen as high-value customers. Focus on attracting these customers would improve your ADR.
3. Revenue Per Available Room – RevPAR
What is the RevPAR Index?
RevPAR is one of the important metrics. This index shows the revenue per available room (both occupied and unoccupied rooms).
Difference between ADR and RevPAR:
The ADR only shows the revenue from occupied rooms, while RevPAR presents room revenues and hotel reservation rates. In other words, the RevPAR index shows a big picture of the actual room revenue performance based on the number of rooms of a hotel.
Average daily rate (ADR) x Average occupancy rate (AOR) = RevPAR
Room revenues ÷ Available rooms for sale = RevPAR
If you have 200 rooms, with an ADR average daily room rate of $ 100 and an average occupancy of 80%, total revenue is $ 16,000, RevPAR would be calculated like this:
$ 100 (ADR) x 80% (AOR) = $ 80 (RevPAR)
$ 16,000 (Room revenue) / 200 (Available Rooms) = $ 80 (RevPAR)
How to improve your RevPAR metrics?
- Adjust room rates based on market demand
To increase your RevPAR, you need to improve your ADR and AOR. You can decrease low-season room rates to increase your AOR and increase your room rates during the high season to boost your ADR, and overall improve your RevPAR.
- Discount offers
Different offers for different seasons or holidays are always attracting guests’ attention. Such as wedding packages including rooms and romantic dinners; or family packages for Christmas or summertime.
- Upselling strategy
One of the strategies to improve your RevPAR indicator effectively is upselling. You can provide other services such as breakfast in bed, room upgrades…Upselling not only encourages guests to spend more on your property but also leverages their experience.
4. Total Revenue Per Available Room – TrevPAR
What is TrevPAR?
If hotel-related KPIs are as diverse as they are numerous, then TRevPAR or total revenue per available room is the rainbow-flavored ice cream of performance metrics. TrevPAR shows the total revenue from every service brought to a hotel.
The difference between TrevPAR and RevPAR:
TrevPAR shows the total revenue from each guest stay, including services and purchases such as restaurants, spas, and bars. Meanwhile, RevPAR only shows the revenue from rent rooms.
(Total revenue) ÷ (Total number of available rooms) = TrevPAR
Let say you own a hotel with 30 rooms. Last month, total hotel revenue included dining, bar, and other services were $30000. The TrevPAR index is calculated as follow:
$ 30000 total revenue ÷ 30 rooms = $ 1000 TrevPAR
How to improve the TrevPAR indicator?
- Save guest profiles
Collect your guests’ information is essential for improving the guest experience and encouraging them to use more services during their stay. For example, information like traveling style, favorite room, favorite food, activities, special needs…By understanding your guests, you can deliver a better experience.
- Improve your services
The most obvious way to increase your TrevPAR index is to improve the services of your hotel. You want to make sure that the food is good, the spa is clean, and delivers exceptional services.
- Upselling strategy
You can apply an upselling strategy to the services that you offer in your hotel: special parking areas, room upgrades, spa packages, and so on.
5. Gross Operating Profit Per Available Room – GopPAR
What is the GopPAR?
GopPAR looks at the performance of your hotel via revenues and expenses. GopPAR can tell you a lot about the financial health of your hotel.
The difference between TrevPAR and GopPAR:
TrevPAR gives you an overview of how the business is doing across the board based on revenue. Meanwhile, GopPAR goes a step further and looks at how your hotel is doing in terms of operational performance. Based on the TrevPAR index, you will see that the hotel is doing very well with great sales. However, if the operating costs are too high, the GopPAR metric will show that the actual profit is not as you expected, and you will have to keep your operating costs under control.
(Gross revenue) – (Operating expenses) = Gross Operating Revenue (GOR)
(Gross Operating Revenue) ÷ (Total number of available rooms) = GopPAR
Assuming you have 10 rooms, your gross operating revenue (GOR) last year was $100,000. The calculation of the GopPAR is as follows:
$100,000 GOR ÷ 10 rooms = $10,000 GopPAR
How to improve GopPAR Index?
- Boost your revenue
Increasing hotel revenue would result in increasing the GopPAR. There are several ways to do it. For example, adjusting room rates, create add-on packages…However, you want to plan a pricing strategy that matches the quality of the service you provide.
- Minimize operating costs
In addition to increasing your revenue, cutting your operating costs will also improve your GopPAR. Using modern management software and applying technology in daily operations can help to cut costs. Note that cutting operating costs must not affect your guests’ experience.
6. Average Length of Stay – ALOS
What is ALOS?
ALOS stands for Average Length of Stay. In other words, this is the metric that represents the average number of night guests staying at your hotel. By tracking the ALOS index, you can find out if your guests stay shorter or longer than usual. As a result, you can encourage longer stays at your hotel.
(Total occupied room nights) ÷ (Total number of bookings) = ALOS
Let us say you had 60 room nights and 12 bookings in the previous month. So, the ALOS in that month will be 60 ÷ 12 = 5 nights.
How to improve ALOS?
- Setting a minimum length of stay
A quick way to increase ALOS is to set a minimum length of stay (02 nights, 03 nights, etc.). This will significantly improve the ALOS, especially in the low season.
- Flexible pricing policy
You can offer promotions for longer stays. For example, a discount of 5% for guests staying 05 nights or more.
Catch on to the rest of the metrics in the next article: “The revenue management metrics every hotel owner needs to know (Part 2)” to learn about 06 other important metrics in measuring your hotel business.