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Guide on the most important hotel performance metrics

Guide on the most important hotel performance metrics

Running a lodging property, you look into Profits and Sales and strive to increase them. To run the business even more successfully, track some more metrics from this blog. They will help you understand what improvements you can make to achieve impressive results.

Occupancy rate

The number of rooms occupied by guests

For example, a hotel has 40 rooms, and ten rooms are occupied today. The occupancy rate is 10/40 x 100 = 25%.
For example, a hotel has 40 rooms, and ten rooms are occupied today. The occupancy rate is 10/40 x 100 = 25%.

Why calculate a hotel’s occupancy rate:

  • It shows your hotel’s performance throughout the seasons
  • It is a good KPI for the hotel’s marketing campaigns and promotions
  • You can plan your future budgets and sales strategies based on the history of occupancy rates

How often to calculate a hotel’s occupancy rate: For statistics, calculate it as many times as you need: daily, weekly, monthly, or yearly. Don’t forget to measure the occupancy rates during the promotion periods and after starting advertising campaigns.

How to improve a hotel’s occupancy rate:

  • Apply the length of stay (LOS) restrictions
  • Run special offers and advertising campaigns
  • Take part in OTA promotions to increase the visibility of your listings

Average daily rate (ADR)

The average price that guests pay for your rooms

For example, you made  $3.000 out of 10 rooms sold last night. This means that your ADR is $300.
For example, you made $3.000 out of 10 rooms sold last night. This means that your ADR is $300.

Why calculate a hotel’s ADR:

  • It identifies your property’s financial performance in different periods
  • You can implement dynamic pricing based on how your ADR changes at different times: during low and peak seasons, weekends and weekdays, and local events

How often to calculate a hotel’s ADR: On any night or a period like a month or a year.

What decreases a hotel’s ADR:

  • Lowering your room rates to stimulate demand or pricing below competitors
  • Discounts

How to improve a hotel’s ADR:

  • Offer room upgrades to guests
  • Charge more for rooms with extra value like a better view or a larger area

Revenue per available room (RevPAR)

Average room revenue per available room

For example, you have 40 rooms, and last night you made $3.000. No matter how many rooms you sold, your RevPAR is $75.

For example, you have 40 rooms, and last night you made $3.000. No matter how many rooms you sold, your RevPAR is $75.

Another example: your ADR is $300 while your occupancy rate is 25% (or 0.25). Thus, the RevPAR equals $75.

Why calculate a hotel’s RevPAR: RevPAR shows if you charge too little or too much.

How often to calculate a hotel’s RevPAR: On any night or a period like a month or a year.

What decreases a hotel’s RevPAR:

  • Cancelations as they decrease the occupancy rate
  • High commission on online bookings as it reduces the ADR
  • Overly low rates as they reduce the ADR

How to improve a hotel’s RevPAR:

Average length of stay (LOS)

The average number of nights that guests stay at your hotel

For example, last month the total number of occupied room nights was 250, while there were 68 bookings. Therefore,  LOS = 3.7 nights.
For example, last month the total number of occupied room nights was 250, while there were 68 bookings. Therefore, LOS = 3.7 nights.

Why calculate a hotel’s LOS: The labor cost of a week-long stay rises significantly if guests check in and out every night. LOS helps you see if you can save on the room servicing and booking acquiring costs.

How often to calculate a hotel’s LOS: Usually, once a month or a year.

How to improve a hotel’s LOS:

  • Set minimum length of stay restrictions
  • Increase room rates for shorter stays
  • Offer gifts or discounts for booking longer stays than they initially planned

Gross operating profit (GOP)

Hotel revenue less operating cost

For example, last month you made $90.000. You spent $50.000 on housekeeping, utilities, Wi-Fi bills, and so on. So, your GOP is $90.000 - $50.000= $40.000.
For example, last month you made $90.000. You spent $50.000 on housekeeping, utilities, Wi-Fi bills, and so on. So, your GOP is $90.000 - $50.000= $40.000.

Why calculate a hotel’s GOP: It shows if your hotel earns more than it spends.

How often to calculate a hotel’s GOP: Usually, once a month or year.

What decreases a hotel’s GOP: High operating expenses.

Gross operating profit per available room (GOP PAR)

Hotel revenue less operating cost divided by the total number of rooms

For example, last month you made $90.000 with 40 rooms. You spent $50.000 on housekeeping, utilities, Wi-Fi bills, and so on. So, your GOP PAR is ($90.000 - $50.000) / 40 = $1.000.
For example, last month you made $90.000 with 40 rooms. You spent $50.000 on housekeeping, utilities, Wi-Fi bills, and so on. So, your GOP PAR is ($90.000 - $50.000) / 40 = $1.000.

Why calculate a hotel’s GOP PAR:

  • It considers all the hotel revenue streams: restaurant, extra services, etc.
  • It shows how well you manage the revenue and operating costs

How often to calculate a hotel’s GOP PAR: Usually, once a month or year.

How to improve a hotel’s GOP PAR: Offer add-ons and packages to increase revenue per booking.

Market penetration index (MPI)

Hotel’s market share of occupancy when compared to competitors

For example, last month, your occupancy rate was 78%, while the average occupancy of your competitive set was 52%. So, your MPI was 150.
For example, last month, your occupancy rate was 78%, while the average occupancy of your competitive set was 52%. So, your MPI was 150.

Why calculate a hotel’s MPI:

  • It gives an overview of your market position
  • It allows you to evaluate how effective your marketing and pricing strategies are

How often to calculate a hotel’s MPI: Usually, once a month or a year.

What decreases a hotel’s MPI: Everything that decreases demand:

  • Bad online reputation
  • Ineffective pricing
  • Poor hotel marketing

How to improve a hotel’s MPI:

  • Offer better deals than your competitors
  • Drive more bookings by promoting your offers
  • Work on customer loyalty

How to interpret a hotel’s MPI:

  • MPI less than 100 — your competitors got the most of the bookings
  • MPI over 100 — your hotel has a fair share of the market

How to obtain information on the competitors’ occupancy rates: Subscribe to data services like STR Hotel Benchmarking, Market Minder by AirDNA, and Rate Insight by OTA Insight.


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