Revenue Management KPIs and metrics are essential tools for key stakeholders such as general managers, hotel owners, investors, marketing teams, revenue managers and sales teams to manage and measure performance in the hotel industry.
They can provide valuable insights into a hotel’s operations and help teams to enhance performance, improve decision making, increase efficiency and raise customer satisfaction. Within the hotel industry, there are a wide variety of revenue management KPIs, such as Average Daily Rate (ADR), Occupancy Rate, Revenue Per Available Room (RevPAR) and many more!
In this article I discuss the difference between KPIs and metrics and share practical advice to help you measure hotel performance, apply KPIs to common scenarios and effectively monitor revenue management KPIs.
The Difference Between Hotel Revenue Management KPIs And Metrics
Hotel revenue management is a process of using systematic computational analysis of data to assist in predicting customers’ behaviour and enable relevant pricing, inventory and distribution related decisions, for the purpose of maximising revenue.
By regularly analysing and tracking KPIs, hotel managers can assess the effectiveness of their revenue strategy, identify trends and make suitable adjustments to optimise profitability. However, there is a subtle, yet sufficiently significant difference between KPIs and metrics:
- KPIs are Key Performance Indicators that reflect performance and success.
For example, RevPAR combines ADR and Occupancy Rate to measure a hotel’s ability to generate revenue from its available rooms – making it a comprehensive measure of revenue performance.
- Metrics are measurable elements that, whilst informative, are generally less critical.
For example, Cancellation Rate, which is the percentage of reservations that are cancelled before the scheduled check-in date – it is, in essence, merely an insight or piece of raw data that helps us to understand business operations.
How To Measure Hotel Performance With KPIs
In the dynamic world of hospitality, revenue management is crucial for success. By following a four-step process using a set of insightful KPIs, hoteliers can effectively measure performance and make informed decisions to maximise revenues and profitability.
Identify KPIs
- Occupancy Rate (%): Often expressed as a percentage of rooms sold at a particular point in time, relative to total number of rooms available in the associated period. For example, a hotel with 100 rooms where 85 has been sold will have 85% occupancy. Track occupancy trends over time to identify seasonal fluctuations and opportunities for improvement. Aim for consistent occupancy levels whilst maintaining profitability.
- ADR: This is the average price that a room(s) has been sold for at a particular point in time. This KPI is also known as Average Room Rate (ARR). For example, if your 100-room hotel has generated £9,500 Room Revenue from the sale of 85 rooms, the ADR would be £111.76 (£9,500 / 85 = £111.76). Regularly analyse ADR to understand market competitiveness and identify opportunities to increase prices. Consider factors like competitors, demand and seasonality.
- RevPAR: One of the hotel industry’s most common metrics – measuring accommodation revenue generated relative to the total number of rooms available. For example, if your 100-room hotel has generated £9,500 Room Revenue from 100 rooms available for sale, your RevPAR would be £95 (£9,500 / 100 = £95.00). RevPAR is a crucial KPI for benchmarking performance against competitors and tracking revenue growth. Focus on strategies that maximise both ADR and Occupancy to increase RevPAR.
- TRevPAR: This metric evolved from RevPAR and takes into account of all the revenue generated by the property, relative to the total number of rooms available. For example, if your 100-room hotel generated £9,500 Room Revenue, £2,500 in Food & Beverage Revenue and £750 in Upsell Revenue, your TRevPAR would be £127.50 (£9,500 + £2,500 + £750 = £12,750 / 100 = £127.50). TRevPAR provides a more comprehensive view of how much revenue a hotel generates. Identify opportunities to increase revenue from all revenue streams, such as by offering attractive packages that combine multiple products and promoting ancillary services too.
- Net RevPAR: This metric has evolved from RevPAR too, but also takes distribution costs into account by subtracting the costs involved in bringing that business into the hotel. For example, if your 100-room hotel generated £9,500 in Room Revenue and your Distribution Costs were £1,500, your Net RevPAR would be £80 (£9,500 – £1,500 = £8,000 / 100 = £80). Net RevPAR provides a more accurate depiction of a hotel’s profitability. Analyse distribution channels to identify the most cost-effective and profitable options.
- GopPAR: This metric demonstrates the profit generated relative to the number of rooms available. For example, if your 100-room hotel generated Total Revenue of £12,750 and Hotel Operating Expenses were £8,500, your GopPAR would be £42.50 (£12,750 – £8,500 = £4,250 / 100 = £42.50). GopPAR is a critical KPI for evaluating overall hotel performance and identifying areas for cost optimisation. Focus on strategies that increase revenue whilst controlling expenses to maximise GopPAR.
While these KPIs are valuable individually, a holistic approach is essential. Analyse these KPIs to gain a deeper understanding of your hotel’s performance. Consider factors such as competitive pressures, guest preferences and market trends when interpreting and using these KPIs.
Collect and Analyse Data
- Collect data from various sources, such as your Booking Engine, Central Reservations System, Channel Manager, Distribution Channels, Property Management System (PMS), Meta Search Engines, Rate Shopping Tool, Reputation Management Software, Revenue Management System (RMS) & Smith Travel Research (STR).
- Clean and organise the data, ensuring that the data is both accurate and consistent and use data visualisation techniques and statistical tools to analyse the data to identify patterns and trends.
Benchmark Performance
- Compare your hotel’s current KPIs and performance to that of your competitors, industry, market trends and past performance to identify areas of improvement.
Set Goals & Develop Strategies
- Develop distribution, inventory and pricing strategies to achieve the goals set, continuously monitor your performance and make appropriate adjustments to ensure that the goals you have set are met.
- Based on your analysis, set specific, measurable, achievable, relevant and time-bound (SMART) goals.
How To Apply KPIs To Common Scenarios
Below are three common hotel scenarios with revenue management KPIs which could be monitored to help improve each situation.
1. Low Occupancy During The Off-Season
During the off-season, if occupancy rates are low, the goal may be to increase revenues by increasing occupancy. To monitor progress, KPIs such as Occupancy Rate, ADR, RevPAR and TRevPAR should be analysed closely. To achieve this goal, historical data can be used to identify periods of low occupancy. Once identified, tactics such as creating tailored packages, incentivising longer stays and offering discounted rates could all be implemented. Exploring opportunities to increase ancillary revenues (e.g. F&B, Spa etc) could contribute to overall revenue performance too.
2. Optimising Prices To Maximise Revenues
When optimising prices to maximise revenues and profitability without sacrificing occupancy rates, KPIs such as ADR, RevPAR, Net RevPAR and GopPAR should be closely monitored. To reach this goal, analyse competitor pricing and historical data to identify optimal prices points that should deliver the optimal equilibrium between occupancy and revenues. Assess the profitability of each channel after subtracting distribution costs to optimise channel mix. Consider implementing dynamic pricing, which uses data and analytics, in real-time based on various factors and evaluate the impact of operational costs on profitability to identify areas for cost reduction.
3. Improving Distribution Performance
To improve the performance of your distribution channels, KPIs such as Occupancy Rate, ADR, RevPAR, TRevPAR and Net RevPAR should be tracked to monitor progress. To achieve this goal, identify high and low performing channels, as well as those with potential for increased ancillary revenues. Assess their pricing power and overall revenue contribution to understand what each channel contributes to your revenues. If distribution costs are high, negotiate lower commission and focus on driving direct bookings through your own website to avoid commission fees from OTAs.
By applying the above hotel revenue management KPIs to common scenarios, hoteliers can make data-driven decisions to increase occupancy and revenue, improve profitability and optimise their prices.
How Often Should Revenue Management KPIs Be Monitored?
The optimal frequency and desired level of granularity for monitoring revenue management KPIs depends on various factors, such as the specific goals of your revenue strategy, the complexity of your operations, diversity of your customer base and the size of your hotel. Changes amongst your competitors, demand fluctuation, economic factors and hotels with significant seasonal variation may require more frequent adjustment.
For hotels with high levels of daily fluctuations in demand, such as city centres or resorts, daily monitoring can provide valuable insights, whilst weekly monitoring can be sufficient for hotels with moderate levels of daily variation. Monthly monitoring may be appropriate for hotels with relatively stable demand patterns and quarterly/annual monitoring can be used for long-term trend analysis and strategic planning.
Tip! If you use a PMS or RMS that has built-in alerts functionality, set up an alert system to help identify significant deviations from target KPIs to trigger timely interventions.
By carefully considering these factors and implementing a suitable monitoring frequency, hotels can ensure that their revenue management strategy is aligned with their business goals and market conditions.
Outsource To A Revenue Management Expert
At MavREV, we specialise in providing Outsourced Revenue Management expertise remotely to independent hotels at a fraction of the cost associated with the employing a full-time revenue manager. We measure success frequently using KPIs to benchmark performance , set goals and develop successful revenue strategies. We maximise RevPAR using MavPERFORM RMS, an algorithm-powered, cloud-based and responsively designed RMS and Price Optimiser that saves valuable costs and time!
