28 Dec
2019
Analyzing your efforts is very important to know whether your efforts are paying off. There’s nothing more frustrating than going in the wrong direction, giving your all efforts and later come to know you were doing it all wrong.
You can easily fall for the illusion by not having standard metrics to analyze your hotel growth and continuously ignore it. Analysis makes you aware of the short-comings. You can only make changes or improve once you know that a problem exists.
In the Hotel Industry, there are certain critical metrics you need to look at to figure out how you are doing and how you can improve further.
Let’s walk through each of them one by one
1. Average Daily Rate (ADR)
ADR is one of the most fundamental metrics you need to take care of. Average Daily Rate simply put, is the rate a guest pays per room for the period of time he stays. It is one of the key performance indicators indicating how much income the hotel is earning per room. The higher, the better.
You can calculate it as follows,
ADR = Total Hotel rooms revenue earned / Number of rooms sold. You can use this to compare your previous ADR and see if it is showing positive results or the other way round.
If it continuously shows a down trend, you need to find the loopholes and then plan a distinct strategy to help you improve the metric.
2. Revenue Per Available Room (RevPAR)
This metric helps you to know your hotel profits. It also assists in knowing if you are achieving success. RevPAR is used to know how much profit is made in a certain period of time. It is calculated by dividing the total revenue of the hotel divided by the total number of available rooms during the time period being measured.
RevPAR = Total revenue of the hotel / Total number of available rooms. OR RevPAR = ADR * Occupancy
3. Average Occupancy Rate (AOR) / Occupancy
Occupancy is the metric that allows you to know how many rooms are occupied in a certain period of time i.e daily, monthly, yearly.AOR / Occupancy = Paid rooms occupied / Rooms available . The higher the occupancy, the better because this will help you generate more revenue if more rooms are occupied.
Taking effective measures, you can easily increase your hotel occupancy.
4. Revenue Generation Index (RGI)
Revenue Generation Index is calculated to compare your RevPAR to the average RevPAR in the market. This makes you know how you are fairing among your competitors. If you are well above the average RevPAR in the market, it is a very good sign and it shows you are going in the right direction.
If you are heading towards the negative compared to the average market standards, you have to implement new strategies to curb down this and increase your RevPAR. Revenue Generation Index = Hotel’s RevPAR / Hotel’s total market RevPAR.
If the result is greater than one, you are doing good or else you need to devise your methodology.
5. Gross Operating Profit Per Available Room (GOP PAR)
GOP PAR is a very critical metric concerning your hotel’s success. It lets you know not only the most earning part of your hotel but also the operational costs involved to generate the revenue from those areas.
This gives you a clear picture of your expenses and the most important part contributing to your total hotel revenue. GOP PAR = Gross Operating Profit / Per Room available
6. Market Penetration Index (MPI)
This is a very essential metric if you want to assess your performance compared to other hotels in the market and know your market value. MPI makes you understand how many people are opting for your hotel as compared to your competitors in the market.
It can be calculated by dividing your hotel’s occupancy by market occupancy and multiplying by 100 MPI = Hotel’s Occupancy / Market Occupancy * 100. If there are more than 100, it implies you have a very good share of the market and have an advantage among your competitors.
If the results are below 100, it means you are losing bookings to your rival and therefore you need to plan how you can increase your market penetration.
7. Direct Revenue Ratio (DRR)
DRR allows you to calculate earnings that come from direct bookings, from your website instead of third party channels. Third-party channels and OTA’s charge huge commissions and this leads to a decrease in your overall revenue.
You need to encourage your customers to book directly from your website which will not only boost your search engine rankings but will save you from paying hefty commissions. This will ultimately increase your revenue.
DRR = Direct revenue from your website / Revenue from third party’s and OTA’s * 100 In order to maximize profitability, you should have DRR more than 40%. If not, then you have to ponder over your current strategies to improve it for the betterment.
Wrapping up …
Measuring your hotel revenues are a critical part to enhance your hotel’s growth. By considering the above-mentioned metrics, you can calculate your performance to know whether you are truly achieving success or not.
Depending on what your results are, you can then work on your current performance to continuously grow and increase your revenue.
Hospitality Industry being a dynamic business, it is very important to assess your hotel revenues using standard metrics.
