# Do you know which indicators improve your hotel's performance?

For a perfect conception of the Revenue Management strategy we count with several data. These indicators serve as a basis and support the entire Revenue strategy, driving the hotel towards a more sustained and prosperous future. It is notorious that the choices of these indicators can vary from hotel to hotel or type of business. For one hotel, one indicator may be more important than another.

### "If you cannot measure it, you cannot improve it" [1]

Starting from historical data, turning them to performance values, we began an evaluation and analysis process. Naturally, everything that can be measured intuitively leads to a more conscious, efficient and effective performance. In the following suggestion only internal performance indicators (which we can control) are considered, leaving out the benchmarking indicators and our expectations (forecast KPIs [2]).

KPIs are nothing more than performance metrics for a hotel. From the most generic to the most specific, there is no shortage of indicators for analysis. In the hotel industry, KPIs should allow rapid analysis for clear and well defined objectives. Sharing this information to the employees will promote mission, vision and values, this way, they will end up embodying the strategy as well as enhancing its efficiency and effectiveness.

## Which are these performance indicators?

Already well known to all hoteliers, we have the Occupancy Rate (OCC), the average daily rate (ADR) and the average revenue per available room (RevPAR). Individually, it reveal little information, and have great limitations when it comes to creating revenue. We must take into account the depth of each indicator, know its substance, the nature of the data we work with.

Understanding the hotel's results, based on historical data with the same metrics, crossing, identifying behaviors or trends is essential to correct and point paths. Preparing the whole strategy for revenue optimization, boosting the growth of a company, is not something that is immediate and takes its time to execute. The entire course must be carefully evaluated and conditions must be met so that at least the indicators presented are properly calculated, leading to a greater consistency and sustainability of the business in the medium and long term.

## The old ones, but no less important (OCC, ADR and RevPAR)

These have become the industry benchmarks due to their ease of calculation and high comparability between hotels, however they have high limitations, not translating the property whole reality.

OCC: Occupancy Rate - sets the occupancy of a certain number of available rooms over a period of time as a percentage. It is calculated by dividing the number of occupied rooms by the number of available rooms.

$$OCC = \frac{\text{Number of occupied rooms}}{\text{Number of available rooms}}$$

ADR: Average daily rate - is the average rate practiced per sold room in a given period. It is obtained by dividing the revenue generated in the period by the number of rooms sold. It is imperative that we work on NET rates in order to find the correct average.

$$ADR = \frac{\text{Revenue generated}}{\text{Number of rooms sold}}$$

RevPAR: Revenue per available room - is based on the revenue generated by the rooms sold, based on the number of available rooms for sale. It can be calculated by dividing the revenue generated by rooms over the available rooms for sale, or multiplying the daily average rate (ADR) by the occupancy rate (OCC).
This KPI is very used when we want to realize our performance, however this is limiting when we want to evaluate the overall performance of the hotel, because it does not take into account other hotel outlets (F&B, SPA, etc...).

$$RevPAR = \frac{\text{ADR}}{\text{Number of available rooms}}$$

or
$$RevPAR = {\text{ADR X OCC}}$$

## Filling in some gaps in traditional performance indicators:

TRevPOR: Total revenue per occupied room - this indicator is similar to the well known RevPAR, however, it takes into account the total revenue generated; (restaurants, spa, bars, fitness centers, golf, casino, meetings, etc.) based on rooms that were effectively occupied.

$$TRevPOR = \frac{\text{Rooms revenue + other outlets revenue}}{\text{Number of occupied rooms}}$$

CPOR: Cost per occupied room - This indicator helps to calculate the average cost per occupied room. In this way we can determine if the operation costs per room are reasonable, as it is an important data in the pricing strategy. This indicator is calculated by the quotient of the total cost of the rooms department divided by the number of rooms sold.

$$CPOR = \frac{\text{Total Cost of Rooms Department}}{\text{Number of occupied rooms}}$$

TrevPAR: Total revenue per available room - More comprehensively to all hotel revenue sources, this indicator agglomerates all revenue (F&B, leisure, rooms, shops, etc.) in addition to rooms and it is divided by the available rooms. This indicator immediately tells you which areas of revenue need adjustment in order to optimize total revenue.

$$TrevPAR = \frac{\text{Hotel's total revenue}}{\text{Number of available rooms}}$$

NRevPar: Net Revenue per Available Room - Much like RevPar, this metric takes into account the revenue free of distribution costs from the sale of the rooms. Therefore, to the Rooms Revenue, the commissions and other distribution costs are deducted. This amount is then divided by the total number of available rooms. This indicator is therefore more realistic than RevPar, as it demonstrates more clearly the increase of effectiveness of sales.

$$NRevPar = \frac{\text{Net Revenue}}{\text{Number of available rooms}}$$

This indicator can and should also be calculated by distribution channel, as we often have different ways of calculating commissions, seriously distorting many of our conclusions. In this way we can make a direct comparison between channels and allocate accommodation accordingly, increasing the probability of revenue.

## Focus on the Guest as a proactive element generating future revenue

TrevPEC: Total revenue per customer - Total revenue divided by the number of guests at the hotel, this is a more complete indicator, which is highly relevant when calculated by market segments, where you can see trends of segments that spend more when compared to others.

$$TrevPEC = \frac{\text{Total Revenue}}{\text{Number of guests}}$$

CSAT [3] e NPS [4]: CSAT consists on guest satisfaction over the generality of the provided services, is usually achieved by the hotel through satisfaction surveys with evaluations of 1 to 5 or other scales such as stars or satisfaction states (faces), this evaluation is done only with internal hotel resources.

$$CSAT = \frac{\text{Number of evaluations between 4 / 5}}{\text{Number of answered surveys}}$$

$$NPS = \frac{\text{% Promoter guests}}{\text{% Defamatory guests}}$$

NPS (methodology created by Fred Reichheld) [5] differs from the CSAT, as this last can evaluate a diversity of points of our service. In NPS evaluation only a question is made to the guest: "Rate the probability of recommending our hotel in a scale from 1 to 10". Guests will be classified with the following scale that will be used in the calculation of the indicator:

• Defamatory Guests: Ratings between 1 and 6
• Neutral Guests: Ratings between 7 and 8
• Promoter Guests: Ratings between 9 and 10

It is with these data that we can obtain the map to a continuous improvement of the hotel, focus on the guest and resulting in the increase of future results.

Online reviews: It is generally known that we are interested in as many reviews as possible and the higher the number of reviews, the greater the credibility of its average. However, these can vary from platform to platform depending on other factors. There are platforms in the market that create a general classification based on an algorithm, however, if the hotel does not have one of these platforms can be guided by the official classification of each platform individually whether this is an OTA or Metasearch.

## When does our evaluation starts getting interesting?

EBITDA [6]: This calculation gives us information on how much profit the unit is generating, based on its operating activity, not taking into account the financial and tax impact. We can realize whether the company is profitable and efficient without the burden of contaminating any valuation. If EBITDA is negative, it means that the operation is not profitable, however, it does not mean that it has losses, as it may have gains resulting, for example, from return on investments. We can use this indicator if we want to buy companies in different tax areas, in countries with different tax regimes, since the indicator is not affected by this data and provides a clean way to compare data.

GOPPAR: Gross operating profit per available room - This indicator divides the obtained operating profit by the available rooms. This is one of the most effective methods of measuring the performance of the hotel, as it gives a greater understanding of the hotel, demonstrating the value of the property as a whole. It is understood as the KPI of excellence.

$$GOPPAR = \frac{\text{Obtained operating profit}}{\text{Number of available rooms}}$$

RGI (the only benchmarking indicator): Revenue Generation Index or RevPAR Index - Calculation used to determine if a property is achieving a fair market share, versus a competing property. Much more important than the simple value of RevPAR and its growth, this index takes into account the competitive environment, giving us more concrete information of our market share. It is determined using our RevPAR over our competing property RevPAR.

$$RGI = \frac{\text{Our RevPAR}}{\text{Competing property RevPAR}}$$

## Final considerations

It is easy to see that each indicator has its relevance to Revenue Manager, but we highlight that for a thorough and detailed analysis of the property's performance, whether it be a hotel, local accommodation, restaurant, travel agency, etc., these indicators should take into account the context in which they are inserted, and in parallel with other indicators. They are valuable Revenue tools to analyze historical data, measure the present and align strategies for the future. In case you cannot calculate for some reason, something is wrong in your operating structure, advising you to correct it as quickly as possible. This is only a guide of the essential indicators for a correct management in order to create, manage and improve the total revenue generated. It can always be complemented by other indicators through its BSC [7] (which will be discussed in a future article).

1. William Thompson – Mathematical Physicist of the XIX century ↩︎

2. Key Performance Indicator ↩︎

3. Client Satisfaction Score ↩︎

4. Net Promoter Score ↩︎

5. Speaker and specialist in business strategy. A reference in business models based on loyalty programs. ↩︎

6. Earnings Before Interest, Taxes, Depreciation and Amortization ↩︎

7. Balanced Score Card ↩︎

### Susana Castro

With a degree in Tourism Business Management she has held operational roles in such areas as Front Office, Housekeeping, e-Commerce and Sales. She has specific training in Revenue.