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A Small Guide for Better Understanding of KPIs

To maintain the leadership in the cruel business world, you must carefully examine all your steps and constantly be ready to take a new look at your common strategy. However, if everything is going perfectly well, is it possible that actually something isn’t right? When comes the very same time to change the way?

One smart man said: «If you cannot measure it, you cannot manage it», and it is absolutely true. Some great firms miss out on tons of money, because they think they are the kings of the market and don’t need to analyze their marketplace situation. They are sadly mistaken.   

Nowadays there are many calculations and surveys specially created for evaluating the profitability of the business, taking opinions from the customers and finally for maximizing the financial results. They are called KPIs – Key Performance Indicators.

The number of Hotel KPIs is great. We cannot encompass all of them, but can inform you about the most useful and efficient ones.  Read our small guide and learn more about the world of hotel KPIs.

The most important factor to the all hotel owners is occupancy. This indicator shows the efficiency and the success criteria of your business. That makes sense, no guests – no profits. To calculate the occupancy, all paid and occupied rooms must be divided by the all available rooms in your property. For example, your hotel has 100 rooms for guests, 90 of them are booked, simple division and we have 90% occupancy rate. Our congratulations, your hotel is really popular by the customers. 

The next hotel indicator is ARR that is short for Average Room Rate. It allows to rate your financial performance in relation to the rooms. In other words, it is the average price of every room sold over a particular period of time. For calculating ARR you need to use the following information: Total Rooms Revenue and Total Rooms Occupied. Divide the first by the second and get your personal ARR. Example: Your Total Rooms Revenue for a month is 10 000 dollars. You have sold 90 rooms in this month. The average price of your room is $111.

RevPAR stands for Revenue Per Available Room. This hotel KPI demonstrates the middle price of each available room per day or night. The concept is the same. You need to divide Total Rooms Revenue by All Available Rooms. Look at the previous example again. Total Rooms Revenue for a month is 10 000 dollars. You have 100 available rooms. In this case the RevPAR is $100.

The picture-perfect situation is RevPAR = ARR. It means the hotel occupancy is 100% and you really manage like a pro.

Market Penetration Index is a very classic KPI. This instrument is designed to measure your hotel’s occupancy relative to the whole market. The result over 100% is a must if you want to save leading positions in the hotel industry. If your final score is below, it means that some of your competitors have stolen your clients. Make a point of it! All experts highly recommend calculating MPI every month to have a better vision of your market power.

Whereas all the hotel KPIs are very valuable, we need to double down on the Revenue Generation Index. It compares your RevPAR to the average RevPAR in the hotel industry. RGI demonstrates how much revenue your hotel is bringing in relation to the market.  The starting point is still 100. If your results are above it, you are great and earn more money than your competitors. Otherwise, you are behind them.

If you are scrupulous about running your business, try to use all of the existent hotel KPIs. In practice, you can be fully informed about your state in the market just by looking at MPI, RGI or ARR.  Just remember, the key to success is to never forget about measuring of your business.

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Comment by Vandana Bhatt on May 23, 2018 at 12:35

Thanks for sharing, :)

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