Hotel Management

9 must-have KPIs to derive your hotel business strategies

Efficient hotel data analytics is more crucial for the industry than ever. Countries are now used to living with manageable caseloads of COVID-19, which means that traveling is slowly getting back to capacity. Hoteliers are facing new challenges and changes as different business practices and medical prerequisites take over the industry.

What’s on the line is more than just financial performance. Naturally, it’s a Key Performance Indicator, but there is a bigger picture at play. In these unprecedented times, whichever hotel decodes the most optimal marketing approach, will have a stronghold on the market in the coming years. 

In this article, you’ll get a rundown on the top nine must-have KPIs that will help your hotel turn profit and spot key trends. You’ll be able to identify new hotel strategies with data analytics and the right KPIs. Honing in on these KPIs is the only way to emerge as one of the leading players in the hotel business.

Why Your Hotel Business Needs Data Analytics

Hospitality is a data-rich industry. There are dozens of KPIs that allow you to measure hotel performance, yet, many professionals get lost reporting on vanity metrics. Understanding the most critically needed numbers will bring the biggest returns and keep operating costs at bay. 

Data analytics can be remarkably profitable for hotel owners. Equipped with the right dashboard, you can gain insights on customer analytics, real-time data (think: booking patterns), or data management (think: optimizing booking channels or straightening out inventory). 

Hotel management with data analytics opens the door to a whole new line of strategies. Routinely forecasting with predictive analysis is just around the corner. 

We already gained sizable data on traveler movements and behavior patterns in the new normal. Imagine using advanced machine learning techniques to maximize revenue no matter the season or the prevailing epidemic. We just need to put our existing data to use.

Hotel owners or hotel managers can effectively track their performance by using business intelligence tools, such as templates and dashboards. At this level, this is the only way you can derive actionable insights and create better strategies for your hotel. 

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Example hotel data analytics dashboard

Essential Hotel Business KPIs to track today

Let’s dive in and evaluate the Key Performance Indicators you’ll need to track for the most efficient hotel data analytics. No more unsold or empty rooms, no more sky-high operating expenses, and no more guessing of your marketing spend—all thanks to these nine powerful hotel metrics.

Booking in Different Channels

Hotels have revenue streams through a variety of booking channels. There are incoming bookings from OTAs (online travel agencies), property-owned websites, and even via phone calls. Take to Google Analytics or a data analytics tool like ClicData to compare the net revenue from each stream. This is the most meaningful KPI you can get from this analysis. 

But it doesn’t stop there. The guest’s whole end-to-end journey is important. As far as anecdotal stories go, even if a single detail goes amiss, the traveler will tend to feel disappointment regarding the entirety of their experience. This calls for the need to further evaluate both high-performing and low-performing channels and catch conversion-impeding factors. 

booking channel evolution
Booking channels by market share over the years. Source: D-edge.

In other words, review the guest experience for each channel: are the photos up-to-date on each 3rd party site? Does the copy reflect well on the hotel? Are all of the given website’s features fully utilized (think: special discounts, optional page elements, even SEO)?

Best KPI for your hotel: Total revenue from each booking channel.

Average Daily Rate

Average Daily Rate, or ADR, gives you a clear view of the average revenue each occupied room brings in. 

The calculation is:

ADR = total room revenue / total rooms occupied

Unoccupied rooms are not included in the formula as this is a highly conversion-based hotel metric. For best results, and relevant forecasting, compare your ADR year-over-year and season-over-season. 

Here’s the YoY formula to compare two low seasons:

(2021 Nov to March ADR – 2020 Nov to March) / 2020 Nov to March = YoY change %

Pro-tip: use a hotel KPI dashboard to visualize your hotel’s financial performance, including your Average Daily Rate.

Revenue Per Available Room

Revenue per available room, or RevPAR, is a similar metric to ADR. However, in this case, you’re specifying room-level revenue as opposed to overall revenue. 

The calculation is:

RevPAR = (ADR x occupancy rate) / total available rooms

With this metric in hand, you can do effective post mortems on specific periods (think: holidays or during special events) or perform predictive analysis (“how much should we bring in on a room-level to reach x overall goal”). 

Average Length of Stay

The average length of stay, or ALOS, is the most basic metric of them all. It is used to determine all travelers’ average length of stay through the number of completed nights at the hotel. 

The calculation is:

ALOS = occupied room nights / total bookings

If you find that your guests stay for only a couple of days at a time, you can offset the lost revenue by increasing the room rates for short stays and giving a better deal for longer stays. Consider offering long weekends, spa days, or weekday specials.

Occupancy Rate

Occupancy Rate, or OR, helps you derive the general hotel occupancy rate. It’s one of the most essential Key Performance Indicators because OR gives you an idea of your hotel’s popularity. Low occupancy rate? Run a promotion. Low OR driving up operating costs? Rearrange the staff’s schedule or optimize your booking channels.

The calculation is:

OR = total occupied rooms / total number of available rooms

For best results, continuously monitor your OR. If you see regular dips in your Occupancy Rate, investigate the reason behind the drop and gear up for further optimization. There could be seasonal, cultural, or other reasons at play (not even mentioning recurring waves of a pandemic).

Inventory (TAR)

Knowing your inventory, or Total Available Rooms (TAR), is a must-have for managing bookings. To have a smooth and efficient process, the calculation of your TAR needs to be always up to date and accurate. 

The calculation is:

TAR = number of available rooms x number of days during a specific period

TAR is also a supporting figure for calculating your Revenue Per Available Room.

Customer Satisfaction

Customer Satisfaction is the KPI of your general guest experience. By using data analytics, you can directly improve your customer service, and therefore, customer happiness. There are a few ways you can measure how guests feel about your hotel.

Guest surveys

Automatically send a survey upon the completion of a trip. Not everyone will fill it out but over time, you can reap useful insights and recurring problems from the feedback. 

Online ratings and reviews

If you use 3rd party booking pages, chances are good that they’ll have their own means to rate and review your establishment. Customers take notice when a hotel is responsive to the feedback on these channels. 

hotel reviews
Hotel reviews can be the deciding factor for many travelers. Source: booking.com

Loyalty programs

Customer loyalty schemes could be another indicator of your overall performance. The more people join, the more you can trust that your guest experience as a whole (including prices, quality of stay, customer service, and more) hits the sweet spot for guests. 

How do you quantify these three factors? With loyalty programs, you only need to keep track of new sign-ups and lapsed member metrics. The collective meaning behind survey answers and reviews is best measured by sentiment analytics

Ads Performance

Active customer acquisition is an integral part of hotel marketing. In many cases, calculating the ROI of your ads performance is easy to measure. 

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Hotel Facebook ad example. Source: Hilton

The calculation is:

ROI = total revenue from channel – amount spent) / amount spent

Low ROI? You’re not alone. It’s hard to cut through the noise nowadays. In your next ad campaign, try market segmentation (think: narrowing your target audience) or personalize the user experience (think: relevant remarketing).

Churn

In other marketing specialties, churn is defined by the number of customers who do not renew a subscription or neglect to return for a recurring purchase. How does this KPI translate to the hospitality industry? To use churn as a hotel KPI, you need to keep an open mind and exercise some flexibility. 

Scenarios to use churn for hotels: 

  • Your guests leave before the end of their scheduled stay
  • Customer complaints that result in cancellations
  • Previously loyal customers cancel their loyalty membership or simply lapse

The calculation is:

Churn = number of churned customers / total number of customers

How to Monitor Your Hotel KPIs

In this article, you got a hold of the most important KPIs that will propel your hotel business strategies forward. With these in hand, you will stay on track, eliminate vanity metrics, and understand booking patterns and trends better.

Understanding the way these KPIs are calculated is just the first step. Next, you’ll need to start monitoring your hotel’s performance. At this level, using a template or a dashboard is your best bet. With simple, automated tools like this, you’ll save time and get a visual representation of your progress. 

The easy-to-understand KPIs and real-time statuses will also help you get buy-in from stakeholders easier. The road to simpler, more efficient hotel business strategies is right ahead of you—just take the leap! 

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