5 Killer Hotel Key Performance Indicators You Must Watch
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Are You Monitoring Your Hotel Key Performance Indicators?
The price for not leveraging Hotel Key Performance Indicators is heavy.
It results in underutilized potential for revenue generation and profit retention.
You do not want to be in that situation ever.
I will introduce you to 5 Killer Hotel Key Performance Indicators You Must Watch if you wish to realize your performance potential.
This blog post will lay out 5 Killer Hotel Key Performance Indicators You Must Watch to realize that potential.
The post also visually communicates that with a striking infographic you can download and share.
- Market Share Index
- Top 3 Market Segments
- Revenue Per Available Room
- Gross Operating Profit
- Year on Year Growth
Hotel Key Performance Indicators You Cannot Ignore
Do you know the vital statistics of measuring hotel performance?
In a hotel performance analysis meeting your boss happens to ask you to provide a big picture overview of your hotel performance.
Would you be able to cover the most important hotel metrics?
Your operation is affected by many hotel key performance indicators.
I call them profit triggers.
Why profit triggers?
Because they influence capacity, revenue, expense and ultimately the profit.
These triggers impact your hotel performance in a big way.
In other words, these profit triggers contribute to your hotel revenue, profit and related indices in a major way.
Learn more about this through the Paradise Hotel Story.
Are you ready for the rollicking ride?
Let us dive right in.
Here is the first of the five killer hotel key performance indicators which you must absolutely be on top of.
Market Share Index
Hotels are unique in that they operate in their own competitive set.
A competitive set represents your direct competitors.
They offer similar products and services.
More critically these are hotels that can take away business from you.
Since a hotel cannot compare itself to all the other hotels in the market, they focus on 4 to 5 hotels that can be considered direct competition.
Those 4 to 5 hotels are your hotel's competitive set.
Armed with a competitive set you can now position yourself in that market.
How do you know where you are positioned?
And on what basis?
Great questions!
Enter Market Share or Revenue Share Index.
These are critical hotel metrics for measuring hotel performance.
They literally tell you what share of the market pie you command.
Don't you want to know that?
Why is knowing about the competition so important?
Consider this.
You operate in a particular competitive set.
You will need to take decisions on pricing, quality, presentation, products and services on a regular basis.
These will impact not just your results but also that of the competitive set.
So, knowing where you stand versus your competition is key.
In the next killer Hotel Key Performance Indicator we will see how market share index is arrived at.
On to the next Killer Hotel KPI.
Top 3 Market Segments
If Market Share Index is the big picture of your share of the market pie, market segments are the slices in that share.
Market Segments are representations of your target market.
They denote your most important customers.
They represent the major sources of your revenue.
Even within market segments, it is critical for you to identify those that produce the highest revenue for you.
Your Top 3 Market Segments are literally your Best Sellers.
Tracking these best sellers from a revenue criterion is the first step to market share dominance.
You should focus your strategies in optimizing revenue from these top producing market segments.
Why Top 3?
Have you heard of the 80:20 Rule?
The 80:20 Rule is a universal rule that says 20% of your efforts produce 80% of results.
This means that the other 80% produces only 20% results.
Now you know where your focus should be.
On the 20% which produces 80% of your results.
In other words, the Top 3 Market Segments.
Let us move to the next Killer hotel key performance indicator.
Revenue Per Available Room
Revenue performance is the first port of call in priorities.
You need to know your revenue generation strategies in other words.
In this process, knowing the price and business volume elements of related key performance indicators is critical.
Price is represented by Average Daily Rate and Business Volume by Occupancy.
How much of your hotel room revenue results are coming from the occupancy of the hotel?
What is your average daily rate?
These are questions which critical for delivering hotel room revenue.
Enter a global Hotel Key Performance Indicator.
RevPAR
Or Revenue Per Available Room.
This hotel KPI literally tells you your efficiency level in producing hotel room revenue.
Efficiency as in utilization of capacity or rooms available.
How much your room revenue is influenced by occupancy and how much by average daily rate.
It is like looking through a microscope of your revenue achievement.
Suddenly, individual factors get magnified.
For an in depth understanding of how RevPAR impacts hotel revenue and profitability, read this blog post on Revenue Per Available Room.
Gross Operating Profit
Revenue is the foundation on which any hotel (or for that matter any business) operation rests.
Understanding revenue behavior from the perspective of actuals, budgets, last year allows you to make comparisons of business results.
They indicate where you stand.
Knowing whether you are growing or not in your revenues over time is critical to sustain the operation itself.
If revenue is the foundation of your hotel operation, then profitability is the very reason for survival.
And earning a good return on investment for your owners.
Profitability is what sustains the hotel operation.
It injects vital cash flow to run the business.
It is often said in the hospitality industry that if there is no top line, there is no bottom line too.
Owners are constantly looking for sustainable profit to continue running the hotel operation.
However, how will you know if your operation is running efficiently?
That your profitability is the highest it can be?
You will need a hotel key performance indicator that will tell you that.
So that you can measure yourself and improve.
Enter the powerful Gross Operating Profit Hotel KPI.
Also known famously as GOP.
The Gross Operating Profit is literally the Index of Efficiency of Operation of the hotel.
It takes into account all operating revenue and expense elements of the hotel operation.
When operating expenses are deducted from operating revenue, the result is GOP.
it is a global hotel key performance indicator that stands for optimum generation of revenue and efficient management of expense.
The result is optimum profitability.
In other words, Gross Operating Profit.
Owners are obsessed with this hotel key performance indicator.
They would like to see sustained growth in this KPI.
And now on to the final killer hotel key performance indicator.
It brings together the four killer hotel KPIs we have discussed thus far.
It is an owner favorite at all times.
Let us see why and how.
Year on Year Growth
Measurement of revenue and profit during the current month and year-to-date is important.
However, knowing the big picture for the entire year is crucial.
Even more critical is knowing how you compare with the previous year.
Did you achieve growth this year compared to the previous?
Hotel managements are constantly grappling with this question.
More crucially, hotel owners demand that growth be registered year after year.
This is why an accurate forecasting process in place is a game changer.
Monthly forecasts give you a big picture overview of the entire year.
In other words, they provide you a progress report each month.
Growth in revenue, expenses and profit.
A sustainable hotel operation is fueled by growth.
Hotel owners wish to see growth all the time.
Monthly Forecasts thus need to be measured, actioned upon and monitored both for revenue and profit.
It is a constant challenge.
Nothing however is more fulfilling that seeing a robust growth registered year over year.
You will bring a smile to your owner's face.
You will want that right?
Focus on these 5 Killer Hotel Key Performance Indicators.
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Your Takeaways
Your hotel is a complex business operation.
Keeping it on a path of revenue and profit growth is key to survival and competing in the market you are in.
Are you on top of the 5 Killer Hotel Key Performance Indicators You Must Watch?
What are your challenges?
Leave comments below on your experience in the hotel operation.
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