Hotel Financial Analysis Special
Why Hotel Financial Analysis you might be asking?
Did you Know that it is the single biggest skill lacking in middle managers?
Are you one of them?
KEY TAKEAWAYS
Hotel Performance
Hotel Performance is the foundation for financial analysis. Key Performance Indicators represent it.
Top Posts for 2024
I have done the home work for you. Here are the Top Posts on hotel performance and more for 2024
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Let us begin with revenue management.
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You might not have paid attention but lack of financial analysis skills is impacting you.
Are you being passed up for promotion opportunities vs your peers?
Do you find yourself being given responsibilities that are not the most challenging?
It is important you recognize the signs and act fast.
I will lay out a set of strategies to bring yourself up to speed on hotel financial analysis.
And nail those promotions fair and square.
You would want that right?
Let's go then.
This Blog Post will cover
Hotel Financial Analysis - The Instrument Panel Metaphor
Imagine yourself glancing at the car’s instrument panel.
Why do you do it?
Because you need to monitor key statistics of your journey quickly.
Like speed, number of miles to destination (with GPS on) etc.
Just like that you need to be on top of financial and other information for your hotel.
Let me introduce you to the first of the hotel financial analysis elements.
Hotel Financial Performance
Financial performance is the first on the list of hotel financial analysis.
How would you define hotel financial performance?
Well, there are many interpretations of the word “financial performance.”
Hotel Key Performance Indicators
Let us go back to the car instrument panel metaphor.
If you wanted to monitor the most important metrics for your hotel, you would refer to this phrase.
Hotel Key Performance Indicators.
Or KPIs as they are commonly called.
Here are some KPIs which are critical:
- Revenue
- Occupancy
- Average Daily Rate
- Revenue per Available Room
- Profitability
- Market Share
Let us see how they build hotel financial analysis.
Revenue
Revenue is one of the most important metrics for a hotel.
Hotel managers cannot remove their attention from revenue.
Revenue literally drives almost every kind of performance.
It is known as the Top Line.
During covid-19, no metric took a hammering more than hotel revenue.
In the hotel industry there is a saying:
No Top Line, No Bottom Line.
Revenue is contributed by a few other hotel related KPIs.
The first one is Hotel Capacity.
Revenue cannot be generated without a source.
The source is the hotel asset.
A hotel’s capacity is commonly used as the highest salable units of its asset.
And those highest salable units are known as Rooms Available
The reference is to hotel guest rooms
So, you could say Rooms Available is one critical hotel Capacity KPI.
Total Rooms Available in a hotel are further classified into different room types.
Occupancy & Average Daily Rate
If capacity is the asset that generates revenue, then occupancy and average daily rate contribute to earning revenue.
Revenue is contributed by:
- business volume (occupancy)
- price (average daily rate)
When occupancy is multiplied by average daily rate you get room revenue.
Occupancy is one of the most critical hotel KPIs.
It literally gauges the volume of business represented by customers for the day.
Average Daily Rate (ADR) is the average of all room rates charged by the hotel for all room types sold in a day.
ADR also represents the level of prices that a hotel commands in its market.
Hotel Financial Analysis & RevPAR KPI
No hotel financial performance measurement can be complete without RevPAR.
RevPAR uses hotel capacity which we discussed earlier to measure revenue performance.
This is a powerful method of measurement.
Why so?
Because it allows you to gauge whether hotel capacity (rooms available) is being utilized efficiently.
A quick way to calculate RevPAR is:
Average Daily Rate x Occupancy %.
Now we get into revenue related KPIs (note the word "related").
Occupancy, Average Daily Rate and RevPAR are the first of the financial analysis basics you should be on top of.
Are you paying enough attention to these Key Performance Indicators?
Profitability
If revenue is considered the top line, there is an even more important KPI.
And that is profitability.
Profitability is known as the Bottom Line.
This measures what the hotel retains after deducting all expenses from revenue.
Your hotel general manager and owners are obsessed about profitability.
Are you on top of this measure?
Most importantly, profitability for a hotel is measured by one particular KPI.
It is called Gross Operating Profit or GOP.
This KPI deducts all operating expenses from total revenue.
Gross Operating Profit is calculated as below:
Total Operated Department Revenue
LESS
Undistributed Operating Expenses
The Gross Operating Profit is often known as Index of efficiency of the hotel operation.
A higher GOP is indicative of good revenue and expense management.
You must know this metric very well as a hotel manager.
Market Share
Last but certainly not the least is market share.
It is literally how much of the pie in the market you operate in you command.
Market Share can be calculated in different ways.
There are:
- revenue based ones,
- occupancy based ones,
- RevPAR based ones and
so on.
Do you know the market share for your hotel using any of the above methods?
Year 2024 in Review
The year 2024 was a busy year.
I published 34 blog posts during the year.
One of the highlights of year 2024 was the continuation of a feature introduced in 2023 - Speed Tips.
Speed Tips - Learn in Minutes
Speed Tips is about learning in minutes.
These tips are about:
- basic concepts,
- ideas,
- strategies
that can be read quickly and implemented.
Speed Tips are often supported by:
- videos,
- infographics,
- screenshots or
- images
that make it visual learning at its best.
Lessons I have Learned
2024 taught me some great lessons.
First, I realized that value comes from publishing engaging content.
I have put in place a system of optimization of old blog posts.
This means complete rethink of the original post with you in mind:
- how useful the content is to you
- what images can help explain the content better for you
- key takeaways - what can you action immediately and more.
Second, content should be able to reach beginner as well as advanced readers.
I had written many posts based on intermediate or advanced hotel manager levels.
However, I complemented that by producing content specifically aimed at beginner hotel managers.
Beginner hotel managers are the ones who struggle with hotel financial analysis.
I have introduced a series of Ultimate Guides to help beginner hotel managers (see Top Posts below).
Third, content needs to be often repurposed in different formats to reach more readers.
To this end, I have put in place a system of repurposing blog post content into videos.
Goals for 2025
I am excited about my goals for 2025.
First, I am moving into turbo mode as far as my Profits Masterclass Youtube Channel is concerned.
Look out for more regular videos being published.
If you have not subscribed to the channel, click the link below.
Consider subscribing to the channel for hotel financial analysis insights not found anywhere on Youtube.
I will be focusing on hotel beginner managers in many of the videos.
My goal is to publish videos on a weekly basis on Saturdays.
Second, and probably the highlight of 2025.
I will be unveiling the Financial Skills Academy Membership Program.
Financial Skills Academy Membership
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Instead of you searching for the top performing posts for 2024, I have done the homework for you.
Click below for the blog posts read most by readers.
You will notice many have the basics suffix to the links.
These are the ones which address the hotel financial analysis for beginners this entire post is about.
My Top 10 Blog Posts
Click below for 10 blog posts read most by readers curated and all in one place just for you:
12
SPEED Tips - Learn in Minutes!
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