The small hoteliers essential guide to revenue metrics

The financial health of a business can never be assessed by one number. You need several, you need context and you need trends.

And so it is with hotel revenue management, the closest discipline in the hospitality industry to accountancy – with the all-important added responsibility not just to report on numbers but to actually create and implement strategy to drive them.

By ‘numbers’, we mean ‘metrics’ – or ‘key performance indicators (KPIs)’ – the measures by which your work is judged and with which you set yourself targets and steer your day-to-day work.

The industry has been developing and refining them for years, with these 15 emerging as those most important, particularly to small hoteliers.

Let’s dive straight in – after, perhaps, you’ve bookmarked this page.

1. Average Daily Rate (ADR)

ADR is a measure of the average rate paid for rooms at your hotel. Though it’s a useful guide to how well you’re doing when tracked over time, it only factors in rooms you actually sell, so should be viewed alongside a hotel’s Occupancy Rate, from which you can derive Revenue Per Available Room (RevPAR).

Aggregated and anonymized stats on your competitors’ ADR are available from certain suppliers, so benchmark your data against theirs – advice that applies to many of these hotel metrics.

Beware: if you fail to track ADR, your rates could naturally slip in your bid to win business, and this will hit your bottom line hard.Whether you’re a well-established chain or a small independent property, it’s all about going above and beyond, and creating a positive impression in comparison to your compset.

How to calculate ADR

ADR (over any given period of time, often a day) = (gross) room revenue / number of hotel rooms sold

By way of an idealized example, let’s consider a small 20-room hotel that, during the course of a 24-hour period, has made $2,175 with 15 individual room bookings.

ADR = 2,175 / 15 = $145

How to improve ADR

Quite simply, a healthy ADR is one that keeps your hotel profitable and is aligned with your competitors – it’s all about context. But if it’s too high, this might explain low occupancy.

If it’s too low, consider these tips to raise it:

• Keep an eye on your competitors’ rates

• Set your prices more dynamically

• Consider holding out for more lucrative transient bookings and turning down group bookings by reviewing your past data on things like pickup and pace

• Up your marketing game, capitalizing on highlighting local events and creating packages and offering upgrades

• Review your distribution channels – are you spreading yourself widely enough?

2. Average Room Rate (ARR) 

ARR is no different from ADR other than the period of time it measures. Typically, it’s done by week, month, quarter or year.

So it provides a good set of measures that you can track over time and by season, and compare with the same time last year – not to mention your competitors.

Failing to track it risks succumbing to the same problems highlighted in the section above.

How to calculate ARR

Formula-wise, it’s no different from ADR – see above.

How to improve ARR

To improve ARR, see our advice above – but bear in mind seasonality, which brings with it a mix of opportunities and disadvantages.

3. Average Length of Stay (ALOS)

Fairly obviously, ALOS reveals how long guests are staying at your hotel on average.

It’s important to keep tabs on it because on one hand, a high ALOS is good, in that you don’t have to work as to win fewer bookings, but on the other, too many high-length stays can dent profitability, given that travelers often expect discounts for longer bookings. So strive to get a good balance.

How to calculate ALOS

ALOS (over any given period of time, often a day) = total number of nights booked / number of individual room reservations

Here’s an example:

Over a week, you sell 120 nights on 30 reservations. 120/30 = 4, meaning your ALOS is four nights.

How to improve ALOS

As we’ve discussed, it’s important to get the balance right, and an ALOS of more than a week would be unusually high. But, assuming it’s too low, consider:

• Offering an appropriate discount for more than a certain number of days on your booking channels

• Making sure the discount is more than offset by the guaranteed increased occupancy

• Promoting packages that highlight this discount or offer extras for guests that stay longer

4. Gross Operating Profit (GOP)

GOP is one of the most basic measures of profitability, so if you’re not making a profit after operating expenses have been taken into account, your business isn’t viable and it’s not worth looking at more sophisticated measures.

This stark assessment speaks for itself.

How to calculate GOP

In general business, gross profit is simply the amount a business has earned minus the direct costs of manufacturing or the cost of goods sold, whereas GOP takes into account operational costs – which are proportionately much higher in the hotel industry. They include staff, utilities, distribution, sales and marketing costs, and the like. Here’s the formula:

GOP = gross profit − operational costs

How to improve GOP

Across the hotel industry as a whole, a healthy GOP might lie at around the 40% mark. With fewer economies of scale at small hotels, this might be slightly lower, but there are ways you can improve GOP, such as:

• Maximizing your rates by making data-informed adjustments – obvious but this list would be incomplete without it

• Periodically reviewing your suppliers to make sure you’re getting a good deal on their services

• Occasionally turning down business if it will cost more to fulfill than you’ll make – but make sure you have a handle on which overheads are fixed and which vary depending on occupancy

5. Gross Operating Profit Per Available Room (GOPPAR) 

GOPPAR takes GOP one stage further by factoring in the available number of rooms at your hotel. This therefore makes it more important from a bottom line perspective than GOP, so keep on top of it.

How to calculate GOPPAR

GOPPAR = gross operating profit (GOP) / total available rooms (TAR)

How to improve GOPPAR

To improve your GOPPAR, the tactics at your disposal are very similar to those for improving GOP.

6. Marketing Cost Per Booking (MCPB) 

MCPB helps you assess the return on investment for your marketing campaign. By breaking down each acquisition channel, you can tailor and segment your campaigns to balance acquisition, profit and ROI.

Failing to properly track it risks overspending, thereby reducing profitability, or underspending, thereby reducing opportunities.

How to calculate MCPB

MCPB = total marketing cost / number of bookings

Of course, you can’t attribute all bookings to marketing activity, but this will still give you a good overall guide as to the effectiveness of your marketing activity, especially when comparing activity over time or with this time last year.

How to improve MCPB

If you can keep MCPB below the cut you pay to OTAs and other distributors, you’re doing well, but to improve things further, consider:

• A/B testing your campaigns

• Making better use of the customer data on your systems to better personalize your campaigns – don’t neglect your property management system (PMS); its data is marketing gold

• Spreading your activity across multiple channels so that you’re not over-reliant on any one channel

7. Market Penetration Index (MPI) 

MPI measures the level of market penetration achieved by a hotel.

One of the core hotel metrics for assessing how a property is doing relative to its competitors in a given market, it’s highly valuable to hotel revenue managers as long as you’re smart in defining your market.

Like any competitive market, if you take your eye off your competition, you’re likely to lose out to it.

How to calculate MPI

MPI = (number of occupied rooms / total number of available rooms) x 100

The higher the number, the better you’re doing.

How to improve MPI

A typical compset comprises 10 properties of a similar size, so, all things being equal, you’d hope to achieve an MPI close to 10, or perhaps a bit lower, given that occupancy often isn’t 100%.

To improve it, it all comes back to the general tips we’ve discussed for winning more business.

8. Occupancy Rate

Arguably one of the three most important KPIs that are often viewed together, Occupancy Rate is simply what proportion of your rooms are filled.

Occupancy has a direct relationship with revenue when viewed in conjunction with ADR but, even with a lower ADR, it can still boost overall profits when considering ancillary costs.

How to calculate occupancy

Occupancy = rooms used / total rooms available

To turn it into a percentage, just multiply by 100.

How to improve occupancy

Striving for 100% at the expense of profitability is unwise but clearly you want the number to be quite high, season depending.

Boosting occupancy comes back to many of the tips we give above on winning business through the likes of:

• Better marketing

• Better rate monitoring

• Better distribution

9. Revenue Per Available Room (RevPAR)

Indispensable metric for hoteliers worldwide, RevPAR provides insight into a property's revenue performance. Unlike hotel metrics that focus solely on the room rate or occupancy, RevPAR combines both elements for a comprehensive view.

By calculating your hotel’s RevPAR, you gain valuable insights into how effectively your rooms are generating revenue and, subsequently, evaluate your property's overall financial health.

How to calculate RevPAR

There are two key formulae used to calculate RevPAR:

• RevPAR = total revenue per night / total number of rooms

• RevPAR = ADR × occupancy rate

Remember, ADR = total room revenue / number of rooms sold

So you should be able to see how these metrics and formulae relate to and feed into each other.

How to improve RevPAR

The closer your RevPAR is to your ADR, the better, so much of our advice on how to improve it aligns with those on how to improve occupancy.

10. Net Revenue Per Available Room (NRevPAR)

NRevPAR simply factors acquisition costs into your RevPAR considerations. Given the importance of profitability to any business, its importance is obvious.

How to calculate NRevPAR

NRevPAR = gross room revenue − direct customer acquisition costs

These costs include commissions, transaction fees and loyalty expenses from room revenue.

The formula is straightforward but you’ll need to keep tabs on these costs so that you can plug accurate figures into your calculations.

How to improve NRevPAR

Offer insight into what a healthy NRevPAR looks like for small hotels

For tips on how to improve NRevPAR, see the section above on GOP, for which the thinking is very similar.

11. Total Revenue Per Available Room (TRevPAR)

TRevPAR provides an arguably more meaningful view of your hotel’s profitability than RevPAR because it takes call revenue into account, not just the basic cost of the room. This means the responsibility for driving up the figure is spread across departments, but revenue managers should take the lead.

This doesn’t make it a more important metric than RevPAR, though, which remains more fundamental to pure revenue management strategies. But it is an important metric feeding into overall profitability – even though it doesn’t take expenses into account.

How to calculate TRevPAR

TRevPAR = total revenue / total number of available room nights

Again, it’s a straightforward formula but there’s a lot of info to gather together, so it’s important to use integrated systems.

How to improve TRevPAR

Improving TRevPAR is all about increasing ancillaries and upselling, so consider promoting add-ons:

• On your various booking channels and social media

• In emails before arrival

• At check-in

• Throughout a guest’s stay, while being mindful of avoiding a hard sell that could compromise their guest experience

And work with colleagues to ensure that your restaurant offers an enticing alternative to restaurants elsewhere.

12. Revenue Per Occupied Room (RevPOR) 

RevPOR is very similar to RevPAR, differing only in that the latter looks at all available rooms whereas the former looks only at occupied room. RevPOR will therefore always be higher than RevPAR.

Though RevPOR is overshadowed by RevPAR, it provides a better measure of the direct management of a property than the latter.

How to calculate total available rooms

RevPOR = total revenue / number of rooms actually sold to guests

How to improve total available rooms

See RevPAR, NRevPAR and TRevPAR.

13. Cost Per Occupied Room (CPOR) 

CPOR indicates how much it costs a hotel to accommodate a guest in a room. This is closely associated with the overheads that you should consider when looking into the profitability-related hotel metrics above.

Some will be fixed, regardless of how many roms are occupied; some vary. So take this into account when doing your sums.

How to calculate CPOR

CPOR = total cost of operating the hotel / number of rooms that are used during a given time period

Yet again, we’re presented with a formula that looks simple but requires access to a vast range of data, and the advice we give above on using the right systems to access it applies equally here.

How to improve CPOR

See GOP; the advice is very similar.

14. Revenue Per Available Seating Hour (RevPASH) 

RevPASH is used in a hotel’s food and beverage outlets and is analogous to RevPAR.

While it’s outside the direct control of a revenue manager, it can be influenced by general marketing efforts that revenue managers often play a part in, and its metrics feed into many of the other metrics we discuss above.

How to calculate RevPASH

RevPASH = total outlet revenue / (available seats x opening hours)

How to improve RevPASH

In a small hotel, RevPASH can be disproportionately important as your restaurant could provide a real drawer when compared to the more impersonal restaurants of larger hotels.

Improving RevPASH is a function of:

• Driving people to your outlets, something that can be incorporated into broader campaigns and upselling

• The quality of the food and drink

• Ambience, staff friendliness and other less quantifiable factors

15. Revenue Generation Index (RGI) 

RGI, also known as RevPar Index, is used to measure the financial performance of a hotel in relative terms.

How to calculate RGI

RGI = RevPAR / aggregate RevPar of comparable hotels in your local market

Though easy to calculate, this formula is reliant on obtaining proprietary data from third-party suppliers.

How to improve RGI

An RGI above 1 means you’re performing better than the competition and below means you’re doing worse, so this is one of the most meaningful metrics for peer comparisons.

To improve it, follow the advice we give for improving RevPAR, which directs you to the ADR section. But pay close attention to your competitors and their activities.

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