The hotel industry has got a set of metrics to assess its performance which has got a huge role in improving the business. This article will tell you about 5 major metrics used to assess hotel performance.
• Average Daily Rate (ADR) – It’s the average amount paid by the guests for a room for their entire course of stay. It may be for a single day or even for a particular period of time. This performance index is calculated by dividing the revenue earned from the total number of rooms by the total number of rooms sold. This metric helps to compare the average daily rate of a hotel to the competitive set. It helps to analyze the financial performance of a hotel in the market compared to its competitors.
• Revenue Per Available Room (RevPAR)- This metric is used to measure the profit of a hotel. It's calculated by dividing the total revenue earned by the hotel during a particular period of time divided by the total number of available rooms during the same measured period of time. It would vary depending on the market, timing, and segment. If we say RevPAR has increased, it means the occupancy rate has been increased. It signifies how far the hotel is successful in getting its rooms filled.
• Average Occupancy Rate (AOR)- This metric helps to understand the occupancy rate of a hotel during different periods of time. It can be based on a daily basis, monthly, yearly or even season wise. This is measured by dividing the total number of rooms sold divided by the total number of available rooms. However, this metric may not hold good if the hotel cuts down the price to increase the occupancy.
• Market Penetration Index (MPI)- This helps to understand the position of your hotel in the local market and compare it with your competitors. It's calculated by diving a hotel’s occupancy by total market occupancy of that particular locality. This will let you know how many customers choose your hotel compared to other hotels in that locality. This helps to analyze the demand for the hotel in the market. When demand increases, revenue also increases.
• Revenue Generated Index (RGI)- Using this metric we can compare the RevPAR of one hotel to the average market RevPAR. It's calculated by diving the hotel’s RevPAR by Total market RevPAR. If the result is greater than or equal to one, it indicates that the hotel holds a good position in the market otherwise it means the hotels in your competitive area is having more business than you.
Keeping a track of a hotel’s performance will definitely help to monitor their revenue stream and understand more about their performance range to select suitable business strategies. The above mentioned 5 major tools can be used to understand your performance in the market.
Keywords: hotel industry, financial performance of a hotel, good position in the market
By: Gayathri Krishnan
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