The 7 Most Important KPIs in the Hospitality Industry

KPIs used in the hospitality industry are values or indicators that measure the performance of a particular area of hotel operations – or the establishment as a whole. They provide clear visibility into the functionality and sustainability of your business in the hospitality landscape.

KPIs allow you to analyze and develop significant improvements that will help increase your establishment's performance. Below, we'll look at some of the most important KPIs in the hospitality industry, which play a vital role in understanding and defining success within our industry.

What does KPI mean?

A Key Performance Indicator is a measurable value that illustrates how an organization or business is performing against its set goals, such as average room rate. A KPI often demonstrates how goals are achieved using data and calculations that help owners and managers know how their business is performing.

KPIs cover all aspects of the hospitality industry, from financial management to operations, including any department with measurable results, such as marketing or front desk. It is important to note that you need to select the appropriate KPIs for the specific industry you are handling in order to find accurate data and metrics to improve performance.

What are the most important KPIs for the hospitality industry?

It is evident that there is a need to identify the most relevant key performance indicators and how they evaluate the hospitality sector. Here are some of the main KPIs for hotels, and how you can measure them to make your own business decisions.

Average Daily Rate (ADR)

This is one of the main indicators used to measure the average rate per occupied room. This means you can look at the average amount of revenue collected daily for all your occupied rooms. The ADR always excludes unoccupied rooms to avoid unrepresentative figures.

This KPI will allow you to measure a key element of the financial performance of your hotel. ADR also plays an important role in pricing and marketing forecasting. This allows management to plan and work with flexible prices, depending on the seasons.

Here is the calculation:
ADR = room revenue / number of rooms sold (occupied)

Revenue per available room (RevPAR)

This is the metric used to analyze the average revenue over a certain period (usually reported as a daily average), based on the revenue from all your bookings. To calculate this KPI, you must multiply the ADR by the occupancy rate. Another option is to divide the total revenue per night by the number of rooms available.

RevPAR creates a price metric to know how much revenue is generated per room. A high RevPAR generally means a good occupancy rate as well as a high ADR.

Here is the calculation:
RevPAR = average daily rate x occupancy rate or total revenue per night / total number of rooms available.

Average length of stay (ALOS)

This is a metric used to determine occupant length of stay by dividing the total number of occupied rooms by the number of reservations. It is important to note that occupied rooms are counted based on the number of nights guests stay at the hotel.

The final score represents the average length of stay of guests in your hotel. In general, a high score is a better indicator than a low score because it indicates higher overall spending.

One of the benefits of ALOS is that it helps you make data-driven pricing decisions. For example, if your occupancy rate is low, you can increase the room rate for short stays or offer better deals for longer stays. Length of stay is an important variable that affects hotel revenue.

Here is the calculation:
ALOS = total number of occupied room nights / number of reservations.

Occupancy rate

For occupancy rate, you can track the results daily, weekly, monthly, or annually. This metric involves identifying the total number of rooms, the empty rooms, and the booked ones.

You can divide the occupied rooms by the total number of available rooms and multiply by 100 to get the occupancy rate. This KPI is important for evaluating the daily performance of your hotel because it provides you with a constant stream of data. If you notice low occupancy trends on certain days of the week, you can run promotions to encourage more bookings on those days, or reorganize your staff if you don't need everyone.

Here is the calculation:
Occupancy rate = total number of rooms occupied / total number of rooms available x 100.

Online reviews

In an age where anyone can go online and share their experiences about a hotel, taking a look at reviews is essential. Star reviews left by guests can indicate how efficiently the hotel is operating and areas where improvements can be made.
By tracking ratings and reviews, hoteliers can make changes accordingly to increase guest satisfaction and, consequently, attract new guests.

RevPAR Index by room type (RevPAR Room Type Index - ReRTI)

Due to changes in the hotel landscape over the past year, a new metric has emerged to help sales managers determine whether the sale of higher value rooms is contributing proportionately to each room type's inventory at RevPAR.

The main goal of ReRTI is to analyze the most profitable room types and evaluate whether promotions such as free room upgrades can help or hurt a hotel. If the room type scores greater than 1, it means that room type contributes proportionately more than it should based on the number of rooms of that type. If the score is less than 1, it means that this room type contributes proportionately less than you would expect.

Here is the calculation:
RevPar Index Room type = Total RevPAR % x number of specific room type / % inventory x number of specific room type.

Market penetration index (MPI)

MPI is an important indicator for measuring KPIs. It shows how your hotel is performing compared to your competitors in terms of industry.
If your score is below 100, it means your results are weak and below the market average. On the other hand, if your score is above 100, it shows that you are performing better than most of your competitors.

Here is the calculation:
MPI = % hotel occupancy / % market occupancy x 100