Hotel revenue management: What the acronyms mean and how to use them

 

5 minute read

 

When the focus shifts from delivering a world-class guest experience to delivering strong business results, the hospitality industry relies on a core set of hotel metrics. Key performance indicators (KPIs) like ADR, RevPAR, and GOPPAR help managers measure and compare their performance so they can make better-informed decisions, and ultimately, build a healthy business.

 

In order to gain true insight from your numbers, it’s important to understand what each metric can tell you, and perhaps more importantly, what it can’t.

 

To help you get started, we’ve explained how to use the most common metrics, so you can make better-informed revenue decisions.

OCC (Occupancy rate)

What it is:
This is a percentage that shows how many of your available rooms were occupied (sold) during a specified period of time.
Can tell you:
How full your property is by day, week, month, or year. Can give you an indication of how popular your hotel is.
Can’t tell you:
Whether you have priced your inventory effectively to maximize revenue.
Formula:
Occupancy rate (%) = Rooms sold / Rooms available x 100

ADR (Average daily rate)

What it is:
This is the average amount paid per room, per day, during a specified period of time. It does not include complimentary or free of charge rooms, nor revenue from other departments, such as food and beverage.
Can tell you:
What your current operating performance looks like relative to your historical performance, or that of your competitors.
Can’t tell you:
Your property’s overall performance.
Formula:
Average daily rate (ADR) = Room revenue / Rooms sold

RevPAR (Revenue per available room)

What it is:
This is the average amount paid per available room, per day, during a specified period of time.
Can tell you:
Because it includes unsold rooms, it can help you understand your revenue success, in other words, how well you’ve managed your inventory and rates to generate revenue.
Can’t tell you:
Because RevPAR doesn’t consider expenses, it can’t give you a true picture of your profitability and operational success.
Formula:
RevPAR = Occupancy x ADR OR Room revenue / Rooms available

GOPPAR (Gross operating profit per available room)

What it is:
This is the average profit you made per available room.
Can tell you:
Because it considers both revenue and expenses, it can indicate how well your property is performing as a whole.
Can’t tell you:
Because GOPPAR doesn’t evaluate room revenue separately, it can’t indicate room revenue success.
Formula:
Gross revenue – Gross expenditure / Available rooms

ARI (Average rate index)

What it is:
A metric that compares your ADR performance with your competitive set’s ADR performance.
Can tell you:
If you’re getting your fair share of business in your market. An ADR of above 1.00 indicates that you’re achieving more than your fair share, while below 1.00 suggests that you’re achieving less than your fair share.
Can’t tell you:
If your whole competitive set is underperforming or not.
Formula:
Your ADR / Your competitive set’s ADR

MPI (Market penetration index, also known as occupancy index)

What it is:
A metric that compares your occupancy performance with your competitive set’s occupancy performance.
Can tell you:
If you’re getting your fair share of occupancy in your market.
Can’t tell you:
If your whole competitive set is underperforming or not.
Formula:
Your occupancy rate / Your competitive set’s occupancy rate

RGI (Revenue generated index)

What it is:
A metric that blends MPI and ARI to show you a more complete performance snapshot compared with your competitors.
Can tell you:
If you’ve priced your room rates to optimize revenue while keeping costs low.
Can’t tell you:
If your profitability is better than your competitors because it doesn’t consider distribution costs.
Formula:
Your RevPAR / Your competitive set’s RevPAR

Tracking hotel KPIs is like putting a puzzle together. When you put them all together, you build a complete picture. But if you look at one in isolation, you’re likely to get just half the story.

Regularly tracking your property’s KPIs will give you a richer understanding of your own performance, so you can efficiently manage your inventory and pricing strategies. And that means you’ll be able to build a healthy business that allows you to spend less time in the back office and more time delighting and connecting with your guests.

Next Steps

Simplify your hotel revenue management with Expedia Group

  • Create your own competitive set and compare your performance
  • Access market occupancy forecasts to better understand compression in your market
  • Get price optimization alerts when your price may be too high or too low

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