What Hotel KPIs Analyze Complete Operational Performance?
By David Eisen, Director of Hotel Intelligence and Customer Solutions for HotStats
Consulting the right hotel KPIs can help juice a hotel's bottom line. But just any old metric won't do.
If hoteliers want to uncover financial weak spots, revamp operations and boost profit, it requires complete operational metrics. These KPIs measure efficiency throughout every corner of the hotel.
Want to use data to drive more hotel profit?
There are a few essential operational hotel KPIs you need to be tracking.
Why Operational KPIs Are Important
Before examining the most complete operational metrics, it's worth noting why these KPIs are important in the first place. Unfortunately, it's a point most of the hotel industry has been missing for years.
The hotel industry has traditionally been obsessed with RevPAR as the end-all-be-all hotel KPI. However, RevPAR only focuses on how much money is coming in from rooms. Important, to be sure, but when running an operation, total revenue and expense impact play roles that are just as pivotal.
As a result, hoteliers and investors are often left with a massive financial blind spot. After all, a hotel's room sales could be booming, but if expenses are high or any of the hotel's additional operations are losing money, the hotel could be hemorrhaging cash.
More Complete Hotel KPIs for Higher Profit
Luckily, there are hotel KPIs that reveal a hotel's true financial identity. By examining these metrics, decision makers will have everything they need to adjust operations for higher returns.
Here are some hotel KPIs that analyze complete operational performance:
Gross operating profit per available room (GOPPAR) may be the most thorough operational KPI out there. It measures a hotel's gross profit and breaks that number down on a per-available-room basis.
GOPPAR is an excellent benchmarking figure because it allows you to see the totality of your operation — warts and all. It gives you one figure that explains the interplay between revenue and expense, which at the end of the day, is what really matters.
It accounts for profit from all of the hotel's operations, so any decisive action taken in regard to how the operation is run will show up in the number. For example, if a hotelier decides to make cuts anywhere in the food and beverage (F&B) department or invest more in golf course operations, and all other finances stay steady, the results of those moves should show up in GOPPAR.
Operational Cost Metrics
When a hotelier has GOPPAR to measure results, cost metrics will inform smarter operational decisions.
Not sure where to start?
One strategy is to start broadly. From there, zoom in on expenses until they've been chiseled down to a departmental basis. Here's a deeper look at this simple strategy.
1. Begin with General Expenses
First, it's worth measuring general costs that sweep across the entire hotel operation. Here are some important general expenses to consider:
- Payroll costs
- Distribution costs
- Room expenses
- Food costs
2. Move Deeper Into Departmental Costs
Next, look at hotel KPIs that examine costs on a more granular level within a department. For instance:
- Gas (utilities)
- Conference and banqueting (F&B)
- Payroll taxes (other payroll costs)
- Credit card commissions (A&G)
3. Consult Different Ratios
With myriad metrics comes many ways to examine them. Though most are familiar with PAR (per available room) and/or POR (per occupied room), examining them as a percentage of either revenue or expense can be a window into how efficiently a property is being run. Examples include:
- Labor costs as a % of total revenue
- Cost of food sales as a % of food revenue
- Electricity as a % of total utilities
4. Examine Operational Costs
Finally, look at even deeper hotel KPIs that address the costs that are pulling money out of individual departments. For instance, if a hotelier wants to dive into the F&B department, they could look at the following:
- Complimentary breakfast costs
- Food cost of sales
- F&B labor costs
- Operating supplies
Of course, expenses will reveal only part of a hotel's operational strength because they don't address the money that's coming in. However, by viewing them within a holistic hotel performance plan, they'll illuminate where to make cuts or investments for higher profit.
Operational Revenue Metrics
When used in tandem with expenses, revenue metrics can tell a solid story about a hotel's finances. A good place to start is with total revenue per available room (TRevPAR). It's much deeper than RevPAR because TRevPAR adds up the cash flowing in from all hotel revenue streams throughout the operation.
If a hotelier wants to see how large expenses are relating to the money coming in, they can compare a specific cost to total revenue (as seen above). Here are some examples:
- Labor costs as a % of total revenue
- Maintenance costs as a % of total revenue
- Admin and general costs as a % of total revenue
- F&B labor costs as a % of total revenue
As with expense KPIs, hoteliers can use revenue metrics to gauge broad departmental demand as well as more intimate operational figures. In either case, these metrics highlight the efficient parts of an operation and can point out where cutbacks are needed.
Putting It All Together with Complete Hotel Benchmarking
The key to streamlining hotel operations for more profit is approaching hotel KPIs holistically. With complete hotel benchmarking numbers in front of them, it's easy for hoteliers to make decisions that affect the bottom line and for hotel investors to pick up a magnifying glass to spot the most profitable moves.
Want to discover more ways to use complete hotel KPIs to boost profit? Read our ultimate guide: RevPAR: The Good, the Bad and the Ugly.
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