Being a hotelier isn’t easy. It is the industry where you must live and breathe customer satisfaction. There are so many things to keep track, so many metrics to measure and analyse. It is a tough job. Let me make it easy for you by explaining some of the most used metrics in the hospitality industry, how to understand and use them better to increase your ROI and profitability.
Here’s what you need to know,
ADR – Average Daily Rate
Avg. Daily Rate indicates the average amount that the hotel/business earns per room occupied and it is one of the most used metrics in the hospitality industry. It is a KPI and it one of the basic components that you need to calculate the revenue of the hotel.
It is calculated by,
Rooms revenue earned / Number of rooms sold
E.g. If a hotel earns Rs. 10,000 in room revenue and 100 rooms are sold, the ADR would be Rs. 100.
ADR is very important in determining the profit of the hotel. A higher ADR results in better revenue and profits for the hotel, hence many hoteliers rely heavily of ADR for setting the pricing, but that is not suggested as ADR alone does not give the complete picture of the revenue or the cost.
Hence comes into picture yet another important metric the RevPAR.
RevPAR – Revenue Available per Room
This metric provides a better picture of where the hotel stands in terms of revenue. Because the measure includes both room rates and occupancy, it provides an overall view of a how a hotel is performing in terms of filling its rooms, and how much it can charge.
It is calculated by,
ADR x Occupancy
Total guest room revenue/ Number of total available rooms/ Number of days in the period
E.g. If a hotel has 100 rooms and charges Rs. 1000 per night and the occupancy rate of the hotel is 90%, then the RevPAR as per formula is:
RevPar = 1000 x 90% = Rs. 900
This information is key to the hotel managers to determine the pricing to improve better occupancy of the rooms.
Why RevPAR is not enough?
Though RevPAR is a great measure, it fails to provide an accurate image of the hotels’ state of revenue or profitability. This is because there are few major things that it does not consider such as the size of the hotel, the cost incurred in getting the room ready etc.
Hence another metric has not come into picture,
ARPAR – Adjusted RevPAR
Since none of the above metrics consider the variable rates as defined by Ira,
ARPAR = (ADR – Variable costs per Occupied room + Add. rev per Occupied room) х Occupancy
Since this metric considers the variable costs that are involved per room, it is a more reliable metric for maximizing profits. These variable costs can be different from time to time and even room to room which needs to be accurately calculated. Hence, we can say that focusing on ARPAR improvement can lead to profit maximization.
So now that you have understood the main metrics that you need to keep track of and what helps in increasing the profits, here is a study on how KePSLA can help you to improve these metrics and increase ROI.
The below study was conducted on a 3-star hotel in Mumbai with 80 rooms. The hotel is in a good area with proximity to the train and bus stations. There were 3 more competitor hotels nearby who were offering similar services.
The no. of rooms in the hotel is 80 and it had an average occupancy percentage of 75%. This meant that the number of rooms booked would be 60 out of the total 80. Their avg. daily rates were Rs. 3,200 and the avg. transaction value per day amounts to Rs. 1,92,000. With the help of KePSLA the hotel could increase their repeat customers by 3%.
- KePSLA made them more efficient by effectively providing them the department and KPI analytics. The department and KPI analysis offers deep insights on how each department is performing.
- Guest reviews are compiled from over 120+ resources online and sent to a single dashboard from where the hotels could easily reply to the reviews and understand their guests and act on areas which needed attention.
- KePSLA’s feedback management system helped to collect customer feedback both on premises of the hotel and post checkout and publish it in leading online platforms. This improved the hotels rankings on OTAs and helped increase the bookings.
- The customers got a great offer when they provided their feedback, which encouraged both customers to give feedback and repeat bookings.
Hence KePSLA helped the hotel to,
- Increase in repeat customers 3%
- Increase in ADR and RevPAR of 7% of Rs. 194.
- Increase in room bookings per day 1.68
- 50 more rooms booked per month.
- Total Revenue of increased bookings Rs. 1,61,280.
- Total revenue increased from Rs. 1,92,000 to Rs. 3,52,280.
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