10 Key Financial KPIs Hotels Should Track for Success | SVA

Running a business is tough, and it can be difficult for owners to get a clear picture of its overall health. That’s where key financial performance indicators (KPIs) come in.

Tracking KPIs regularly will help owners make informed decisions and drive profitability, all while providing a holistic view of the business.

10 Financial KPIs for Hotel Owners

Here are some of the most important KPIs that hotel owners should track regularly.

1. Revenue Per Available Room (RevPAR)

RevPAR shows how much revenue you are generating from each available room, factoring in both occupancy and room rates. It is calculated as:

• RevPAR = Total Room Revenue/Available Rooms

OR

• RevPAR = Average Daily Rate (ADR) x Occupancy Rate

By tracking RevPAR, you can assess how well your hotel is balancing occupancy with room rates. A rising RevPAR indicates either improved occupancy, higher room rates, or both, contributing to stronger overall performance.

2. Gross Operating Profit Per Available Room (GOPPAR)

GOPPAR provides a deeper understanding of a hotel’s profitability by focusing on gross operating profit rather than just revenue. It considers both the income generated and the operational costs involved in running the hotel. The formula is:

• GOPPAR = Gross Operating Profit / Available Rooms

Monitoring GOPPAR helps you assess how efficiently you are managing your hotel’s operational expenses relative to the rooms you have available. It’s a great indicator for understanding your overall profit margin on a per-room basis.

3. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

EBITDA is a financial metric that shows the operating performance of your hotel by excluding the impact of financial and accounting decisions like interest payments, taxes, and depreciation. The formula is:

• EBITDA = Revenue - Operating Expenses (excluding interest, taxes, depreciation, and amortization)

EBITDA helps measure the profitability and cash flow from your hotel’s core operations. This KPI gives you a clearer picture of your hotel’s operating efficiency, making it valuable for comparing performance over time or against competitors.

4. Average Daily Rate (ADR)

ADR shows the average revenue earned from each occupied room per day. It is calculated as:

• ADR = Total Room Revenue / Number of Rooms Sold

ADR focuses on room pricing strategies, helping you understand how much guests are paying on average. By comparing ADR to competitors or historical performance, you can assess whether you are pricing rooms effectively.

5. Occupancy Rate

Occupancy Rate measures the percentage of available rooms that are occupied during a given time. It is calculated as:

• Occupancy Rate = Rooms Sold / Available Rooms

Occupancy Rate is a straightforward measure of demand for your hotel. A high occupancy rate indicates strong demand, while a low rate may suggest the need for improved marketing or promotional efforts.

6. Total Revenue Per Available Room (TRevPAR)

TRevPAR expands beyond room revenue to consider all income streams, such as food and beverage sales, events, and other services. The formula is:

• TRevPAR = Total Hotel Revenue / Available Rooms

By tracking TRevPAR, hotel owners can gain insights into their overall revenue performance, not just room-related earnings. This is especially helpful for full-service hotels that rely heavily on auxiliary services.

7. Net Operating Income (NOI)

NOI represents the profitability of your hotel after operating expenses but before financing costs, taxes, and capital expenditures. The formula is:

• NOI = Gross Income - Operating Expenses

NOI is particularly useful for hotel owners who want to evaluate property-level profitability and understand how operational decisions are impacting the bottom line.

8. Customer Acquisition Cost (CAC)

CAC measures how much it costs to acquire a guest. It includes marketing expenses, sales efforts, and other direct costs of bringing in guests. The formula is:

• CAC = Total Marketing and Sales Expenses / Number of New Guests

Monitoring CAC helps hotel owners understand the effectiveness of marketing campaigns and whether the cost of acquiring new guests is in line with revenue generated from those guests.

9. Guest Satisfaction Scores

While not strictly a financial KPI, guest satisfaction scores provide valuable insights into the quality of service and overall guest experience. High satisfaction leads to repeat business and positive reviews, which can boost occupancy rates and pricing power.

10. Operating Expense Ratio (OER)

OER measures the efficiency of your operations by comparing operating expenses to total revenue. The formula is:

• OER = Operating Expenses / Total Revenue

A lower OER indicates better cost control and operational efficiency, which ultimately enhances profitability.

Best Practices for Monitoring KPIs

Now that you know which KPIs to track, here are some tips to consider.

• Track KPIs Regularly: Set up automated systems to track these KPIs in real-time or at regular intervals to make timely, data-driven decisions.
• Benchmark Against Competitors: Compare your hotel’s performance against industry averages or local competitors to identify areas for improvement.
• Use KPIs Together: No single KPI gives the complete picture. For example, RevPAR shows revenue efficiency, but when combined with GOPPAR or EBITDA, it gives a fuller view of profitability and operational performance.

By regularly monitoring these key financial KPIs, hotel owners can better understand their performance, manage costs effectively, and drive long-term profitability.