KPIs and Metrics in the Hotel Business
Article from Giovanni Angelini for Hotelintel.co
KPIs and metrics are vital measurements for any hotel business.
KPIs (Key Performance Indicators) are related to strategies, while metrics are related to tactics.
Why are they so important? By using them to quantify the actions that will lead to desired results and success, leaders can more effectively track performance and ensure their teams are on the right track towards meeting and, ideally, exceeding targets.
If you can't measure it, you can't improve it
With so many departments and so many people involved, managing a successful full-service hotel is one of the most challenging jobs around. Hotel leaders must have direct access to comprehensive benchmarking data to make informed decisions and steer their business in the right direction. In this complex environment, having just a few measurements won't suffice.
There are many preconceptions of what impacts performance, market position, and brand image in the hotel business, but until we start measuring relevant KPIs and metrics, it's all just speculation. Implementing necessary processes to track, monitor, and measure performance is simply a must.
Developing an organization's performance management culture and performance measurement discipline is vital in this demanding environment. An integrated and robust culture (teamwork, alignment, and elimination of internal silos) can be the ultimate competitive advantage in an industry like hospitality, where business models are typically copied and replicated. It can also be the difference between average performance and market leadership – really separating the pros from the pretenders.
An efficient performance measurement formula is a critical tool for leaders (and investors) in preparing business strategies, annual budgets, and action plans. It allows them to identify opportunities to enhance market position and brand image, and plan effective employee development programs. In some cases, technology/automation can be employed to make these critical tasks even easier.
For sustainable success, every organization needs to seek input from its board and investors/owners to determine which business KPIs and metrics will best guide and assist management in setting targets and objectives towards achieving desired revenues and profit.
The attached KPIs and metrics table includes a handy and practical list of topics that need to be measured. Remember that it's essential to choose KPIs that really influence behavior and business thinking.
For example, in a busy world where consumers are used to finding quick price comparisons online, hotels need to rethink their websites to reflect customers' needs rather than just focusing on brand requirements.
Ours is a very competitive business in a constantly changing environment. We must continuously seek to navigate new trends and shifting customer preferences and investor expectations. The present worldwide pandemic has made the situation much worse for the hospitality industry. In the battle to survive and thrive, organizations are becoming flatter and more agile and efficient than ever before. Productivity and accountability are at the forefront. Competition is fierce.
While the fundamentals of hospitality have not changed, it is now abundantly clear that our world and our industry will undoubtedly be different when we emerge from the crisis. Business will eventually return, but it will take a long time to offset the financial losses encountered during the pandemic, which is still ongoing.
Many properties and companies are now highly indebted, but we have not seen many foreclosure activities. There are many frustrated potential buyers out there who are desperate to get their hands on distressed hotel assets in the belief they will make a killing. But the mass sale of properties has not happened as anticipated.
Indications are that throughout the pandemic, lenders and bankers have not panicked. Instead, they have been looking at long-term prospects and have granted debtors time, space, and even new funding.
Of course, these lenders and bankers are now much more focused and directly involved in assessing the ability of management and operators to generate sufficient cash flow to repay any outstanding loans.
Are the hotels/properties in question properly branded? Properly managed? What are the competitive advantages and the financial objectives? What is the value being created?
To answer such questions, transparent KPIs and metrics data are essential.
Now and in the future, investors and lenders can be expected to take a much closer look at how hotels are operated and marketed, regardless of whether a property is branded, franchised, or directly operated.
Investors in the hospitality space are increasingly adopting the real estate paradigm of 'highest and best use' – and viewing every square meter of space as something to be monetized at the highest level.
Addressing the investor perspective, please note two new proposed KPIs: Total Revenue Per Square Meter for the whole building (REPSM), and Total GOP Per Square Meter for the whole building (GOPPSM).
The developer's mindset revolves around 'cost per square meter,' and operators – who focus on 'revenue/profit per square meter – must understand this.
It's also important to remember that while operators have traditionally focused on 'Hotel Business,' investors and owners have focused on the 'Business of Hotels.' The two must merge.
Strategic (KPIs) and Tactical (Metrics) Measurements for Hotels
(Actual results as compared to budget, previous year or target)
Suggestions/Examples to Choose from
Brand Quality
- Customer's Satisfaction Survey/Score and Guest Experiences (by 3rd party).
- Online Reviews/Ratings (sentiment score).
- Average Response Time to Customer’s Enquiry & Complaints.
- Employee's Satisfaction Survey/Score (by 3rd party).
- CRS/Sustainability; Targets-Activities-Results.
Revenue, Rooms
- ESSENTIALS; Segmentation and Distribution Channels Management to Include; Direct Bookings, OTA's Bookings, Loyalty Program Production, Packages, New Business and all others.
- THE CORE; Available Rooms, Occupancy Rate %, Single/Double OCC %, Average Daily Rate, Average Length of Stay, Return Guest Ratio, BAR-best available rate.
- Actual Bookings/Business generated by the Brand Own Systems and Related Costs/Fees.
- Sources of Business - Countries of Residence/Geographical.
- REVPAR; Revenue per Available Room.
- TREVPAR; Total Revenue per Available Room.
- TREVPEC; Total revenue per Client.
- RGI; Revenue Generating Index (3rd party report).
- MPI; Market Penetration Index (3rd party report).
Revenue, F&B
- REVPAS/H; F&B Revenue per Available Seat and hour per Outlet.
- REVPAM; Outlets and Banquet Revenue per Available Square Meter.
- Total F&B Covers and Seating Efficiency.
- Total Revenue per Head-Cover (Food and Drinks) and Average F&B Check.
Labour
- Employees Turnover Rate %, monthly & annually.
- Total Labour Cost as % of Total GOR.
- Total Headcount, Employee Performance, and Productivity (own KPIs formula).
- Training, Skill Building, and Development Costs/Activities as % of Total Payroll or as % of GOR.
- Bonus and Incentives as % of Increased Revenue or as % of Increased GOP (own formula).
Operating Costs/Expenses
- CPOR; Cost per Occupied Room.
- Cost of Goods Sold in F&B as % of Revenue.
- MCPB; Marketing Cost per Booking.
- M&U, AB&P, A&G; Calculated as % of Available Room, of Occupied Room, and of Total GOR.
- Stock Turnover & Inventory (monetary) Valuation.
Profitability
- Departmental P&L (amount and %) for each Profit Center.
- GOPPAR; Gross Profit per Available Room. ”The Golden Standard”.
- GOP per Occupied Room.
- F&B GOP per Square Meter.
- FLOW-THROUGH and FLEX; The Ability to Convert Increased/Decreased Revenue to Increased/ Saved GOP in Amount and in % as Compared to Budget, to Previous Year, and to Forecast.
- Forecasting; for the Following Month, 3 Months and 12 Months Rolling. And Variance % (+/- 5%).
- Net Earnings/Income, (Amount and %).
Investor Focal Points “The Hot Buttons”
- Valuation/Appreciation of the Asset, Continuous Growth, and Creation of Long Term Value.
- EBITDA; Earnings Before Interest, Taxes, Depreciation, and Amortization.
- Cash Flow.
- Debt to Equity Ratio, Loans/Interest Repayments, Liabilities and Balance Sheet.
- Internal Rate of Return (IRR), Return on Equity (ROE), Return on Investment (ROI).
- Yearly Capex as % of Total GOR.
- Reserves for Major Renovations/Projects.
➢ RESPM; Total Revenue per Square Meter for the whole building.
➢ GOPPSM; Total GOP per Square Meter for the whole building.