How do we take commercial decisions in Hotels?
I often mentor students who want to join the commercial department of Luxury Hotels.
One of the most frequently asked questions regards the criteria that drive us when we have to decide if it is the case to raise or low a rate, make a promotion or suppress it.
From the outside, it can seem overwhelming.
Bear in mind that all your decision should be driven by data, especially when we talk about rates.
Your PMS and CM always provide a valuable amount of data that you can check, mix and study at any moment during your date.
Your best allies are the famous KPIs (Key Performance Indicators).
OCC: Occupancy. It is the ABC. We daily keep track of this data, that clearly is a percentage number.
Formula: number of sold rooms / total number of available rooms left in your hotel
ADR: Average Daily Rate. It is the average of the different rates your clients have paid to stay in your hotel, and it is in €, £ or the currency of your hotel country.
Formula: total room revenue / total number of rooms sold
RevPar: Revenue per Available Room. This metric helps you better understand the revenue obtained by your rooms.
Formula: total room revenue / total number of rooms available,
or Occupancy X Average Daily Rate
ALOS: Average Length of Stay
This metric helps you to identify the average length of stay of your guests.
Formula: total number of room nights/number of bookings
Every Hotelier aspires to get a higher number to increase profitability. For instance, 4 reservations of 1 night imply more costs and labour than one reservation of 4 nights.
MPI: Market Penetration Index
It is a comparison metric of your business share in your market compared to your comp set.
Formula: (your occupancy rate / your Comp Set OCC) X 100
Any number below 100 means that you are not performing as you should. All the numbers above 100 indicate that you are doing good!
ARI: Average Rate Index
It helps you understand if your ADR is in line with our comp set.
Formula: (your ADR / your Comp Set’s ADR) X 100. All numbers below 100 reveal a poor performance, and all the numbers above 100 mean that you are doing great.
RGI: Revenue Generation Index (RGI)
It helps you understand if your hotel is gaining a fair share of revenue compared to your Comp Set. That is a mix of ARI and MPI.
Formula: Your RevPar / Your Comp Set RevPar
GOP: Gross Operating Profit
It is your hotel’s profit after subtracting all of the operating expenses.
Formula: Gross Operating Revenue – Gross Operating Expenses
GOPPAR: Gross Operating Profit per Available Room
Divide the Gross Operating Profit by the number of available rooms in your hotel.
Formula: GOP / Available Rooms
ReRTI: RevPAR Room Type Index
Which room types are the most profitable?
Formula: % total RevPAR X number of specific room type / % inventory X number of specific room type
If the room type index is higher than 1, it means that the room type contributes correctly to your revenue.
It is just the beginning. The topic is substantial, and there are more KPIs that one should consider. I can only recommend never stopping learning!
Last updated on 31.7.2021