What Are the Best KPIs for Measuring Hotel Profitability?

By David Eisen - Director of Hotel Intelligence and Customer Solutions for HotStats

14 October 2020
Eisen

As COVID-19 continues its charge unabated, it's natural for hoteliers to feel like they're on loose financial footing. And as room revenue becomes less predictable, many hoteliers are seeing their revenue-only strategies give way beneath them.

Want to build your plans around a more solid hotel performance indicator? Look no further than benchmarking hotel profitability.

By measuring hotel profitability, hoteliers can cement their performance strategy in figures that tell a true story of the hotel's financial health.

In this article, we lay out the top KPIs for measuring hotel profitability and pick out ways to use them to generate more profit.

Why Choose Hotel Profitability Over Revenue-Only Strategies?

In recent years, many hoteliers have set revenue per available room (RevPAR) as the north star of their hotel performance strategies. What these hoteliers don't realize is that RevPAR only tells a fraction of a hotel's full financial story. After all, it only highlights a narrow slice of revenue. It also focuses solely on the money coming in; completely ignoring the cash that's spent to keep the hotel running smoothly.

That's where hotel profit steps in. Profit provides a crystal-clear picture of the whole operation's financial health. It doesn't stop when money comes in. Instead, hotel profitability takes into account expenses that eat into revenue and highlights what's left on the bottom line.

What Are the Best KPIs for Hotel Profitability?

Wondering which KPIs to examine to find a hotel's true profitability? Here are the best KPIs for determining a hotel's full financial status:

General Expenses and Cost Metrics

It doesn't matter how much money is coming in if it's being spent before it hits the bottom line. That's why it's critical to dive into expenses in order to grasp hotel profitability.

A good place to start is by measuring general costs. Here are some popular expenses to monitor:

  • Labor costs as % of total revenue
  • Complimentary breakfast
  • Operating supplies
  • Utility costs
  • Sales & marketing costs
  • Administrative & general costs

Costs by Department

Beyond looking at general expenses, hoteliers can drill down even deeper into expenses by sorting costs by department, both operating and undistributed. By keeping track of how much it costs to run each operation, hoteliers can see where to trim departments for higher operational efficiency and more profit. Here are some operations to measure:

Operational Metrics

When you've nailed down costs, it's possible to see profitability by stacking those departmental costs up against total revenue. This will reveal which departments are pulling their weight and which areas might require cutbacks.

For instance, hoteliers could understand their F&B operation even more by measuring department-specific KPIs. Here are some examples:

  • Food costs of sales as a % of food revenue
  • Total F&B revenue per available room (RevPAR)
  • F&B labor costs as a % of total F&B revenue

More Telling Revenue Figures

Beyond rooms revenue, examining broader revenue KPIs and using them to tell a more complete financial story, hoteliers can track revenue, measure demand and adjust operations for more profit.

One of the most complete revenue KPIs is total revenue per available room (TRevPAR). TRevPAR is a more complete revenue KPI than figures like RevPAR because it accounts for all revenue streams that run through a hotel operation. Rather than just focusing on room revenue, TRevPAR reveals revenue from F&B services, spa and health clubs, golf courses, parking and other revenue centers.

What's more, by comparing operational revenue to total revenue, hoteliers can see how much departments are contributing to the full pool of cash that's coming in.

Here are some examples of helpful departmental revenue KPIs:

  • Golf revenue as a % of total revenue
  • Parking revenue as a % of total revenue
  • F&B revenue as a % of total revenue
  • Spa and health club revenue as a % of total revenue

When it's clear where the money is coming from, it's easier to tweak operations or inform any new investments that could potentially drive higher hotel profitability.

Profit-Centered KPIs

If hoteliers want to use a single metric to guide their efforts, it should be profit-centered. And when it comes to profit-centered metrics, gross operating profit per available room (GOPPAR) is one of the most complete KPIs going.

GOPPAR breaks down profit on a per-available-room basis. That means a hotelier can clearly see how much money is filtering through all of those operational wings and landing on the hotel's bottom line.

Access More KPIs for Higher Profitability

The deeper hoteliers can root themselves in hotel profitability KPIs, the more stable their hotel performance strategy will be. By using in-depth hotel benchmarking and hotel market reports to determine profitability, it's possible to identify a hotel's true value and clear the way toward higher profit.

Want to learn more ways to build a profit-centered hotel performance strategy? Download our newest hotel benchmarking e-book, "RevPAR: The Good, the Bad and the Ugly."

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David Eisen

David Eisen is Director of Hotel Intelligence and Customer Solutions for HotStats, a monthly profit-and-loss data benchmarking service. He is responsible for business development activity in the Americas and developing marketing strategies to drive HotStats’ brand awareness. Prior to joining HotStats, David served as Editor-in- Chief of the Questex Hospitality Group, which includes Hotel Management magazine. His responsibilities included overseeing content direction for the magazine and website, and leading content creation for events and conferences under the Questex umbrella. Prior to Questex, he was hotel editor at Business Travel News. David has a master's degree in hospitality industry studies from New York University’s Jonathan M. Tisch Center for Hospitality and Tourism. He frequently participates on panels and roundtable discussions on myriad global hospitality industry trends and topics.

David Eisen

Director of Hotel Intelligence and Customer Solutions for HotStats
david.eisen@hotstats.com