Hotel metrics to help you run your business

A glowing guest review may be the best reward, but hoteliers also need to deliver strong business results. To inform pricing and distribution decisions, the hospitality industry relies on a core set of metrics that measure performance and allow it to be compared with others in the market.

In order to gain accurate insight, it’s important to understand what each metric can tell you, and perhaps more importantly, what it can’t. Read on to learn how several key hotel metrics are calculated and how best to use them. 

What is occupancy?

Occupancy is the percentage of available rooms that were occupied (sold) on any given night or period. If a hotel has 100 rooms and sold 65, occupancy that night would be 65%.

What it can tell you

How full your property is by day, week, month, or year. Generally, high occupancy is desirable, because it indicates space is being used efficiently.

What it can’t tell you

Whether you have priced your inventory effectively to maximize revenue. It’s possible to achieve (or exceed) the financial benefit of 100% occupancy with higher rates and 80% of your rooms filled. For this reason, occupancy rates should always be viewed in context, alongside ADR and RevPAR.

How to calculate occupancy

Rooms sold/Rooms available x 100

 

What is MPI?

MPI, or market penetration index, compares your occupancy rate against the average occupancy of your competitive set and/or the market in general. This metric is also called Occupancy Index.

What it can tell you

MPI indicates if you’re getting your fair share of the overall business in your market or competitive set. For example, if your competitive set represents 1,000 rooms and your hotel has 100 rooms, your fair share would be 10%. If, during a specific period of time, your hotel’s actual share equals its fair share, your MPI would be 100% 

What it can’t tell you  

If your competitive set or market is underperforming.  

How to calculate MPI  

Your occupancy/Your competitive set’s occupancy x 100

 

 

What is ADR?

ADR, or average daily rate, is the average amount paid per sold room. It does not include complimentary or free-of-charge rooms or revenue from other departments, such as food and beverage.

What it can tell you

Calculating ADR allows performance comparison—against historic results and competitors—allowing you to make informed changes to rates. The ultimate goal should be to increase ADR through effective pricing and promotions.

What it can’t tell you 

Your property’s overall revenue performance.

How to calculate ADR

Room revenue/Rooms sold

 

What is ARI?

ARI, or average rate index, compares a hotel’s average daily rate (ADR) performance to that of their competitive set. It reveals if your property is priced higher or lower than key competitors. 

An ARI above 1.00 indicates your property is priced higher than the average for the market, while below 1.00 suggests your rooms are priced lower.  

What it can tell you 

ARI can help you decide whether to adjust your rates to increase bookings or pursue a strategy of lower occupancy at higher rates to achieve the same revenue performance.

What it can’t tell you 

How you compare with the market average in terms of occupancy rate.

You’ll want to use Market Penetration Index (MPI) for this. 

How to calculate ARI 

Your ADR/Your competitive set’s ADR

 

What is RevPAR?

RevPAR, or revenue per available room, is a measurement of a hotel’s average daily rate (ADR) and its ability to fill its rooms. For example, if ADR is $100 and occupancy is 80%, the hotel’s RevPAR would be $80. 

What it can tell you 

RevPAR includes both sold and unsold rooms, so it can help you understand how well you’ve managed inventory and rates to generate revenue. It also suggests how much a hotel could charge for rooms. If occupancy is low, it might be a sign to reduce rates, but if occupancy is very high, there might be an opportunity to increase rates. 

What it can’t tell you 

RevPAR does not consider expenses, so it can’t give you a true picture of your profitability and operating success.

How to calculate RevPAR 

Occupancy x ADR
or
Total room revenue/total rooms available

 

What is RGI?

RGI, or revenue generated index, measures a hotel’s RevPAR performance against their comp set, submarket or market.  This metric is also called RevPAR index. 

What it can tell you

RGI helps you understand how well your revenue strategies are performing compared to your competition. In other words, are you capturing your expected, or fair, share of the revenue represented in the competitive set or market? If you are, the index will be 100.  

What it can’t tell you

If your profitability is better than your competitors because it doesn’t consider distribution costs.  

How to calculate RGI

Your RevPAR/Your competitive set’s RevPAR x 100

 

Explore free revenue managment tools

If you’re looking for help applying these metrics to your business, explore the suite of revenue management tools available in Expedia Group’s Partner Central. From crafting a custom competitive set to leveraging real-time public market data to understand the current state of occupancy and ADR, you’ll have support to make informed decisions about optimizing your revenue.