Throughout this pandemic, hoteliers everywhere had to find ways to successfully navigate times of unpredictable and often decreased demand compared to previous years.
Adapting to shifting consumer trends as well as finding new ways to drive demand and reduce non-value-adding expenses became paramount for a hotel's survival. This led to subtle shifts in many revenue managers' attitudes towards hotel KPIs (key performance indicators).
Read on for an overview of how the importance of hotel KPIs is changing and which ones will be most critical for hotels in 2021 and during Covid-19 in general.
Net Operating Income
Net operating income is a hotel's revenue generated minus its operating expenses, i.e. the money left after deducting all operating expenses. It's an important metric for hotel owners and investors when they analyse a property. NOI also allows hotels to build a buffer that helps them survive times of slow business like the current crisis. Properties without this financial cushion will need to focus extra hard on maximising profits from every little bit of pick-up.
It's challenging to impact NOI as a KPI since it's the result of all other KPIs combined. The only way to achieve this is when the revenue manager works with other department heads to boost TRevPAR and reduce variable costs in the short term without impacting service quality.
Revenue Managers should, however, exercise caution when adjusting levers such as ADR to drive revenue because this will impact other KPIs such as occupancy rates. The best place to start is to determine a minimum profit goal for your property. From there, you can set goals for related KPIs such as GOPPAR, TRevPAR, RevPAR, ADR, occupancy rate and online review scores
GOPPAR does two important things. First, it shows you how revenues and expenses are distributed per team, down to the bottom line. Second, it highlights inefficiencies which are getting in the way of your profit goals.
TRevPAR
A refined TRevPAR strategy is more important for your hotel during this crisis than ever before. TRevPAR looks at the total revenue generated per available room. This includes everything from the basic room rate, paid upgrades, F&B add-ons (e.g. breakfast), and ancillary spending in all hotel departments.
RevPAR (revenue per available room) used to be the North Star metric for revenue managers. However, when comparing RevPAR to TRevPAR, it's apparent that RevPAR only looks at a small area of the hotel instead of the bigger picture of maximising revenues and profits property wide. A shift towards this more complete overview is necessary to drive profits, especially since 'post-lockdown' travellers want more creative and experiential services which involve all hotel departments.
Occupancy rate
Occupancy rate indicates the percentage of available room sold during a certain time. Having a clear profit goal will help revenue managers determine the minimum occupancy rate needed to break even or bring in a profit. While occupancy will always be an important KPI, always look at it in the context of other KPIs.
ADR
The ADR or average daily rate is calculated by dividing the number of rooms sold by the revenue they generated. Hoteliers mainly use this KPI to compare their properties' past performance and benchmark themselves against their compset. Revenue managers also leverage ADR to influence occupancy rates (as outlined above).
As a revenue manager, your goal should be to boost your ADR incrementally, by refining your hotel's branding, improving its reputation, infrastructure and packages. The higher the ADR your hotel can demand, the higher the quality of guests you'll attract. They will have a higher spending capacity which can help you increase your TRevPAR by promoting ancillary services in other departments. If you want to drop your ADR slightly to capture market share, use pre-arrival or in-stay upselling to make up for the lower room rate and drive TRevPAR.
