Crucial Metrics for Reflecting a Hotel’s Financial Performance

factors on which hotel financial performance depends

Hotel management is responsible for tracking various metrics that reflect its business activity, such as the amount of revenue hotel rooms generate. Analyzing this data categorized by hospitality industry acronyms, helps managers with budget planning and staff scheduling. Here’s a look at the most important metrics for hotel managers to track each day.

1. Average Daily Rate (ADR)

Every hotel manager knows the importance of the average daily rate (ADR), which gives a mean average rate for rooms sold in a day. It’s calculated by dividing room revenue by several rooms sold. It does not include vacant rooms in the calculation. Hotel management reports this data to other properties in the chain. ADR accounts for full rates paid at the hotel and prepaid rates minus commissions.

2. Revenue Per Available Room (RevPAR)

The hotel’s booking success is reflected more by revenue per available room (RevPAR). This stat comes from dividing total room revenue by total hotel rooms. Some hotels use their alternative calculations, depending on how they count available rooms.

But RevPAR only gives you a limited picture of room performance, as it does not include all the various revenue the hotel collects from guests associated with a room. It’s important not to confuse RevPAR with how profitable a room is.

3. Revenue Per Available Customer (RevPAC)

Another important metric involves counting the number of hotel guests. Revenue per available customer (RevPAC) is calculated by adding up the number of all guests and their visitors, then dividing by several rooms. This metric helps management evaluate the market it attracts.

4. Cost Per Occupied Room (CPOR)

Financial data can be broken down further to learn the cost per occupied room (CPOR). This metric considers the various hotel costs associated with each room, such as for cleaning and other types of room service, as well as energy and water costs. It does not include fixed costs such as Wi-Fi. CPOR essentially reveals a room’s break-even price. So if CPOR is $50, it means charging less equates to financial loss.

5. Net Operating Income (NOI)

In terms of hotel property valuation, the key metric is net operating income (NOI). This value is the result of subtracting operating expenses from total revenue, which might include income from a restaurant. It does not include taxes and depreciation as expenses. It does include franchise fees and costs for maintenance and marketing. NOI is similar to EBITDA, which measures earnings before interest, taxes, depreciation, and amortization.

NOI is viewed more as a metric for asset management, which is particularly important if the company is interested in selling the property. The metric can also be used for leveraging the hotel’s equity when seeking a loan from a financial institution or funding from investors.

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