Hoteliers tend to measure the same good old KPIs, such as occupancy, ADR, RevPAR, and other KPIs, all the time.
NB: This is an article from Demand Calendar
However, there is also a continuous discussion about finding new KPIs more effective in measuring a hotel’s performance, such as revenue or profit per square meter, total revenue per available room (TRevPAR), or customer lifetime value (CLV). There are now so many KPIs in the hotel industry that hotels have entered a phase of KPI paralysis.
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A better way is to select fewer, more relevant KPIs for the specific hotel depending on the concept, facilities, star rating, size, location, and other hotel-specific variables.
Three essential aspects should be considered in-depth when deciding on the crucial KPIs for a specific hotel. These include relevance, clarity, and measurability. It is crucial to ensure that the selected KPI effectively measures what it is intended to and minimizes conflicts within the organization.
Relevance is a critical aspect of selecting and implementing KPIs in an organization. A relevant KPI aligns with the organization’s goals, objectives, and vision and contributes to decision-making and desired outcomes. Here are ten bullet points elaborating on the relevance of KPIs:
- Alignment with strategic goals: A relevant KPI should directly support the organization’s strategic goals, helping to track progress toward achieving those goals. Ensure that marketing, sales, and revenue management KPIs are aligned.
- Industry-specific: The KPI should be relevant to the specific industry, addressing key performance aspects unique to that industry. Typical industry KPIs are RevPAR, TRevPAR, Occupance, ADR, RGI, ARI, MPI, and many others.
- Reflects core business processes: The KPI should represent the organization’s core business processes, measuring the efficiency and effectiveness of those processes. Guest satisfaction should be on top of the list, with a KPI measuring how the hotel utilizes its capacity.
- Supports decision-making: A relevant KPI should provide insights that aid in decision-making at various levels of the organization, guiding operational and strategic decisions. A decrease in a leading indicator, such as guest satisfaction, should trigger immediate action.
- Helps identify improvement opportunities: Relevant KPIs enable organizations to identify areas where performance can be improved, leading to better overall results. RGI shows if the hotel captures its fair share of the market. If not, this is an opportunity to enhance the performance.
- Addresses stakeholder needs: A relevant KPI should address the needs and expectations of key stakeholders, including employees, customers, investors, and regulators. Measuring employee satisfaction can lead to improved working conditions. ROI for the owner is an important KPI; new ESG measurements might become mandatory by law.
- Reflects current priorities: The KPI should be relevant to the organization’s current priorities, ensuring it remains focused on the most pressing issues and opportunities. Traditionally, hotels measure the same KPIs all the time. Focusing on specific KPIs until they show a satisfactory level would be better.
- Easy to communicate: A relevant KPI should be simple and easy to communicate to all levels of the organization, ensuring that everyone understands its importance and purpose. Volume is the easiest KPI to understand. One example is how many rooms to clean. The next level is money, which is more difficult to understand. For example, what does it mean if the hotel had a room revenue of $10,000? Finally, the most difficult to understand is a KPI combining two variables such as occupancy, RevPAR, and RGI. It takes more effort to explain what RGI means and at what level it is considered good.
- Drives desired behaviors: The KPI should encourage desired behaviors within the organization, supporting a culture of continuous improvement and performance excellence. Use leading KPIs to drive changing behavior; if the behavior changes, the hotel’s performance will improve. For example, measure the time it takes to check in a guest. If shorter, guest satisfaction will improve, and guests will recommend the hotel to others, leading to an increase in revenue.
- Adaptable to change: A relevant KPI should be flexible to changing business conditions, ensuring that it remains valuable and effective in guiding the organization through periods of growth, contraction, or transformation. For example, occupancy was less relevant during the pandemic, but RGI remained relevant as it shows how much of the market the hotel captured.
By ensuring that KPIs are relevant in these ways, organizations can create performance indicators that effectively measure and drive desired outcomes, contributing to better decision-making, improved performance, and alignment with overall goals and objectives.