Average Collection Period
Average Payment Period (APP)
Average Rate Index (ARI)
Average Room Rate (ARR)
Average Spend Per Customer
Average Treatment Rate (ATR)
Cost per Occupied Room (CPOR)
Cost of Sales Ratio
Gross Operating Profit (GOP)
Gross Operating Profit per Available Room (GOPPAR)
Gross Profit Ratio
Labour Cost Ratio
Market Penetration Index (MPI)
Net Profit Ratio
Net Revenue Per Available Room (NRevPAR)
Operating Profit Ratio
Profit Per Available Room (PROFPAR)
Revenue Per Available Room (RevPAR)
Revenue Per Available Seat Hour (RevPASH)
Revenue Per Available Square Meter (RevPAM)
Revenue Per Available Treatment Hour (RevPATH)
Revenue Per Occupied Room (RevPOR)
Spa Revenue Per Occupied Room (SRevPOR)
Spa Utilization Ratio (SUR)
Total Revenue Per Available Room (TRevPAR)
Total Revenue Per Client (TRevPEC)
Average collection period is the amount of time required for a business to receive payments from clients. It can be thought of as the time that elapses between the date that a credit sale is made and the date that the full amount is collected from the customer. It is usually calculated in terms of accounts receivable (AR). A shorter average collection period is viewed more favorably than a longer one, as this signals that a property collects payments faster.
What is Average Collection Period For?
Benefits of Average Collection Period
Limitations of Average Collection Period
How is Average Collection Period Calculated
Example of Average Collection Period Calculation
Average payment period (APP) is the length of time a hotel, resort, or company takes to pay off credit purchases. It is used for accounting purposes to track when payments are due so that no penalties or excess interest are accrued. It does not have an effect on the company’s working capital. Because of this, APP has little to no effect on a company’s valuation during a merger or acquisition. APP is also known as days payable outstanding (DPO).
What is Average Payment Period For?
Benefits of Average Payment Period
Limitations of Average Payment Period
How is Average Payment Period Calculated
Example of Average Payment Period Calculation
The Average Rate Index (ARI) is a property management performance metric that compares Average Daily Rate (ADR) with the property’s competitive set for a given period of time. A property’s competitive set includes other brands and competitors with a similar target market. The competitive set (comp set) is obtained by calculating the Average Daily Rate (ADR) for a group of competitors. If a property’s ADR is equal to the aggregate ADR of its competition, it is historically believed that the property is achieving “fair share.”
What is Average Rate Index For?
Benefits of Average Rate Index
How is Average Rate Index Calculated
Example of Average Rate Index Calculation
Average Room Rate (ARR) is a hotel KPI that measures the average rate of an available room. As opposed to Average Daily Rate (ADR) which measures what rate a room might earn on any given day, ARR measures the average rate of rooms available over a longer period of time. It can be calculated for monthly, quarterly, or annual averages. It can also be thought of as the average price that a guest pays per room at a hotel. Accordingly, ARR is an important metric for measuring the financial performance of a property.
What is Average Room Rate Used For?
Benefits of Average Room Rate
Limitations of Average Room Rate
How is Average Room Rate Calculated
Example of ARR Calculation
Average spend per customer is a metric that is most commonly used in hotel food and beverage operations. But it can also be applied to other areas of hotel operations and services. It gives revenue managers an idea of how much each customer spends on varying products and services during their stay, on average. It is also sometimes referred to as Average Spend per Head.
What is Average Spend Per Customer For?
Benefits of Average Spend Per Customer
Limitations of Average Spend Per Customer
How is Average Spend Per Customer Calculated
Example of Average Spend Per Customer Calculation
Average Treatment Rate (ATR) is most relevant for spa or wellness operations in a hotel or resort property. It can apply to spa operations within a hotel or from an independent operator. It determines the average rate for treatments that guests receive in the spa. It can also be used to calculate the average spa revenue per occupied room in a hotel or resort. ATR helps with revenue management because it gives a clearer picture of overall spa performance across the variety of treatment packages offered.
What is Average Treatment Rate For?
Benefits of Average Treatment Rate
Limitations of Average Treatment Rate
How is Average Treatment Rate Calculated
Example of Average Treatment Rate Calculation
Total Treatment Revenue = $15,000 Total Number of Treatments Sold =$300 ATR = $15,000 (Total Treatment Revenue) / $300 (Total # of Treatments Sold) = $50
Benchmarking uses a number of hotel KPIs to make comparisons against competing hotels. Examples of KPIs used in hotel benchmarking include prices, level of service, product offerings, location, and distribution channels. Some competitors may compete on all factors at all times. Others may only compete in a few segments and for different times, such as peak holidays or weekends. In addition to using benchmarking to make comparisons with competitors, a hotel can use internal benchmarking to compare its own internal operations and processes. Benchmarking can also be used to make functional comparisons within a broad industry or generic comparisons to similar businesses, regardless of industry.
What is Benchmarking For?
Benefits of Benchmarking
Limitations of Benchmarking
How is Benchmarking Calculated
Example of Benchmarking
Booking Curves are visual representations that display how hotel bookings occur over a certain period of time. These curves are usually displayed in graph form and can include several data items, including room pickup, bookings, and availability. The data that is compiled to create a booking curves graph is usually calculated using a hotel’s Property Management System (PMS).
What are Booking Curves For?
Benefits of Booking Curves
Limitations of Booking Curves
How are Booking Curves Calculated
Cost per occupied room (CPOR) is a formula used to calculate the average cost of a guest occupying a room. It is a key performance indicator that helps hotels understand profitability. As a hotel lowers its CPOR, it can increase profits per available room and/or become more competitive. Reducing CPOR is one of the quickest ways a property can increase its profit margins. Examples of line items used to calculate the cost of an occupied room include housekeeping, laundry, heating and air conditioning, Internet, cleaning supplies, and anything else related to keeping a room ready for guests.
What is CPOR Used For?
Benefits of CPOR
Limitations of CPOR
How is CPOR Calculated
Example of CPOR Calculation
Cost of sales ratio applies directly to the cost of goods sold. It provides a metric for comparing a hotel’s expenses from sales activity against total revenue. It is an important hotel KPI used to give revenue managers a better idea of how a hotel’s food and beverage operation performs. Profitable food and beverage operations should seek to fall in the 25 to 35 percent range for this metric.
What is Cost of Sales Ratio For?
Benefits of Cost of Sales Ratio
How is Cost of Sales Ratio Calculated
Example of Cost of Sales Ratio Calculation
Current ratio applies to hotel liquidity. It is a metric that is often considered by investors and analysts to determine a hotel’s ability to maximize current assets on its balance sheet. A hotel’s ability to maximize these assets plays a huge part in its ability to satisfy current debt obligations and other payables. It is also sometimes known as the Working Capital Ratio.
What is Current Ratio For?
Benefits of Current Ratio
Limitations of Current Ratio
How is Current Ratio Calculated
Example of Current Ratio Calculation
A Demand Calendar is a hotel revenue management tool that shows multiple demand indicators. It helps managers more accurately evaluate market situations in order to make decisions on prices, promotions, and more. Common metrics used to create an accurate Demand Calendar include the previous year’s RevPAR, groups or events booked in the past year, demand level indicators (from current and past year), bank and school holidays, and any additional demand indicators deemed “exceptional.”
What is Demand Calendar For?
Benefits of Demand Calendar
A hotel’s Demand Calendar can be integrated with its current on-the-books and pick-up reports. By doing so, revenue managers can obtain a much broader picture of how hotel or property demand is trending. It is also a useful tool to identify how specific school or bank holidays (both domestically and internationally) affect hotel demand. This information gives a hotel the ability to specifically target these holidays with special offers or promotional packages.
Limitations of Demand Calendar
A Demand Calendar must be updated regularly in order to provide accurate insights. Ideally, the calendar is updated each time an event that impacts demand is identified. Many hotels update their demand calendars at least once every week. A Demand Calendar must also account for demand exceptions. These exceptions can be considered outliers until the event is repeated and can be reasonably counted on as having a significant impact on demand.
How is a Demand Calendar Created
Displacement Calculations are used in hotel revenue management cost-benefit analysis. They are a calculation of the value of a group bookings versus the value of transient (or walk-in) bookings. Making these calculations requires day-to-day analysis of how a hotel’s TOP accounts (tour operators, corporate, consortia, and IDSs) are producing.
What are Displacement Calculations For?
Benefits of Displacement Calculations
Limitations of Displacement Calculations
How are Displacement Calculations Calculated
Example of Displacement Calculations
What is EBITDA For?
Benefits of EBITDA
Limitations of EBITDA
How is EBITDA Calculated
Example of EBITDA Calculation
EBITDAR stands for Earnings Before Interest, Taxes, Depreciation and Amortization, and Restructuring or Rent Costs. Like EBITDA, it is a key metric for evaluating a hotel’s profitability and performance. However, EBITDAR is more widely used for hotels or properties that have undergone restructuring within the past year.
What is EBITDAR For?
Benefits of EBITDAR
Limitations of EBITDAR
How is EBITDAR Calculated
Example of EBITDAR Calculation
Forecasting is a way for hotel managers to predict a number of key market indicators and customer behaviors, and is done using models that range from basic to very complex. It is also a strategic management tool for managers to gather more knowledge on visitor demographics and behaviors, as well as market trends. Forecasting models, moreover, can span any date range specified, including annual, monthly, and weekly forecasts.
What is Forecasting For?
Benefits of Forecasting
Limitations of Forecasting
How are Forecasting Models Created
Gross Operating Profit, or GOP, is a hotel KPI that signals the property’s profits after subtracting operating expenses. It is a useful indicator of the profitability of a hotel’s operations and should be calculated regularly for comparisons to the previous year’s GOP. A hotel’s GOP can also be compared to reported GOP for competitors and metrics for industry averages.
What is Gross Operating Profit (GOP) For?
Benefits of Gross Operating Profit (GOP)
Limitations of Gross Operating Profit (GOP)
How is Gross Operating Profit (GOP) Calculated
Example of Gross Operating Profit (GOP) Calculation
Gross Operating Profit per Available Room (GOPPAR) is an important KPI that helps hotels adjust revenue against the costs incurred in generating that revenue. It is used in hotel revenue management to maximize a property’s profitability by factoring operational costs into its forecasting. Some examples of operation costs taken into account when calculating GOPPAR include energy consumption, housekeeping, Internet, laundry, and food and beverage. By factoring in these operational costs, GOPPAR provides a more complete picture of operating costs per room, allowing hotel operators to more accurately calculate overall profitability.
What is GOPPAR Used For?
Benefits of GOPPAR
How is GOPPAR Calculated
Example of GOPPAR Calculation
What is Gross Profit Ratio For?
Benefits of Gross Profit Ratio
Limitations of Gross Profit Ratio
The Gross Profit Ratio only accounts for a hotel’s variable costs. It does not include some important fixed costs, such as rent paid, marketing expenses, and employee salaries, like some other KPIs do — i.e. GOPPAR, RevPAR, and Labour Cost Ratio.
How is Gross Profit Ratio Calculated
Example of Gross Profit Ratio Calculation
Usually expressed as a percentage, Labour Cost Ratio provides revenue managers with a key performance indicator to compare labour costs to hotel revenue. It shows the amount of labour costs required to produce each dollar of sales. Employee salaries or wages are generally a large percentage of total labour costs. Other examples of labour costs include medical insurance, workers’ compensation insurance, pensions contributions and related taxes, and life insurance.
What is Labour Cost Ratio For?
Benefits of Labour Cost Ratio
Limitations of Labour Cost Ratio
How is Labour Cost Ratio Calculated
Example of Labour Cost Calculation
Market Penetration Index (MPI) is a key hotel performance metric that measures how a hotel’s occupancy rates compare to those of its competitors. More specifically, it compares a hotel’s average occupancy rate to the average occupancy rate of similar hotels in your industry. It is also sometimes referred to as a hotel’s market share.
What is Market Penetration Index (MPI) For?
Benefits of Market Penetration Index (MPI)
Limitations of Market Penetration Index (MPI)
How is Market Penetration Index (MPI) Calculated
Example of Market Penetration Index (MPI) Calculation
Market Segmentation is a necessary element to apply several other hotel revenue management principles. It is useful for identifying different consumer segments in order to customize marketing initiatives to target those groups. One of the more common general examples of market segmentation is breaking guests down into those traveling for business purposes versus those traveling for leisure.
What is Market Segmentation For?
Benefits of Market Segmentation
Limitations of Market Segmentation
How is Market Segmentation Performed
Examples of Market Segmentation
The Net Profit Ratio is a profitability ratio used by hotel revenue managers to understand profitability after certain costs. It is a KPI that removes taxes to provide a more accurate picture of the relationship between net profits and net sales. A higher net profit ratio signals a more efficient hotel management. A lower ratio means that managers should look for opportunities to improve hotel efficiency. Net Profit Ratio is often reported on a trend line so that managers can compare a hotel’s performance over time.
What is Net Profit Ratio For?
Benefits of Net Profit Ratio
Limitations of Net Profit Ratio
A significant limitation of Net Profit Ratio as a KPI is that it should not be used as a measure of a hotel’s cash flow. This is because it does not include non-cash expenses, such as accrued expenses, amortization, and depreciation. It is also better used as a short-term metric because it does not account for a hotel’s actions to maintain long-term profitability.
How is Net Profit Ratio Calculated
Example of Net Profit Ratio Calculation
Net Revenue Per Available Room (NRevPAR) is a comparison metric similar to RevPAR, but whereas RevPAR looks only at a property’s room revenue, NRevPAR takes into account all net revenues for a hotel or property. Looking at net revenue, moreover, means that NRevPAR also takes costs into account, such as travel agency commissions,transaction fees, and distribution and operating costs.
What is Net Revenue Per Available Room (NRevPAR) For?
Benefits of Net Revenue Per Available Room (NRevPAR)
Limitations of Net Revenue Per Available Room (NRevPAR)
The major limitation of NRevPAR lies in the difficulty of accurately calculating the many different types of distribution costs, transaction fees, and commissions. It also fails to indicate revenue generated through other sources and is not useful in determining actual hotel occupancy rates.
How is Net Revenue Per Available Room (NRevPAR) Calculated
Example of Net Revenue Per Available Room (NRevPAR) Calculation
Occupancy rate is a hotel KPI that measures the number of rooms occupied in a hotel at a given time, and compares that to the total number of rooms available on the property. It is displayed as a percentage.z Occupancy rate highlights how much of the available space in a hotel is actually being utilized by guests. It gives a broad overview of how a hotel is performing and allows managers to place other key hotel KPIs in appropriate context.
What is Occupancy Rate Used For?
Benefits of Occupancy Rate
Limitations of Occupancy Rate
Increasing hotel occupancy rate is a favorable outcome, but managers may have to reduce room rates to achieve 100% occupancy. Some hotels may achieve maximum profitability at a 75 or 80 percent occupancy rate, based on other key metrics. A 100% occupancy rate doesn’t always equate to maximum profits.
How is Occupancy Rate Calculated
Example of Occupancy Calculation
Operating Profit Ratio is a hotel KPI that measures the relationship between operating profit earned and the net revenue generated by a property which is also labeled net sales. Net sales should include both cash and credit sales. Operating profit should be accounted for before interest and taxes. The ratio is a profitability ratio that is expressed as a percentage of sales.
What is Operating Profit Ratio For?
Benefits of Operating Profit Ratio
Limitations of Operating Profit Ratio
While Operating Profit Ratio is a key metric for identifying operation flaws or inefficient resource management, it doesn’t necessarily identify areas for improvement. Discrepancies between operating profit and net sales can be the result of a variety of factors, such as geography, hotel size, promotions, and business model.
How is Operating Profit Ratio Calculated
Example of Operating Profit Ratio Calculation
Price Positioning is a determination of where a hotel’s prices stand in comparison to prices at similar properties. Price positioning can be used to evaluate daily room rates, holiday rate promotions, spa and food and beverage prices, and more. Some of the most common strategies for price positioning include penetration pricing, skimming pricing, equal pricing, and surrounding pricing.
What is Price Positioning For?
Benefits of Price Positioning
Limitations of Price Positioning
The limitations of Price Positioning depend on which strategy a hotel opts to choose. For example, skimming and penetration pricing are limited because they rely on capturing consumer attention in the short-term. Consequently, a hotel cannot use skimming or penetration as a long-term Price Positioning strategy. Furthermore, the limitation of surrounding pricing is that a hotel must be able to provide that additional value in terms of facilities, services, or amenities. And the limitation of equal pricing is an inability to break in due to aggressive competition.
How is Price Positioning Determined
Profit Per Available Room (PROFPAR) is a calculation of hotel profit earnings for each available room on the property. The calculation is made using operating profit, which accounts for changes in room revenue and operating expenses. For hotel owners, PROFPAR is a good metric for evaluating sales growth and management’s ability to control operating expenses.
What is Profit Per Available Room (PROFPAR) For?
Benefits of Profit Per Available Room (PROFPAR)
Limitations of Profit Per Available Room (PROFPAR)
Because PROFPAR is calculated using operating profit, it is not subject to all the limitations of RevPAR, such as a failure to account for operating expenses. However, PROFPAR (like RevPAR) doesn’t account for profits earned from other hotel services or amenities. This means that any strategic decisions made to improve hotel profitability shouldn’t be made solely based on a property’s PROFPAR.
How is Profit Per Available Room (PROFPAR) Calculated
Example of Profit Per Available Room (PROFPAR) Calculation
PROFPAR = Operating Profit Per Year / Daily Available Rooms Per Year Operating Profit Per Year = $3,465,000 Daily Available Rooms Per Year = 2,500 PROFPAR = $3,465,000 (Operating Profit Per Year) / 2,500 (Daily Available Rooms Per Year) = $1,386
Rate fences are rules that are applied to specific room rates. They are set by revenue managers to prevent customers who are willing to pay higher amounts from having access to promotions or discounts. From the consumer’s perspective, certain rules will apply to a reservation in order to complete a booking at a certain rate. Rate fences allow hotels to offer different rates to new clients than to existing or returning clients.
What are Rate Fences For?
Benefits of Rate Fences
Limitations of Rate Fences
One of the challenges of setting Rate Fences is that customers must perceive the restrictions placed on their bookings as acceptable. Revenue managers must balance the need to protect a hotel’s interests with the potential to allow customers to book at lower-than-average market rates.
How are Rate Fences Determined
Examples of Rate Fences
Here are some examples of the most common types of Rate Fences: 1. Physical Rate Fences a. Room Location b. Room Size c. Room View d. Amenities 2. Fences Based on Transactional Characteristics a. Time of Purchase b. Quantity of Purchase c. Location of Purchase 3. Fences Based On Buyer Characteristics a. Age b. Industry Affiliation c. Purchase Frequency 4. Fences Based On Availability a. Geographic Criteria b. Distribution Channels
Revenue Generation Index (RGI)
A Revenue Generation Index (RGI) is a useful metric for comparing hotel revenue to the average RevPAR of the competition. Because it uses RevPAR as its primary KPI, an RGI also accounts for occupancy rates.
What is Revenue Generation Index (RGI) For?
An RGI is used to determine whether or not a hotel is earning its fair share of revenue. Comparisons are made against a chosen competitive set that usually consists of hotels or resort properties with similar offerings.
Benefits of Revenue Generation Index (RGI)
Calculating RGI allows revenue managers to determine if a hotel is receiving a good share of market revenue when compared against its competitors. It is a great way to evaluate whether a hotel is falling short of, remaining on target of, or exceeding expected market share.
Limitations of Revenue Generation Index (RGI)
RGI is calculated using a specific competitive set. The hotels that a revenue manager decides to use to make these comparisons can have a large impact on the resulting RGI. As such, the competitive set used to determine ‘average market RevPAR’ should be chosen carefully.
How is Revenue Generation Index (RGI) Calculated
An RGI is calculated by dividing your hotel’s RevPAR by the average hotel market RevPAR.
When RGI is equal to 1, your hotel’s RevPAR is equal to the average market RevPAR.
When RGI is greater than 1, your hotel’s RevPAR is higher than the average market RevPAR.
When RGI is less than 1, your hotel’s RevPAR is lower than the average market RevPAR.
Example of Revenue Generation Index (RGI) Calculation
RGI = Your Hotel’s RevPAR / Hotel Market RevPAR
Your Hotel’s RevPAR = $10,000
Hotel Market RevPAR = $12,000
RGI = $10,000 (Your RevPAR) / $12,000 (Hotel Market RevPAR) = 0.83
From this RGI result, we can infer that the hotel in question is currently earning less than its fair market share of RevPAR.
Revenue per Available Room (RevPAR) is a critical metric for hotels to plan for high and low seasons. It helps hotels measure the efficiency of their operations by tracking how well they’re filling available rooms at their Average Daily Rate (ADR). And since RevPAR measures revenue made during a certain period of time, it can be used to compare any given time period against previous periods, and measure the long-term performance of a property.
What is Revenue Per Available Room Used For?
Benefits of Revenue Per Available Room
Limitations of Revenue Per Available Room
RevPAR only allows comparisons of income as a percentage of room sales. This does not factor in additional services offered at a hotel property, such as tour sales, room services, spa bookings, and other upsells. Also, unlike GOPPAR, it does not factor in the operating costs incurred in generating that revenue. RevPAR is also subject to fluctuations resulting from seasonality, economic trends, and consumer preferences. These fluctuations make it a difficult KPI for hotels to track accurately. For these reasons, RevPAR has limitations in terms of determining a hotel’s overall profitability.
How is Revenue Per Available Room Calculated
Example of Revenue Per Available Room Calculation
We’ll calculate RevPAR using both the multiplication and division methods here. Multiplication Method Average Daily Rate = $200 Occupancy Rate = 80% RevPAR = 30 (ADR) x 0.75 (Occupancy Rate) = $250 Division Method Total Rooms Revenue = $10,000 Total Number of Rooms = 40 RevPAR = 10,000 (Total Rooms Revenue) / 40 (Total # of Rooms) = $250
Revenue Per Available Seat Hour (RevPASH) is a KPI used by food and beverage outlets in a hotel. It is similar to RevPAR, which is used to evaluate room revenue. RevPASH measures revenue generated by a food and beverage (F&B) outlet per hour based on available seats. It can be calculated daily, weekly, and monthly.
What is Revenue Per Available Seat Hour (RevPASH) For?
Benefits of Revenue Per Available Seat Hour (RevPASH)
Limitations of Revenue Per Available Seat Hour (RevPASH)
RevPASH does not provide the full picture of an F&B outlet’s financial performance. Food and beverage managers should also evaluate the margins of individual menu items, rather than focusing solely on total revenue.
How is Revenue Per Available Seat Hour (RevPASH) Calculated ?
Example of Revenue Per Available Seat Hour (RevPASH) Calculation
RevPASH = Total Outlet Revenue / (Available Seats x Opening Hours) We’ll make this RevPASH calculation for a weekly period based on a 60-seat restaurant open six days a week for six hours per day. Total Outlet Revenue = $44,000 Available Seats = 60 Opening Hours = 36 RevPASH = $44,000 (Total Outlet Revenue) / (60 (Seats) x 36 (Opening Hours)) = $20.37
Revenue Per Available Square Meter (RevPAM) is a hotel KPI that measures a hotel’s ability to generate revenue from its banquet and conference spaces. Consequently, RevPAM only applied to hotels that rent space for banquets or conferences, and does not include revenue from room charges or breakfast offerings.
What is Revenue Per Available Square Meter (RevPAM) For?
Benefits of Revenue Per Available Square Meter (RevPAM)
Limitations of Revenue Per Available Square Meter (RevPAM)
RevPAM is not a useful KPI for a hotel that does not regularly rent out its hotel or banquet space. It also does not tell the full story of a hotel’s profitability because it only applies to a hotel’s events department.
How is Revenue Per Available Square Meter (RevPAM) Calculated
Example of Revenue Per Available Square Meter (RevPAM) Calculation
RevPAM = Revenue / Available Square Meters of Banquet Space (m²) Revenue = $580,000 Available Square Meters of Banquet Space = 2,000 RevPAM = $580,000 (Revenue) / 2,000 (Square Meters of Banquet Space) = $290
Revenue Per Available Treatment Hour (RevPATH) is used to measure profitability of spa operations in a hotel or resort property. It measures revenue generated by treatments and accounts for the number of rooms available during normal hours of operation. It is a very useful metric used in yield management for spa managers.
What is Revenue Per Available Treatment Hour (RevPATH) For?
RevPATH works similar to how RevPAR measures the efficiency of hotel room bookings. RevPATH can be used to identify the times of the day (or days of the week) where a spa is bringing in the most revenue. This allows spa managers to design premium products for upsells during high demand periods. It also helps with identifying periods of low demand where a spa can use promotions to drive additional revenue.
Benefits of Revenue Per Available Treatment Hour (RevPATH)
RevPATH is a useful KPI for measuring spa operations because it accounts for spa turnover. Instead of simply looking at total spa revenue, RevPATH helps spa managers identify hours that achieve a higher yield. This helps spas manage their time more effectively and identify opportunities to drive increased revenue.
Limitations of Revenue Per Available Treatment Hour (RevPATH)
One limitation of RevPATH is that different spas will often calculate RevPATH depending on their specific revenue goals. While RevPATH is a very useful internal metric for improving time management in spa operations, it may not be a good KPI for comparing spa operations across different hotels or resorts.
How is Revenue Per Available Treatment Hour (RevPATH) Calculated
RevPATH is calculated by multiplying a spa’s occupancy rate by its average treatment rate. Average treatment rate is calculated by dividing Total Treatment Revenue by the number of Total Treatments sold. Because occupancy rate is usually expressed as a percentage, it can be easier to convert to a decimal and then multiply it by average treatment rate to achieve RevPATH.
Example of Revenue Per Available Treatment Hour (RevPATH) Calculation
RevPATH = Spa Occupancy x Average Treatment Rate
Spa Occupancy = 70%
Average Treatment Rate (ATR) = $240
RevPATH = 70% (Occupancy Rate) x $240 (ATR) = $168
Revenue Per Occupied Room (RevPOR) differs from RevPAR because it accounts for all revenue a hotel earns when a room is occupied. It accounts for optional services guests can purchase at the hotel, as well as any additional sales made during a stay. RevPOR can be measured daily, weekly, monthly, or annually. The choice that a hotel makes largely depends on the types of insights that that hotel is seeking.
What is Revenue Per Occupied Room (RevPOR) For?
RevPOR is used to determine how much profit a hotel earns when a customer enters the hotel. It gives hotel revenue managers a very useful metric for evaluating a hotel’s overall performance when guests actually stay at a property. Because of this, RevPOR can be a more useful metric for hotel revenue management than a KPI like Occupancy Rate.
Benefits of Revenue Per Occupied Room (RevPOR)
RevPOR is an especially useful KPI for evaluating hotel performance during seasonal periods of low demand. While seasonal trends can drive down other KPIs, RevPOR prioritizes an evaluation of how much an average guest spends on hotel products and services. This is a departure from many other KPIs (like RevPAR) that look at the overall number of guests.
Limitations of Revenue Per Occupied Room (RevPOR)
While RevPOR is useful for evaluating how much the average guest spends at a hotel, it can be limited precisely because it does not account for occupancy rates. This means that RevPOR should be used alongside other hotel KPIs when making strategic revenue management decisions. Most revenue managers, for instance, will also tell you that Occupancy Rate is a very key metric for evaluating a hotel’s bottom line, illustrating why RevPOR is limited by not accounting for actual occupancy.
How is Revenue Per Occupied Room (RevPOR) Calculated
RevPOR is calculated by dividing a hotel’s total revenue by the number of rooms actually sold to guests. Total Revenue should account for all revenue from accommodations, breakfast, spa services, bar and mini bar sales, and any additional revenue.
Example of Revenue Per Occupied Room (RevPOR) Calculation
RevPOR = Total Revenue / Total Occupied Rooms
Total Revenue = Room Revenue + Breakfast + Bar + Mini Bar + Spa + Any Additional Revenue
(This calculation is made for annual RevPOR)
Total Revenue = $3,560,000
Total Occupied Rooms = 51,00
RevPOR = $3,560,000 (Total Revenue) / 51,000 (Total Occupied Rooms) = $69.80
Spa Revenue Per Occupied Room is a KPI specific to hotel spa operations. It helps both spa and hotel revenue managers identify the relationship between spa operations and hotel occupancy. The data used to calculate SRevPOR is pulled from a hotel’s Spa Management System. SRevPOR in the spa industry typically falls between $40 and $70.
What is Spa Revenue Per Occupied Room (SRevPOR) For?
SRevPOR is used to help spa managers optimize time management by allowing them to analyze the differences between internal and external utilization levels. This ultimately helps them make informed changes to a spa’s revenue management strategy. SRevPOR is often used alongside a hotel’s RevPOR calculation.
Benefits of Spa Revenue Per Occupied Room (SRevPOR)
SRevPOR is an effective KPI for analyzing a hotel’s strategic marketing plan. It allows managers to measure the amount of spa revenue being generated per occupied room in the hotel, as well as identify trends based on seasonal demand, promotions, and other factors.
Limitations of Spa Revenue Per Occupied Room (SRevPOR)
SRevPOR can vary greatly depending on seasonality and the specific client mix staying at a hotel in any given period. It can also vary depending on the size of the spa and viability of local business. As such, it should be analyzed in conjunction with factors, such as Occupancy Rate and RevPOR.
How is Spa Revenue Per Occupied Room (SRevPOR) Calculated
SRevPOR is calculated by dividing total spa revenue by the total number of occupied rooms. For the most accurate SRevPOR calculation, spa revenue should only include revenue from treatments, product sales, facility fees, and other ancillary sales.
Example of Spa Revenue Per Occupied Room (SRevPOR) Calculation
SRevPOR = Total Spa Revenue / Total Number of Occupied Rooms
Total Spa Revenue = $28,000
Total Number of Occupied Rooms = 460
SRevPOR = $28,000 (Spa Revenue) / 460 (# of Occupied Rooms) = $60.87
What are Stay Controls For?
Stay Controls are used by hotel revenue managers to achieve as close to full occupancy as possible, for as many weeks as possible during a calendar year, and into the future. There are many ways for a hotel to place controls on a visitor’s stay, but the specific controls that will be most useful for a given hotel will require an in-depth evaluation of that hotel’s booking patterns.
Benefits of Stay Controls
Stay Controls allow a hotel to maximize revenue potential during seasons of lower demand. By analyzing booking and stay patterns, a hotel can implement controls that minimize periods of low occupancy. In turn, these controls can help a hotel manager identify changes to a hotel’s reservation policy that will ultimately increase hotel profitability.
Limitations of Stay Controls
A hotel’s ability to implement Stay Controls may greatly depend on the regulations of the county, state, or region in which they operate. For example, certain counties may place restrictions on both length-of-stay controls, as well as a hotel’s ability to leverage dynamic pricing.
Additionally, certain Stay Controls come with risk. As a hotel, building customer loyalty can be just as important as maximizing daily revenue potential. A hotel must weigh the pros and cons of implementing Stay Controls in order to avoid alienating return guests.
How are Stay Controls Identified
Stay Controls should be implemented carefully. While the goal of Stay Controls is to boost hotel revenue, there are a number of ethical and legal questions that can impact a hotel’s bottom line when it comes to implementing Stay Controls.
Examples of Stay Controls
Here are some examples of Stay Controls:
- Minimum Length of Stay
- Maximum Length of Stay
- A Combination of Minimum and Maximum Length of Stay
- Dates Closed to Arrival (CTA)
- Dates Closed to Departure (CTD)
- Stay-Through Restrictions
What is Spa Utilization Ratio (SUR) For?
SUR is used for spa managers to evaluate how efficiently a spa is managing time and utilizing open hours. Much like Occupancy Rate, SUR is evaluated for a given time period. SUR may be calculated daily, weekly, monthly, or annually. Before calculating SUR, a spa must determine the time and space units to be measured.
Benefits of Spa Utilization Ratio (SUR)
The main benefit of SUR is that it helps spa managers identify utilization rates. By analyzing how effectively (or ineffectively) a hotel is selling treatment hours, managers can identify strategies for improving guest usage, as well as plan promotions to maximize utilization during periods of high (or low) demand.
Limitations of Spa Utilization Ratio (SUR)
SUR is most effective when evaluated on a daily basis. It also helps to differentiate services when evaluating SUR because different services translate to higher revenue than others. Spas with very high turnover rates should even consider evaluating SUR on an hourly basis.
Most spas operate between 35 and 40 percent utilization, so it is also important to consider industry averages when evaluating a hotel’s SUR. This will help you prevent making overly-reactive strategic decisions before considering industry trends.
How is Spa Utilization Ratio (SUR) Calculated
SUR is calculated by dividing the hours of treatment sold by the hours of treatment available. That result is then multiplied by 100 so that the final calculation is expressed as a percentage out of 100.
Example of Spa Utilization Ratio (SUR) Calculation
SUR = (Hours of Treatment Sold / Hours of Treatment Available) x 100
For the below calculation, the following data is used:
- The spa has 6 rooms available
- Spa hours are 9 am to 5pm, 7 days per week
- This gives a possible total of 336 hours of treatment available during a given week
- However, for the purposes of this calculation, we’re going to say the spa only sold 280 hours for the week
Hours of Treatment Sold = 200
Hours of Treatment Available = 336
SUR = (200 (Hours Sold) / 336 (Hours Available)) x 100 = 59.5%
What is Total Revenue Per Available Room (TRevPAR) For?
TRevPAR is often used as a benchmarking tool for all-inclusive hotels and resorts. It is a more inclusive metric for displaying how effectively a hotel is using its space to generate revenue. It allows managers to see how a hotel is generating revenue regardless of whether or not rooms are sold.
Benefits of Total Revenue Per Available Room (TRevPAR)
TRevPAR can be a preferable metric for board members and accountants because it provides a broader and more generic evaluation of a hotel’s performance. It provides a more comprehensive view of how well a hotel is generating revenue because it includes revenue generated from amenities from room service sales, restaurant sales, bar sales, and more. This bigger picture view allows for more effective pricing adjustments to be made.
Limitations of Total Revenue Per Available Room (TRevPAR)
A hotel’s management board and accountants should be careful making decisions solely based on TRevPAR calculations. The main limitations of TRevPAR stem from how it does not account for costs incurred by the hotel (as GOPPAR does), and it does not factor in Occupancy Rate.
How is Total Revenue Per Available Room (TRevPAR) Calculated
TRevPAR is calculated by dividing a hotel’s total revenue by the total number of available rooms. Total Revenue should include revenue from accommodations, breakfasts, bar sales, mini bar sales, spa sales, and any ancillary sales.
Example of Total Revenue Per Available Room (TRevPAR) Calculation
TRevPAR = Total Revenue / Total Available Rooms
We’re calculating TRevPAR annually in the following section
Total Revenue = $3,080,000
Total Available Rooms = 15,680
TRevPAR = $3,080,000 (Total Revenue) / 15,680 (Total Available Rooms) = $196.43
Total Revenue Per Client (TRevPEC) is a hotel KPI that can be used to evaluate how much revenue is generated from each visiting customer. It breaks down family and group bookings to provide more information on revenue per customer for those bookings. TRevPEC can be calculated for a selected time period, depending on a hotel revenue manager’s preference.
What is Total Revenue Per Client (TRevPEC) For?
TRevPEC is used for calculating the total revenue generated by each customer. It also accounts for double-occupancy reservations and family occupancy bookings. Since it accounts for these types of bookings, it is one of the more useful hotel KPIs for evaluating whether or not a hotel should offer family rooms or suites during specific demand periods.
Benefits of Total Revenue Per Client (TRevPEC)
TRevPEC can be used in conjunction with RevPAR to make strategic decisions that will help a hotel improve profitability. Understanding TRevPEC and comparing it with visitor demographics can help revenue managers identify market segments that are more profitable than others.
Limitations of Total Revenue Per Client (TRevPEC)
TRevPEC should only be evaluated alongside a thorough understanding of hotel guest demographics. A consideration of TRevPEC without a holistic understanding of guest demographics can result in misguided strategic marketing decisions.
How is Total Revenue Per Client (TRevPEC) Calculated
TRevPEC is calculated by dividing a hotel’s total revenue by its total number of guests. It can be calculated for various time periods. For this KPI, Total Revenue includes revenue from accommodations, breakfast sales, bar sales, spa sales, mini bar sales, and any other ancillary sales.
Example of Total Revenue Per Client (TRevPEC) Calculation
TRevPEC = Total Revenue / Total Number of Guests
This is a calculation of annual TRevPEC*
Total Revenue = $4,285,000
Total Number of Guests = 10,990
TRevPEC = $4,285,000 (Total Revenue) / 10,990 (Total # of Guests) = $389.90
Unconstrained Demand is part of a hotel’s Demand Forecast. It is a representation of a hotel’s total demand for a given period. It is a useful KPI for revenue management decisions, especially when it relates to maximizing revenue on a hotel’s last remaining rooms available.
There are also many ways to organize data to identify Unconstrained Demand. Hotels should consider implementing manual tools (such as through applications like Excel or hotel management apps) that help with organizing data and identifying periods of Unconstrained Demand.
What is Unconstrained Demand For?
Evaluating Unconstrained Demand helps hotels identify when that demand exceeds the hotel’s capacity. Identifying these periods will help hotel revenue managers identify when they might need to change revenue management strategies by raising room rates. In other words, identifying Unconstrained Demand helps revenue managers maximize revenue during periods of high demand.
Benefits of Unconstrained Demand
Identifying Unconstrained Demand is essential for determining the value of a hotel’s ‘Last Room Available’. It also helps revenue managers apply any possible length of stay restrictions for periods of higher demand. By capturing, organizing, and evaluating a hotel’s historical guest data, managers can calculate potential Unconstrained Demand.
Using Unconstrained Demand to forecast a hotel’s revenue potential is useful because it allows revenue managers and hotel executives to identify their ‘ideal’ demand scenario.
Limitations of Unconstrained Demand
Unconstrained Demand does NOT account for a hotel’s current capacity. Some might say that a Demand Forecast that places too much value on Unconstrained Demand can be overly optimistic. This is because it does not account for any constraints that might reduce demand, therefore, reduce a hotel’s revenue potential.
How is Unconstrained Demand Calculated
A hotel can implement its own system for calculating Unconstrained Demand. There is no universal system for making these calculations, but a hotel manager can use their existing Demand Calendar to help with these calculations.
Example of Unconstrained Demand
Some examples of data used to calculate Unconstrained Demand include room nights booked, expected pick up, total bookings, and total number of rooms available. Again, managers should designate a specific time period for which calculations of Unconstrained Demand are made.