12 KPIs to Track in Hotel Booking
November 07, 2023
KPIs, or key performance indicators, are essential metrics that are used to measure the performance and success of a business. These indicators provide valuable insights, allowing businesses to evaluate their progress and make informed decisions.
Every business will have different KPIs based on their specific goals and objectives, but for tourism and hospitality businesses, KPIs should generally focus on factors such as conversion rate, customer satisfaction, revenue generation, and operational efficiency. By tracking and measuring KPIs, you can identify areas for improvement in your business, optimize your strategies, and ultimately enhance customer experience.
In this article, we will explore some of the crucial KPIs for hotels and hotel booking platforms that you should measure to drive success and stay competitive in the industry.
KPIs for hotel booking platforms
Website booking volume
Calculating this KPI for a hotel booking platform is very straightforward. It involves counting the total number of hotel bookings made through your platform during a specific time period.
A booking volume calculation is simple but effective — it will help you to understand more about your platform's popularity and growth. More specifically, it can help you with:
- Performance assessments. By learning how many customers are using your platform to make hotel reservations, you can understand when your platform is performing at its best or worst.
- Revenue evaluation and forecasting. Booking volume is directly linked to revenue. The more bookings you get, the more money you make. Monitor your booking volume over a given timeframe to estimate your earnings.
- Seasonal trends. By tracking booking volume across the year, you can identify seasonal patterns in customer behavior, like spikes or drops. This can inform your marketing strategy.
- Resource allocation. This hotel booking KPI helps you adjust staffing levels and customer support resources based on expected booking volumes.
Website conversion rate
Conversion rate is one of the most important KPIs for hotel booking platforms. It measures the percentage of visitors to your platform who take a desired action, such as making a hotel booking.
To calculate conversion rate, use this formula:
For instance, if your platform had 5,000 visitors in a given month, and 250 of them completed the booking process, your conversion rate would be:
Conversion rate = (250 / 5000) x 100 = 5%
Converting prospective customers into paying customers should be the goal of any travel business. That’s why this KPI for the hotel platform is absolutely essential to measure. To boost conversion rates, consider implementing the following strategies:
- Optimize user experience (UX). Ensure your website is easy to navigate and user-friendly. Simplify the booking process by reducing the number of steps. Use clear and compelling visuals and descriptions for hotel listings.
- Mobile optimization. Make sure your platform is responsive and performs well on mobile devices, as today’s travelers prefer booking hotels on their smartphones.
- Conversion funnel analysis. Analyze your conversion funnel to identify drop-off points and optimize those steps for higher conversion rates.
- Responsive customer support. Offer quick support via chat, email, or phone to prevent users from exiting the booking process.
Customer satisfaction score (CSAT)
CSAT is a critical KPI for hotel booking platforms. It’s a number that shows how happy customers are with your company, service or staff. In the context of a hotel booking platform, your CSAT score will help you understand whether customers are satisfied after making a booking or interacting with your company.
You can gather data for your CSAT score from surveys and post-stay reviews. Customers could rate their satisfaction in various areas on a scale from 1 to 5 or 1 to 10, where higher numbers mean they are more satisfied. With all this data, you can then calculate your CSAT score using this formula:
Let’s imagine that 2,000 people complete your CSAT survey and 1,800 of them give a positive rating of 4 or 5.
CSAT = (1800 / 2000) x 100 = 90
CSAT scores usually range from 0 to 100. A high CSAT score means your platform does well with customers, but a low score suggests you need to do better.
Getting people to respond to surveys can be hard. Some might not bother, even if the survey is short. And unhappy customers are more likely to respond, which can bring your score down unfairly. Encouraging everyone to respond will give you a more accurate picture of how your customers feel.
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KPIs for hotels
Occupancy rate is one of the main hotel KPIs used in the industry. It measures how many rooms are being used at once during a specific period. It shows the percentage of rooms that are occupied by guests in relation to the total number of rooms available. Occupancy rate is a key indicator of a hotel's operational efficiency and demand.
To calculate occupancy rate, use the following formula:
Imagine your hotel has 150 rooms available in total. On a specific night, 120 rooms are actually occupied by guests:
Occupancy rate = (120 / 150 ) × 100
Occupancy rate = 0.8 × 100 = 80
In this example, the occupancy rate for the hotel on that specific night is 80%. Do note that only rooms that are ready for guests to stay in are counted as "available rooms". This excludes rooms under maintenance or used by staff members.
Here’s what the occupancy rate metric can help you with:
- Identify peak demand. By monitoring occupancy rates over time, you gain valuable insights into your hotel's performance during different periods — like its most popular days of the week or months of the year.
- Develop your marketing strategy. By knowing your hotel’s busy periods, like weekends, holidays, or during local events, you can tailor your marketing efforts to have the most impact.
- Operational planning. Knowing your typical occupancy rates allows you to plan future staffing and resource levels more effectively. Increase your resources when guest numbers peak, and pull back during quiet periods.
Remember, higher occupancy doesn't always mean more profit, especially if your rates are too low. Focus on increasing revenue, not just filling up rooms. We recommend using occupancy rate alongside other measures to understand how your hotel is performing in more detail.
Average length of stay (ALOS)
This metric is used in the hospitality industry to calculate the average number of days guests stay at a hotel during a specific period. You can calculate it using this formula:
Let's say a hotel had 200 guests in total in October. The total number of nights all guests stayed was 500.
ALOS = 500 / 200 = 2.5
In this example, guests stayed for 2.5 nights per visit on average.
It’s important to note that having a higher ALOS is preferable. Shorter stays means higher guest turnover, which leads to higher labor costs. Here’s a few ways you can improve your ALOS:
- Adjust your pricing strategy. Offer discounts for longer bookings and consider increasing your one-night rate to encourage extended stays.
- Take a seasonal approach. During peak seasons with high demand, set a minimum length of stay restriction to minimize short-term stays and encourage longer bookings.
- Enhance package deals. Create enticing package deals that encourage guests to stay longer, incorporating perks or activities for extended stays.
The average length of stay will vary significantly depending on your hotel's type and target audience. For example, a cozy beachfront inn might attract weekend travelers seeking short getaways, while a countryside bed and breakfast catering to nature enthusiasts may see longer stays. Aim for an ALOS that is realistic for your business.
Average daily rate (ADR)
Average daily rate (ADR) is another important hotel booking KPI to track. It calculates the average revenue earned per occupied room on any given night or in a time period. To calculate this KPI, simply divide your total room revenue by the number of rooms sold. Here’s the formula:
Let's say a hotel earned a total of $10,000 in room revenue over the course of a month. During that month, 80 rooms were occupied.
ADR = $10,000 / 80 = $125
This means, on average, the hotel earned $125 per occupied room per day.
Only use this calculation if you have different room rates. If you have a standard rate, you already know your ADR.
Why is ADR useful? Let’s take a look:
- Revenue indication. ADR reveals how much money each room generates for you.
- Performance monitoring. Track ADR over time; increasing ADR indicates growth in your hotel’s daily performance.
- Pricing adjustments. Compare ADR with competitors to determine your pricing strategy and maintain competitiveness in the market.
ADR is valuable for room-specific revenue, but it overlooks unsold rooms, revenue from other sources, and associated costs. While useful, ADR alone won’t provide a full picture of your property's financial performance.
KPIs for hotel finances
Revenue per available room (RevPAR)
RevPAR is a fundamental financial performance metric, measuring a hotel's ability to generate revenue from its available rooms. Here’s the calculation:
Let's imagine a scenario where you sold 8 rooms out of 12, generating a revenue of $3,600.
RevPAR = $3600 / 12 RevPAR = $300
RevPAR is one of the most common metrics used by hotel managers and finance teams. It resembles ADR, but it includes unsold rooms, providing a more accurate picture.
Despite its usefulness in revenue calculation, it has some limitations. RevPAR only reflects the performance of a hotel's inventory and does not consider additional revenue from other sources. It also does not factor in operational costs and other expenses, making it unsuitable for measuring profitability. Because of this, other metrics have been developed to help hotels assess growth, profits, and revenue performance. Keep reading to learn all about them.
Total revenue per available room (TRevPAR)
TRevPAR measures the total revenue generated per available room in a hotel, taking into account not only room revenue but also other revenue streams such as food and beverages, spa services, and conference facilities.
Imagine you earned a total of $6,500 in one week. This includes $3,000 from 8 booked rooms out of 10 available rooms, $2,000 from the restaurant, and $1,500 from the spa.
TRevPAR = $6500 / 10 = $650
By incorporating this hotel booking KPI into your strategy, you can maximize revenue from all areas and adjust your upselling and bundling strategies. TRevPAR is more useful than RevPAR because it includes the additional ways your hotel makes money. But like RevPAR, it doesn't account for input costs and doesn't reflect your overall profit.
Gross operating profit per available room (GOPPAR)
GOPPAR shows the gross operating profit earned per room. It's calculated by subtracting gross operating expenses from total revenue and dividing the result by the total number of available rooms. Let’s take a look:
As an example, let's consider a hotel with a total revenue of $500,000 and gross operating expenses amounting to $200,000. The hotel has 100 available rooms.
GOPPAR = ($500,000 - $200,000) / 100 GOPPAR = $300,000 / 100 = $3,000
In this case, the GOPPAR for the hotel is $3,000. To calculate the annual metric, use the yearly revenue and expenses, and multiply the room count by 365.
GOPPAR calculations can cover different types of expenses. Expenses usually fall into two categories: variable costs (like breakfast and cleaning) that change with room sales, and fixed costs (such as rent and payroll) paid monthly. You can measure GOPPAR using only variable costs, but using both types gives a fuller picture of your efficiency.
GOPPAR indicates how much money your hotel truly earns and helps you understand its real value. It measures your hotel's overall performance, showing if your expenses are balanced during busy and quiet seasons. Whether you're expanding services or changing expenses, GOPPAR reveals the effectiveness of your efforts.
Net operating income (NOI)
Net operating income (NOI) represents the total revenue generated from your hotel’s operations after subtracting all operating expenses. NOI provides a clear picture of your property's profitability from its core operations, excluding non-operational costs such as interest, taxes, depreciation, and amortization (commonly referred to as EBITDA).
Let’s imagine a hotel has a total revenue of $1,500,000 from room bookings, restaurant sales, and other operational activities. The total operating expenses, including staff wages, utilities, maintenance, and supplies, amount to $800,000.
NOI = $1,500,000 − $800,000 = $700,000
This means the hotel has earned $700,000 from its core operations after covering all operating expenses.
NOI is the ultimate hotel KPI that reveals the actual financial outcome of your business. It’s crucial for hotel owners because it highlights your property's profit-making capacity.
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KPIs for hotel marketing efforts
Customer acquisition cost (CAC)
This important metric helps you understand how much it costs to acquire a new customer. To calculate CAC, you need to consider all the expenses associated with acquiring customers during a specific period, typically a month or a year.
Here's the formula:
Let’s assume your hotel business spent $10,000 on marketing, sales, and advertising during a month and acquired 500 new customers during that same month. Your CAC would be:
CAC = $10,000 / 500 new customers = $20 per new customer
What does this metric help you do? Let’s take a closer look:
- Evaluate your marketing efficiency. The lower your CAC, the more cost-effective your marketing activities are in acquiring new customers.
- Channel analysis. Compare the cost of acquiring customers through direct bookings versus commissions of online travel agencies to determine the effectiveness of each channel.
- Budget allocation. Understanding CAC allows you to allocate your marketing budget more effectively. You can allocate resources to channels and campaigns that yield a lower CAC and a better return on investment.
- Business scaling. Knowing the cost of acquiring customers is crucial when planning for business growth. It helps determine how much you can invest in customer acquisition as you scale.
Cost per lead (CPL)
Cost per lead (CPL) is a marketing metric that measures how much money is spent to acquire a single potential customer lead or inquiry. You can use it to evaluate the efficiency of your marketing campaigns by understanding the cost drawn for each potential customer interested in your services.
Let's say a hotel booking platform runs an online advertising campaign that costs $1,500. During the campaign, it generates 40 inquiries or leads from potential customers.
CPL = $1,500 / 40 = $37.50
In this example, the cost per lead for the marketing campaign is $37.50. In the travel industry, cost per lead can vary significantly. According to statistics, a low cost per lead is $29, while a high one is $182. The average cost per lead stands at $106. You can use these figures as benchmarks for your own business.
Here’s why CPL is an important metric:
- Campaign сomparison. CPL helps you identify which campaigns generate leads at the lowest cost, enabling informed decisions about future marketing strategies.
- Optimize marketing channels. CPL data can highlight which marketing channels are performing well in terms of lead generation. Hotels can focus their efforts and budget on the most successful channels to maximize results.
- ROI assessment. By understanding the cost incurred per potential customer, you can assess the potential return on investment. This information is crucial for making decisions about continuing or modifying marketing initiatives.
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You now have the key metrics to monitor the success and performance of your hotel or hotel booking platform. Keep track of KPIs each month and look for any significant variations or emerging patterns. Use this learning to make data-driven decisions and optimize underperforming areas. Remember, what gets measured gets managed, so start tracking these metrics today to gain valuable insights into your business and stay ahead of the competition.
Which KPIs are essential for hotel businesses?
The main hotel KPI examples are occupancy rate, average daily rate (ADR), average length of stay (ALOS), revenue per available room (RevPAR), total revenue per available room (TRevPAR), gross operating profit per available room (GOPPAR), customer acquisition cost (CAC), and cost per lead (CPL). These KPIs help measure the operational efficiency, revenue generation, customer satisfaction, and marketing effectiveness of a hotel. By monitoring and analyzing these metrics, hotels can make informed decisions to optimize their performance and drive better results.
Can Zoftify give me some sample KPIs for my hotel booking platform?
Yes! Here at Zoftify, we work with our clients to understand the goals and objectives of their digital product. During the product discovery phase, we identify the measurable outcomes we want to achieve together and advise on the most suitable KPIs.
For example, measuring customer satisfaction (CSAT) will help us see the extent to which any new digital product enhances user experience and improves the booking process for customers. If we're optimizing an existing product, we can look at conversion rates before and after. We can see how effective our optimizations have been in converting potential customers to actual customers.
What factors limit the usefulness of the RevPAR metric?
The usefulness of the revenue per available room metric (RevPAR) is limited because it only reflects the performance of a hotel's inventory and does not consider additional revenue from other sources. It also does not factor in operational costs and other expenses, making it unsuitable for measuring profitability. To gain a more comprehensive understanding of a hotel's financial results, you should consider other metrics such as gross operating profit per available room (GOPPAR) and total revenue per available room (TRevPAR). These metrics provide a more holistic view of the hotel's financial performance and profitability.