W03 Measuring Hotel Performance Teacher Copy (1)

The Hotel Business: Measuring Hotel Performance

Common Hotel Ratios

Occupancy Percentage (OCC%)

  • Formula: Rooms Sold / Rooms Available

  • Definition: This ratio measures the percentage of available rooms that are sold over a given period, indicating the hotel's ability to attract guests. A higher OCC% signifies better performance.

Average Daily Rate (ADR)

  • Formula: Actual Room Revenues / Rooms Sold

  • Definition: ADR represents the average revenue earned from each room sold, providing insights into pricing strategies and revenue potential. It helps in assessing how effectively a hotel is pricing its rooms compared to the market.

Revenue per Available Room (RevPAR)

  • Formula: ADR x Occupancy% or Room Revenue / Rooms Available

  • Definition: RevPAR is a crucial indicator combining both occupancy and pricing efficiency, reflecting the overall room revenue performance of the hotel. It is essential for evaluating the effectiveness of strategies aimed at maximizing revenue.

Gross Operating Profit per Available Room (GOPAR)

  • Formula: Gross Operating Profit / Rooms Available to Sell

  • Definition: GOPAR measures the profit earned from operations for each available room, providing insights into the operational efficiency of hotel management.

Typical Weekly Occupancy of a Downtown Ottawa Hotel (Peak Season)

  • Occupancy Rates:

    • Monday: 75%-80%

    • Tuesday: 100%

    • Wednesday: 100%

    • Thursday: 75%-80%

    • Friday: 60%-75%

    • Saturday: 60%-80%

    • Sunday: 30%-50%

  • Insight: These variances highlight the demand patterns throughout the week, which are essential for strategic pricing and resource allocation.

Room Metrics Terminology

  • Interchangeability:

    • Rooms Sold / Rooms Occupied can be used interchangeably but may not always match due to complimentary rooms provided by the hotel as part of promotions.

    • Rooms in Hotel / Rooms Available may differ if certain rooms are out of inventory due to renovations or maintenance, impacting occupancy calculations.

Key Calculations

  1. Calculating Occupancy Percentage

    • Formula: Rooms Sold divided by Rooms Available

    • Example: 225 rooms sold ÷ 300 rooms available = 75% occupancy

  2. Average Daily Rate Calculation

    • Formula: Rooms Revenue divided by Rooms Sold

    • Example: $32,478.00 revenue ÷ 225 rooms sold = $144.35 ADR

  3. Revenue per Available Room (RevPAR) Calculation

    • Formula: RevPAR = Occupancy% x ADR or Room Revenue / Rooms Available

    • Example: $144.35 x 75% = $108.26 RevPAR

  4. Guests Per Occupied Room

    • Formula: Total Guests divided by Number of Occupied Rooms

    • Example: 282 guests ÷ 225 rooms sold = 1.25 guests per occupied room

  5. Yield Calculation

    • Formula: Yield % = (Actual Revenue / Potential Revenue) * 100

    • Potential Revenue: Calculated as Rack Rate multiplied by total number of rooms available.

Importance of Knowing Occupancy

  • Critical for

    • Purchasing Supplies: Ensuring adequate stock to meet demand.

    • Estimating Labor Costs: Aligning staffing to actually meet expected guest volumes.

    • Food and Beverage Planning: Anticipating guest needs for dining services.

    • Forecasting Future Trends: Identifying seasonality and market trends to inform strategy.

Factors Impacting Room Rates

  • Influenced by

    • Size of the Room: Larger rooms generally command higher prices.

    • Type of Room: Suites and luxury accommodations attract premium rates.

    • View from the Room: Scenic views can justify elevated pricing.

    • Number of People in the Room: Tariffs may vary based on occupancy limits and customer policies.

    • Type of Rate: Discounts for corporate clients, CAA members, group bookings, and BAR (Best Available Rate) all impact pricing.

Case Study Calculations

Given Data:

  • Total rooms: 430

  • Rooms sold: 382

  • Total revenue: $62,488

  • Total # of Guests: 518

Another Example:

  • Total rooms: 500

  • Occupancy or sold rooms: 425

  • Total revenue: $68,490

  • Total # of guests: 525

Facts About Hotel Performance

  • Examples of Data for Analysis:

    • 500 room hotel with Rack Rate $249, sold 376 rooms; last night’s room revenues: $52,853.75.

    • Weekly and monthly room sales data along with revenues and Gross Operating Profit (GOP).

Income Statement Overview

  • Purpose: Reports the business’s revenues versus expenses to determine income or loss.

Standard Hotel Income Statement Overview

  • Components:

    • Revenue Sources: Rooms, food, beverages, other operated departments, rentals.

    • Expenses: Departmental Expenses related to various sectors, Undistributed Expenses, Fixed Charges.

    • Net Operating Income: Represents profit after covering all expenses, serving as a crucial measure of performance.

Common Size Analysis (Vertical Analysis)

  • Purpose: To enable comparisons of operating results across various dimensions.

  • Allows for comparisons between line items, different periods, and properties, enhancing analytical capabilities for management decision-making.

  • Formula: Line item / Total Revenues = % of Total Revenues

  • Exception: Direct expenses are analyzed relative to direct revenues to ascertain cost-to-revenue ratios.