Hotel Key Performance Indicators (KPIs)

This Hotel Key Performance Indicators (KPIs) Info Guide will help to increase your understanding of KPIs and explain how using KPIs can benefit your hotel business.

• What are Key Performance Indicators (KPIs)? 
• Why should a hotel use KPIs?
• What KPIs should be used by a hotel?
• KPI Examples
• Profit and Loss KPIs
• Balance Sheet KPIs
• What approach should be adopted when measuring KPIs?
• Tools
• How do I interpret hotel KPIs?

What are Key Performance Indicators (KPIs)?

Key Performance Indicators (KPIs) are quantifiable measures that can be used to track the progress of a hotel business in achieving important goals and objectives.

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Why should a hotel use KPIs?

KPIs will help you to analyse the performance of your hotel across all areas of business activity and to identify the important features of your financial position.

By using comparable, accurate and relevant KPIs, those who are responsible for resources within your hotel can identify trends as they emerge, enabling a prompt response to changing business conditions.

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What KPIs should be used by a hotel?

While hotel businesses are similar in many ways, there are unique aspects to every hotel property. The KPIs utilised by each hotel should reflect this individuality and measure what is important to the hotel.

A hotel should make use of a variety of both financial and non-financial KPIs to analyse the performance of the hotel across all areas of business activity.

Financial KPIs are dealt with in this Info Guide. Non-financial KPIs (not covered in this Guide) are those generated for internal purposes, related for example to staff number count, customer or product analysis. Other examples of non-financial KPIs include conversion ratios from enquiries into bookings, and energy consumption measurements.

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KPI Examples

Food Gross Profit Margin KPI

The Food Gross Profit Margin KPI gives an overall indicator for the management of the whole food operation – setting prices, purchasing policies, stock control, portion control, managing mark-ups. A good food gross margin will provide a valuable contribution towards overall profitability of the hotel.
 

Acid Test KPI

The Acid Test KPI is a measure of how well you manage cash and working capital. This KPI will tell you how ready your business is to pay its bills and meet loan repayments as they fall due, and will warn you where a serious cash shortage may be imminent.

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Profit and Loss Account KPIs

Profit and Loss Account KPIs report on the performance and efficiency of the hotel.

For more information on Hotel Profit and Loss Account KPIs, see our Guide to Key Performance Indicators for the Profit and Loss Account which lists and explains the principal financial Profit and Loss Account KPIs commonly used in hotels.

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Balance Sheet KPIs

Balance Sheet KPIs report on the business liquidity, financing and capital investment of the hotel. The Balance Sheet should be interpreted in conjunction with the Profit and Loss Account to provide an insight into the overall performance and financial position of the hotel.

For more information on Balance Sheet KPIs, see our Guide to Key Performance Indicators for the Balance Sheet which lists and explains many of the principal Balance Sheet financial KPIs commonly used in hotels.

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What approach should be adopted when measuring KPIs?

KPIs should be used in conjunction with and to complement existing hotel measuring systems. For KPIs to be effective on a recurring basis, managers need to assess what insight a KPI is providing.
 

Tip: Computerised Accounting Systems

The reporting facilities in many computerised accounting systems can be used to support the production of detailed Profit & Loss Accounts and Balance Sheets, as well as incorporating a range of KPIs into their reporting formats.

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When KPIs are measured, how should they be used?

To effectively use KPIs, business managers should translate the goals and objectives of the business into measurable targets for each element of the business. Actual performance should be measured against these targets. This process of comparison and internal benchmarking should occur at regular intervals. 

KPIs should be used on a frequent basis to measure operational day-to-day performance in a hotel, and should also be applied to measure the achievement of strategic objectives.

External benchmarking should also take place.

Use the Hotel Benchmarking Tool to compare your hotel's trading performance with the averages being achieved in the hotel sector.

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Tools

• This KPI Report Worked Example illustrates how a KPI Report is prepared
• Use this KPI Report Template to calculate your own Hotel KPIs
• How to interpret KPIs: Sample Hotel

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A KPI Report can be useful in interpreting a hotel's results and in helping to plan follow-up actions.

To interpret your Hotel KPIs you need to do the following: 

1. Examine each KPI individually and consider what factors are contributing to the results.
2. Identify trends, list positive and negative trends separately.
3. Decide on what corrective action is necessary.
 

 How to interpret KPIs: Sample Hotel

How to interpret KPIs: Sample Hotel
Trading performance
		Current Year	Prior Year	Variance
1. Revenue mix Despite falling F&B revenues, the hotel is now more reliant on these revenue streams as they now account for 56% of total revenue. Rooms revenue has slipped significantly in monetary terms as well as % of total revenue. Action: Review marketing policies as a whole.	1. Revenue Mix
	Rooms	36%	40%	-5%
	Food	36%	32%	4%
	Beverage	20%	20%	1%
	Other departments	8%	8%	0%
2. Rooms management Room revenue has suffered severely, due to both occupancy and average rate slippages. RevPAR has decreased from €49.14 to €37.07. Action: Review effectiveness of marketing and sales effort. Refresh product packages.	2. Rooms Management
	Room occupancy	58.0%	63.0%	-5.0%
	Average room rate	€63.91	€78.00	(€14.09)
	RevPAR (Revenue per available room)	€37.07	€49.14	(€12.07)
	Room cost per occupied room	€26.25	€26.87	(€0.62)
3. Food and Beverage Management F&B direct costs have been managed quite successfully, despite some drop in revenue. Beverage margin has slipped slightly, while food margin has increased.	3. Food and Beverage Management
	Gross margin -food (on direct costs)	72.30%	69.77%	2.54%
	Gross margin - beverage (on direct costs)	63.89%	64.61%	-0.72%
4. Departmental profitability Rooms Dept profitability has dropped from 66% to 59%, mainly due to decline in room rate. F&B margins have been maintained. However, as the P&L shows, the monetary value of departmental profits has declined significantly, particularly in Rooms. This results in reduced contribution towards fixed costs and profits. Action: Review marketing and sales efforts, as well as responsiveness of costs to changes in demand.	4. Departmental Profitability
	Rooms (profit as a % of Rooms revenue)	58.9%	65.6%	-6.6%
	Food (profit as a % of Food revenue)	36.7%	36.4%	0.3%
	Beverage (profit as a % of Beverage revenue)	25.6%	25.7%	0.0%
	Other departments (profit as a % of Other Depts revenue)	32.1%	34.6%	-2.5%
5. Payroll management While the P&L shows that monetary values of total payroll costs have fallen by €185,987, their proportion of total revenue has disimproved by 3%, largely due to the considerable drop in revenue. Action: Pay costs need to be more responsive to changes in demand.	5. Payroll management
	Rooms department payroll cost (as a % of Rooms revenue)	30.5%	25.5%	5.0%
	Food and beverage payroll cost (as a % of F&B revenue)	33.9%	32.7%	1.2%
	Undistributed departments' payroll costs (as a % of total revenue)	11.4%	11.3%	0.1%
	Total payroll cost (as a % of total revenue)	44.7%	41.7%	3.0%
6. Overhead management (excl. Payroll) Undistributed costs are relatively fixed. However, it appears that significant efforts have been made to reduce undistributed overheads as the % margin is consistent or reduced, despite sales revenues falling significantly..	6. Overhead Management (excl. Payroll)
	Undistributed departments' costs (as a % of total revenue)	15.6%	16.0%	-0.4%
	Utility costs as a % of total revenue	4.6%	4.6%	0.0%
7. Profitability Given the serious decline in revenue, this margin has suffered. The current level of operating profit is insufficient to cover fixed costs. Action: Need to achieve significant improvements in sales, particulary rooms, as well as continuing cost control measures.	7. Profitability
	Hotel operating profit as a % of total revenue	15.1%	18.6%	-3.6%
Financial Position
		Current Year	Prior Year	Variance
8. Investment The loss made this period equates to a negative 2% return. Also, as a result of declining revenue, the revenue-earning capacity of the hotel's fixed (non-current) assets has fallen. Major efforts are now required to improve revenue so as to reverse the downward trend in return on investment.	8. Investment
	Profit before tax / capital employed	-2%	5%	-7%
	Fixed asset turnover	0.37	0.65	-0.28
9. Working capital and liquidity management The acid test KPI reveals that this hotel cannot pay its liabilities as they fall due, with over-reliance on the bank overdraft, and a €500,000 loan repayment in the coming months. The management of stock, debtors and creditors appears to be efficient, but maximising use of credit terms from suppliers should be monitored as this free source of finance could be curtailed. Action: Update trading and cash flow forecasts and prepare to meet with bank manager to review funding and repayment arrangements.	9. Working Capital and Liquidity Management
	Stock turnover (food and beverage) - expressd as days	15	20	5
	Debtors turnover - expressed as days	31	32	1
	Creditors turnover - expressed as days	33	25	-8
	Current Ratio (ratio to 1)	0.16	0.89	-0.73
	Acid test ratio (ratio to 1)	0.11	0.65	-0.54
10. Gearing The hotel's gearing has resulted in increased pressure on profits and on cash flow. The hotel's current level of profit is not sufficient to cover its interest charges. Also, the hotel does not have the cash resources to meet the loan repayments imminently due. Action: Need to improve the hotel's profitability, mainly by significant improvements in revenue. Need to review current financing arrangements.	10. Gearing
	Loans over 1 year as a % of loans and shareholders funds	63.6%	47.2%	16.5%
	Interest cover (times)	0.69	2.57	-1.88

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