Hotel Math Fundamentals, the Metrics used by the Hotel Industry

Question 1

STR uses a strict set of definitions based on the

Answer 1

“Uniform System of Accounts for the Lodging Industry”.

Question 2

Supply (Rooms Available)

Answer 2

the number of rooms in a hotel multiplied by the days in the month.

Question 3

Demand (Rooms Sold)

Answer 3

The number of rooms sold by a hotel does not include complimentary rooms or “no-shows” (reservations not canceled).

Question 4

Revenue

Answer 4

total room revenue generated from the sale of rooms, not including taxes.

Question 5

From these raw data values, STR calculates the three hotel industry key performance indicators (KPIs):

Answer 5

Occupancy - %
Average Daily Rate (or ADR) - $
Revenue per Available Room (or RevPAR) - $ important metric, based upon all rooms, combination of occupancy and ADR.

Question 6

RevPAR

Answer 6

In most cases the RevPAR amount should be lower than the ADR amount.

Question 7

Importance of RevPAR

Answer 7

1. RevPAR is a very important metric for the Hotel Industry since it is a combination of Occupancy and ADR.
2. Often people will talk about whether a RevPAR increase (or decrease) is attributed more to an increase (or decrease) in Occupancy or ADR.
3. Frequently when a hotel (or the GM) is evaluated or measured, RevPAR is the metric that is being looked at.

Question 8

Percent Changes

Answer 8

The comparison of the This Year (TY) number versus the Last Year (LY) number, whether a raw value or a KPI. The percent change illustrates the amount of growth (up, flat, or down) from the same period last year.
Percent Change = (This Year – Last Year) / Last Year * 100

Question 9

% Changes for Raw Values

Answer 9

1. The Percent Changes for raw values such as Supply, Demand, and Revenue are valuable bits of information.
2. Supply Percent Change shows whether there are more or less rooms available in the hotel(s) or market this year versus last year.
3. Demand Percent Change shows whether there are more or less rooms sold (guests spending the night) this year versus last year.
4. Revenue Percent Change shows whether there is more or less money being made by the hotel or hotels (and therefore being spent by those guests).

Question 10

RevPAR % Change

Answer 10

RevPAR Percent Change is roughly the combination of Occupancy and ADR Percent Change.
If Occupancy Percent Change is 2% and ADR Percent Change is 2%, than RevPAR Percent Change will roughly be 4%. You have to actually do the math to get the exact amount.
If Occupancy Percent Change is 2% and ADR Percent Change is -2%, than RevPAR Percent Change will roughly be 0%. Again, you have to do the math to get the exact amount.

Question 11

Multiple time periods for monthly data include

Answer 11

Year-to-Date (YTD)
Running 12-Month
Running 3-Month

Question 12

Key Performance Indicators

for the Competitive Set

Answer 12

1. KPIs for the comp set are derived based upon the aggregated raw data for each separate hotel.
2. The KPIs are never based upon a straight average of the Occupancies or ADRs of each member of the comp set.
3. The “Aggregated” methodology does place higher weight upon the performance of larger hotels in the comp set.

Question 13

Percent Change Numbers

for the Competitive Set

Answer 13

Percent Change numbers for the comp set are calculated similarly to the ones for the subject property. Here is the formula:
(This Year – Last Year) / Last Year * 100
These numbers show increases or decreases in the performance of the comp set this year versus last year.

Question 14

Index Numbers

Answer 14

The Index numbers compare the performance of the subject property to the comp set.
Subject Value / Comp Set Value * 100
A number greater than 100 means the subject property outperformed the comp set and a number below 100 means the comp set outperformed the subject property.

Question 15

Importance of Index Numbers

Answer 15

1. Occupancy, ADR, and RevPAR Index numbers tend to be relied upon heavily by the industry to evaluate the performance of hotels.
2. Index numbers are generated for multiple time periods, both monthly (YTD, Running 12) and daily (MTD, Running 28) to analyze performance for a subject hotel over various periods of time.

Question 16

– You are a General Manager and your hotel has Occupancy, ADR, and RevPAR indexes that are all below 100. You get a call from your Regional Manager who says, “great job”. Why?

Answer 16

The Regional Manager may be looking at index percent change numbers that are all strongly positive. So your hotel is underperforming the comp set, but your hotel is catching up (improving more than the comp set average). That is the reason for the positive feedback.

Question 17

Ranking Data

Answer 17

Ranking numbers are another valuable performance metric.

Question 18

Percent Change Ranking Data

Answer 18

1. Suppose your hotel had an Occupancy Percent Change of 10% and your comp set had an Occupancy Percent Change of 5%. The 5% represents the average of all of the Percent Changes of the hotels in your comp set.
2. The format for the Percent Change Ranking is the same as Ranking for the KPIs. So “2 of 6” would mean the subject hotel had the 2nd best percent change in the comp set of 6.
3. This makes it clear that one other hotel in your comp set had a higher Occupancy Percent Change than your hotel.