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Link hotel KPIs to strategy

07 February 2023
Hotels are used to the same old KPIs as every business in the industry. These KPIs have been there forever and will not change any time soon. Many of these KPIs are generic and measure a generic performance. There is no link to the strategy if there is a specific one for the hotel.

Hotel KPIs are useless unless they are linked to a strategy and have a goal to be reached at some point. By linking KPIs to a hotel's strategy, the hotel can track how successfully it executes the strategy and achieves the intended results.

Several steps in linking KPIs to strategy

Hotels must start with the strategy and link all KPIs to the strategy. The process involves aligning the KPIs with the goals and objectives of a hotel, monitoring, and communicating the KPIs to all stakeholders. Here are a few steps to link KPIs to strategy.

Define the strategy

  • Establish the hotel's mission, vision, and goals by conducting one or several strategic planning meetings with stakeholders before setting plans and budgets for the next year.
  • Clarify the purpose of each goal, such as growing revenue and becoming more productive, and determine the desired outcomes.
  • Prioritize the goals and determine which ones are most critical to the hotel's success.

Identify the KPIs

  • To create a KPI, a hotel needs data. Therefore, conduct a thorough analysis of the data that is available and relevant to the hotel's goals and objectives.
  • Determine which metrics would be most meaningful and effective in measuring the strategy's success.
  • Clearly define the KPIs. Involve stakeholders for input in all aspects of calculating a KPI. One example is how to define occupancy in a hotel. Is occupancy calculated based on the fact that the room is occupied (someone is in the room) or based on the fact that someone paid for the room but did not stay in the room?
  • Select the most relevant, meaningful, measurable, and actionable KPIs.

Align the KPIs

  • Connect each KPI to a specific goal or objective in the strategy.
  • Ensure that the KPIs selected support the overall strategy and are aligned. This is critical, so KPIs are not contradictory and create conflict among stakeholders.
  • KPIs are often used to calculate commissions or bonuses for employees. Again, the definition of the KPI is critical, as is the alignment, so people are working toward the same goals.
  • Consider how each KPI will be used to monitor progress and drive improvement.

Monitor and review the KPIs

  • Establish a process for regularly collecting and analyzing the data for each KPI. Some vital KPIs will be analyzed daily, while most hotel KPIs will be analyzed monthly.
  • Continuously monitor and review the KPIs to assess their effectiveness in measuring the hotel's success.
  • Make adjustments to the KPIs as necessary to ensure they align with the strategy.
  • Use the data from the KPIs to make informed decisions and drive improvement.

Communicate the KPIs

  • Communicate the KPIs to everyone in the organization.
  • Provide regular updates on the performance of the KPIs and how they contribute to the overall success of the strategy.
  • Encourage everyone in the organization to understand the importance of KPIs and how they can impact the hotel's success.
  • Foster a culture of continuous improvement by using KPIs to drive change and improvement throughout the organization.
There are no shortcuts, so by following these detailed steps, hotels can effectively link their KPIs to their strategy and ensure that they focus on the metrics that matter most and that their efforts align with their goals and objectives.

Build a KPI tree

A helpful method to get an overview of all KPIs is to build a KPI tree, a hierarchical representation of KPIs used in a hotel. It outlines the KPIs used to measure the performance of different business units, processes, or functions and shows how they contribute to the hotel's overall success. The tree structure helps to visualize the relationships between different KPIs, identify areas for improvement, and track performance over time. The KPI tree in a hotel will be extensive, so here is only a simple example of a KPI tree for RevPAR for a hotel to illustrate the need for clear definitions.
  • RevPAR (Revenue per Available Room)
    • Occupancy Rate
      • Number of occupied rooms
      • Number of available rooms
    • Average Daily Rate (ADR)
      • Total room revenue
      • Number of rooms sold
The KPI tree has seven data points to be clearly defined.

Number of available rooms

Available rooms refer to the number of rooms that can be rented. The main question is, in what condition can a room be rented? There are many reasons why a hotel takes out a room of inventory.
  • Close a section or floor of rooms during the low season (months)
  • Total refurbishment of a room (months)
  • Undergoing maintenance (days or weeks)
  • Out-of-order (something vital is broken in the room, so guests cannot stay in the room)
  • Out-of-service (something minor is not working in the room, it is possible to stay in the room)
It is an easy excuse to take out rooms from inventory to increase occupancy and reach the occupancy goal. However, out-of-order and out-of-service are directly related to bad preventive maintenance management, which opens the question of who should be accountable for the correct occupancy rate.

Occupied rooms

The room is occupied if a guest is staying in the room. What if a guest has paid for the room but is not physically staying? Is this room considered occupied?
If a guest has paid for a room but is not physically staying, it depends on the hotel's specific policies and definitions. Some hotels consider a room occupied if the guest has paid for it, regardless of whether they are physically present. Others may consider a room occupied only if the guest is physically staying. In general, it is up to the hotel to determine its definition of "occupied" and how it will be used in its occupancy calculations. Regardless of the definition, the hotel must have a clear and consistent policy to ensure accurate and meaningful occupancy measurements.

Total room revenue

The room rate is not the only revenue that hotels account as room revenue. What about no-show revenue, extended stays, and upgrades to the next room category? If guest amenities are included in the room rate, should an amount be deducted from the room revenue and accounted for as other revenue sources? There are many aspects of room revenue that a hotel has to define to calculate the KPI correctly.

Number of rooms sold

The easiest definition for the number of rooms sold is the same definition as the number of occupied rooms. However, the number of rooms sold is used to calculate the average daily rate, so if no-show revenue is included in room revenue, then the number of rooms sold should also include the number of no-show rooms.

The industry perspective

The industry would benefit from clearly defining all data points used in benchmarking.

Final thoughts

It is essential to link KPIs to the strategy so the hotel will measure and track the KPIs that will make it successful. Clearly define all data points needed to calculate the KPI correctly. Finally, ensure all KPIs align with the strategy and overall goals. Otherwise, people will work in different directions, and the hotel will most likely miss the overall goals.