We know that as an owner of a tourist accommodation it can be very difficult to make strategic decisions without a prior analysis of the key indicators. For this reason, today we bring you all the necessary KPI’s to increase profits in holiday rentals.
The calculation of Key Performance Indicators are crucial when it comes to knowing aspects such as the average length of stay of guests or the revenue per available room.
But what are KPI’s or Key Performance Indicators? or how to calculate them? Below you will find all the relevant information about 4 different types of KPIs to increase profits in the holiday rentals sector.
What are KPI’s?
KPI’s (Key Performance Indicators) are numerical indicators that are commonly used to measure and analyse the profitability of a tourist accommodation.
“KPI’S increase profits and performance in holiday rental”.
In addition, the calculation of these parameters can be used to measure any variable directly related to the objectives of our business.
Basically, KPIs are a set of formulas that provide us with the ability to analyse and increase profits in holiday rental in accordance with its aims and objectives. That is why it would not make sense to keep track of KPIs if we have not previously established objectives.
ARR, ADR, ALOS and REVPAR: 4 KPI’s to increase profits
How to calculate KPI’s to increase profits in holiday rentals?
We now continue with more detailed information on each of the key performance indicators.
Undoubtedly, very valuable data that will help us to measure how close or far we are from achieving our objectives.
The key performance indicators that we will discuss in this section are the following: ARR (Average Room Rate), ADR (Average Daily Rate), ALOS (Average Length of Stay) and REVPAR (Revenue per Available Room).
ADR (Average daily rate)
The average daily rate (ADR) is one of the most important indicators in the tourist accommodation market. This is because it allows us to calculate the performance of the company.
The average daily rate refers to all those revenues that a tourist property can earn on average in a single day. In other words, it is an average of the revenue generated per day.
Measuring this indicator over time can bring many benefits: It helps you to detect problems and make the right strategic decisions to maximise revenue.
But that’s not all, this parameter lets you know the price at which accommodation units are sold and allows you to make predictions about demand. Moreover, calculating the average daily rate is quite simple. It can be done in two ways:
- Dividing your total revenue from all occupied rooms in a day by the total number of occupied rooms.
- In the case of renting out your entire holiday home, you have another alternative: Divide your income for a specific period of time by the total number of days you have rented the property.
ARR (Average Ratio of Rooms)
The calculation of the average room rate or ARR is carried out in a similar way to the indicator discussed above: The ADR.
The main difference between the ARR and ADR is that the ARR allows you to measure the average rate over long periods of time (weekly, monthly or even yearly) while the ADR calculation is only done to measure the average rate for one day.
However, both are really important when measuring and analysing the performance of your property.
The calculation of this indicator is also very simple. We show the formula below:
- Total revenue per room / Total occupied rooms.
ALOS (Average Length of Stay)
The calculation of the average length of stay (ALOS) is one of the most important indicators for the holiday rental sector.
Basically, this indicator allows us to optimise the occupancy of tourist accommodation. So that if the average length of stay drops considerably, the option of increasing the rate for a single night or offering discounts for those who book a stay for longer periods could be considered.
The calculation is very simple and is done in the following way:
- Total nights occupied / Number of bookings.
REVPAR (Revenue per available room)
Finally, we wanted to talk about the calculation of RevPAR or revenue per available room.
RevPAR has been the top KPI for many years. This is due to its ability to measure the evolution of a business over a given period of time.
Furthermore, with this KPI we refer to the economic profit we can make per room over a given period of time. This is done regardless of whether a specific room has been occupied or not.
For example, in the hotel industry, RevPAR is considered the most important KPI as it not only allows you to check whether your accommodation is profitable or not, but also to act accordingly and to check the effectiveness of revenue management in a simple and reliable way.
Calculating RevPAR is very simple. It can be done in two ways:
- Dividing the revenue -resulting from multiplying the average price by the number of rooms sold during a given period- by the available rooms (number of days analysed by rooms in the establishment).
- Multiplying the hotel occupancy by the average daily rate. You can obtain the hotel occupancy figure by multiplying the occupancy percentage over the available rooms during a given period.
