The term controlling covers the planning, management and monitoring of all areas of the company and is an important part of hotel management. Goal-oriented controlling starts in the past, optimizes in the present and sets the course for a profitable future. Especially in the hotel industry, the goals are clearly defined: Reduce costs, increase revenue, and improve productivity to generate as much profit as possible.

In most cases, controlling is the responsibility of management. Key performance indicators (KPIs) are a useful tool: they quickly provide information about the current state of the business, are easy to compare, and allow immediate conclusions to be drawn. All relevant values can be collected with simple formulas. Although management consultants and accountants can provide valuable information in this context, the analysis and interpretation of this information remains the task of the management and the hotel management. This makes it all the more important for hoteliers to always be aware of the most important key figures in their own business.

The Most Important Key Indicators

HOTEL OCCUPANCY RATE (HOR)

The hotel occupancy rate (HOR) is one of the most important key indicators to get an immediate overview of the current situation. It shows the percentage of current occupancy compared to capacity. A distinction can be made between bed occupancy and room occupancy. Accordingly, the formula is either beds sold x 100 / bed capacity or rooms sold x 100 / room capacity.Hotel occupancy can be used to quickly compare years, months and even weeks and to take immediate action for improvement. It is therefore advisable to look at the hotel occupancy rate as often as possible. For comparison, the average occupancy rate for all accommodation establishments in Germany in 2017 was around 71%.

HOR = rooms sold x 100 / room capacity

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THE AVERAGE LENGTH OF STAY (ALOS)

The average length of stay (alos) indicates how long guests stay at the establishment on average. The more a hotel's occupancy rate fluctuates between high and low season, the more challenging it is to achieve a satisfactory return on room rates.The average length of stay helps to gain a quick overview and can provide important information for questions regarding pricing or capacity expansion. The average length of stay is calculated as follows: Number of nights / Number of reservations. In 2017, the average length of stay in Germany was 2 days in hotels and 5.3 days in vacation apartments and homes.

ALOS = number of overnight stays / number of reservations

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FULL OCCUPANCY RATIO

The full occupancy rate is widely used as an important indicator, especially in Southern Germany, Austria, Switzerland and South Tyrol. It indicates how many days a facility is fully occupied. A distinction is made between bed-full days and room-full days. The formulas vary accordingly: number of beds sold / bed capacity or number of rooms sold / room capacity.

It is not possible to generalize how many full occupancy days are necessary to remain profitable, as this also depends on the average room rate and the cost factors of the hotel. 4*-5* hotels in Austria recorded an average of 176 full occupancy days in 2017, while the 3* category recorded around 154.

Full occupancy rate = number of beds sold / bed capacity

Full occupancy rate = number of rooms sold / room capacity

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THE AVERAGE ROOM RATE (ARR)

The Average Room Rate provides information about the average room selling price. The formula for calculating the average room rate is as follows: Rooms sold / number of rooms sold (room nights). Assuming an annual room revenue of 950,000€ and 9,693 room nights, the annual average room rate is 98€. For the evaluation of the success of an enterprise however ever more on the proceeds per available room capacity one falls back.

ARR = room revenue / number of rooms sold (room nights)

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REVENUE PER AVAILABLE ROOM (REVPAR)

RevPAR (or revenue per available room) is considered a general indicator to compare the profitability of hotels of different sizes. It is calculated by dividing either gross or net hotel revenue by the number of available rooms, but it is more commonly calculated using net hotel revenue. RevPAR is a powerful indicator because it combines information on the number of rooms, revenue and occupancy.

RevPAR is especially important in revenue management. Revenue per room capacity can be calculated for different time frames: One week, one month, or one year, and the formula is net revenue / sum of all available rooms. For example, with a daily net revenue of €4,500 and 80 available rooms, the RevPAR is €56.25. For comparison, in 2017 the benchmark for Austrian 4*, 4*S and 5* establishments was 103€, while in Germany the average for establishments of all categories was 68€. The importance of this key figure for the revenue management system "RateBoard", which was founded in 2015, becomes clear in the ADDITIVE interview with founder Matthias Trenkwalder.

RevPAR = Net logis turnover / sum of all available rooms

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COST TO REVENUE

This key figure shows the ratio of costs to sales. A distinction is made between material costs, personnel costs and material costs. Each figure is divided by the total sales for a given period (e.g. one year). The result shows the cost of a particular item as a percentage.

Most of these items are directly controllable by management, so it is important to have a constant overview of all costs. This will allow you to react in time and optimize your expenses. The formula is material, personnel or material costs / total revenue. In the 4* and 5* hotel industry in Austria, personnel costs in 2017 were 31 to 35%, cost of goods 12 to 15% and other material costs 23 to 27%.

Costs related to total revenues = cost of materials, cost of personnel, other costs/ total revenues.

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GROSS OPERATING PROFIT (GOP AND GOPPAR)

The GOP (Gross Operating Profit) is one of the most important earnings ratios in the hotel industry, as it measures the pure operating profit of a business. It immediately shows the amount available for any investments, withdrawals or interest repayments. GOP is calculated by subtracting all expenses from operating revenues. Specifically: operating income - cost of materials - personnel expenses - other expenses.

The value becomes even more precise if the available space is also taken into account. GOPPAR (Gross Operating Profit Per Available Room) is therefore calculated as follows: Operating revenue - Cost of materials - Personnel expenses - Other expenses / available rooms. For example, if a hotel has an annual revenue of $1,500,000, material expenses of $450,000, labor expenses of $300,000, other expenses of $300,000 and 50 rooms, the GOP is $525,000 and the GOPPAR is $10,500. For comparison, the average GOPPAR for 4* and 5* establishments in Austria in 2017 was €10,000.

GOP = Operating performance - materials expenses - personnel expenses - other expenses

GOPPAR = operating performance - cost of materials - personnel expenses - other expenses / available rooms

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THE RATIO OF INCOME TO BANK DEBT

This ratio shows the extent to which current debt is at a healthy or dangerous level. While companies can have very good operating indicators (GOP), they can also have high levels of debt, so it is important to keep track of current debt. The ratio of sales to bank debt is calculated as follows Bank debt / annual turnover. With a total turnover of €1,500,000 and a bank debt of €3,000,000, the ratio is said to be 1:2, meaning that two full years of turnover are needed to pay off the entire debt.

This value should be taken into account, especially if you are planning to make investments. If the debt-to-revenue ratio is 1:2, you can assume a healthy level of debt. For smaller companies, a higher debt to sales ratio of up to 1:3 is acceptable.

Revenue/bank debt ratio = Bank debt/Annual revenue

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Conclusion

Especially in controlling, many companies make the mistake of doing little or no planning. As a result, there is no overview of the costs of certain items, the liquidity situation and where there is potential. The result is irrational or wrong decisions that can lead to a deterioration of the overall situation. A simple spreadsheet with the appropriate formulas and regular review not only provides the necessary overview, but is also important in order to take the right steps in time - not only in hotel management, but especially in various areas of a hotel, such as marketing for hotels or especially online marketing for hotels.

When working with potential partners such as a hotel marketing agency in hotel marketing and online marketing, it is also important to know your key figures and interpret them correctly in order to use the values for the implementation of targeted measures. In addition to classic hotel marketing, this also includes hotel marketing newsletters and e-mail marketing hotel - area, Google Hotel Ads, Hotel SEO or hotel search engine optimization, coupon marketing hotel. In addition to the hotel's own key figures, regional and category benchmarks serve as an important reference and help to assess the hotel's position in the market.

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