## Places Of Interest

### Key Metrics for Hotel Financial Modeling

I've done a few hotel financial models for clients as well as built a custom development/acquisition spreadsheet from scratch. Below we are going to talk about key metrics of the hotel industry and the logic / calculations.

Relevant Templates:

What to Focus on For a Hotel Financial Model

• Occupancy rate: This metric measures the percentage of available rooms that are occupied during a given period of time. It is calculated by dividing the total number of occupied rooms by the total number of available rooms. A high occupancy rate indicates that the hotel is in demand and generating revenue. For modeling hotel operations, you are going to have seasonality and so an occupancy that is adjustable depending on what month of the year it is as well as what year it is in the model gives the best forecast.
• Average daily rate (ADR): This metric measures the average price that the hotel charges per room, per day. It is calculated by dividing the total room revenue by the total number of rooms sold. A high ADR indicates that the hotel is able to command higher prices and generate more revenue. For the purpose of creating a good financial forecast, you want the ability to adjust the ADR depending on what month of the year it is. Going to a hotel when it is in high demand means higher prices and vice versa during slower seasons.
• Revenue per available room (RevPAR): This metric measures the hotel's revenue per available room. It is calculated by multiplying the ADR by the occupancy rate. RevPAR provides an overall picture of the hotel's performance, as it takes into account both the occupancy rate and the ADR.
• Gross operating profit per available room (GOPPAR): This metric measures the hotel's profitability per available room. It is calculated by subtracting the hotel's operating expenses from its total revenue, and then dividing by the total number of available rooms. GOPPAR provides a more accurate picture of the hotel's profitability, as it takes into account all of the hotel's expenses.
• Return on investment (ROI): This metric measures the profitability of the hotel in relation to the amount of money invested in it. It is calculated by dividing the net profit by the total investment. ROI is important for investors, as it helps them determine whether the hotel is generating enough profit to justify the investment. Another similar calculation is cash-on-cash return, which looks at the actual free cash flow in relation to the invested capital, meaning it takes into account the effects of leverage.
These key metrics are essential for hotel financial modeling, as they provide a comprehensive picture of the hotel's performance and profitability. By tracking these metrics over time, hotel owners and investors can make informed decisions about pricing, marketing, and investment strategies.