A Revenue Generation Index (RGI) is a useful metric for comparing hotel revenue to the average RevPAR of the competition. Because it uses RevPAR as its primary KPI, an RGI also accounts for occupancy rates.
What is Revenue Generation Index (RGI) For?
An RGI is used to determine whether or not a hotel is earning its fair share of revenue. Comparisons are made against a chosen competitive set that usually consists of hotels or resort properties with similar offerings.
Benefits of Revenue Generation Index (RGI)
Calculating RGI allows revenue managers to determine if a hotel is receiving a good share of market revenue when compared against its competitors. It is a great way to evaluate whether a hotel is falling short of, remaining on target of, or exceeding expected market share.
Limitations of Revenue Generation Index (RGI)
RGI is calculated using a specific competitive set. The hotels that a revenue manager decides to use to make these comparisons can have a large impact on the resulting RGI. As such, the competitive set used to determine ‘average market RevPAR’ should be chosen carefully.
How is Revenue Generation Index (RGI) Calculated
An RGI is calculated by dividing your hotel’s RevPAR by the average hotel market RevPAR.
When RGI is equal to 1, your hotel’s RevPAR is equal to the average market RevPAR.
When RGI is greater than 1, your hotel’s RevPAR is higher than the average market RevPAR.
When RGI is less than 1, your hotel’s RevPAR is lower than the average market RevPAR.
Example of Revenue Generation Index (RGI) Calculation
RGI = Your Hotel’s RevPAR / Hotel Market RevPAR
Your Hotel’s RevPAR = $10,000
Hotel Market RevPAR = $12,000
RGI = $10,000 (Your RevPAR) / $12,000 (Hotel Market RevPAR) = 0.83
From this RGI result, we can infer that the hotel in question is currently earning less than its fair market share of RevPAR.