Metrics that matter in hospitality operations
Those of you who run a hotel, or who are a key member of the management team – even a department head, are undoubtedly aware that there are hundreds of metrics, formulas and key performance indicators to grapple with. So much infact, that it can be overwhelming. However, pause awhile before digging deeper into performance data. Whatever you uncover you need to know it all depends on four things – Supply, Demand, Rate and Costs.
In addition to the traditional metrics, such as RevPAR (Revenue per available room), ADR (Average room rate or average daily rate) and Occupancy in the revenue management world, there are other sought - after key metrics such as Net Revenue, Cost of Acquisition, Length of Stay, Booking Lead Time, Loyalty Contribution and Online Reputation/Global Review Index (GRI), to name but a few of many. You might look at a RGI (Revenue Generation Index) – a derivative of REVPAR. To calculate RGI, you take RevPAR for your hotel and divide by RevPAR for the market as a whole. This allows you to compare yourself with your competitors. If RGI falls below a value of 1.00, you’re not doing well…whereas a value greater than 1.00 indicates that you are right up there with the market leader/s.
If you operate a restaurant, you will no doubt be aware that managing a restaurant is a crucial part of the business and it’s important to define the right metrics that will help your restaurant grow. Of course, you’re going to look at revenue and profits as key indicators of staying alive when managing a restaurant, but there are plenty of other metrics that can tell you whether you’re on the path to long-term growth.
You will look at a few essential, easily measurable, quantifiable metrics that play a major role in restaurant management whilst been directly correlated to performance. These include; Food, Utilities and Labour costs, the amount of money used to attract new guests, Restaurant sales, Break-even point (BEP) and Profit margin. Calculating these metrics may be easy but identifying what influences them can be tricky…and that’s another story.
There are another set of metrics that those involved in the sales and marketing of hotels should be mindful of. Imagine opening a bank account without knowing what your rate of interest will be. Or sending your children to private school and never seeing a report card… Nobody does that. And yet some people in the hospitality business have no way to measure the return they are getting on the money they invest in sales and marketing.
Again, several of you would say that you track and analyse heaps of data that includes careful monitoring of page views, time on site, sentiment scores, number of followers on Instagram, open rates clicks and so on….Seriously, how many of these metrics make a tangible difference to boosting business? Very few. Remember, many of these metrics are meaningless, especially if they fail to achieve what actually matters – conversions.
Arguably, it’s a good thing to increase traffic to your website – especially if you can drive more customer traffic through your own website instead of through third party distribution channels. The danger here is that you can get trapped into a distorted belief of success, when in reality; it can camouflage a low conversion rate. In this case you could look at WCR (Web Conversion Rate), MCPB (Marketing Cost per Booking), and possibly something like TripAdvisor’s scores.
Then there are Vanity metrics which can be fickle, misleading, and appealing for all the wrong reasons. Vanity metrics make you look good to others but are not actionable and aren’t related to anything you can control or repeat in a meaningful way. For example, having thousands of names registered in your membership list might appear impressive, but loses credibility if only around two hundred accounts have paid annual subscriptions.
To conclude, a smart hotelier knows that you can’t take ADR or RevPAR to the bank. So focus on net profit, and hopefully lots more of it in the coming years!
Shafeek Wahab – Editor, ‘Hospitality Sri Lanka’, Consultant, Trainer, Ex-Hotelier |
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