Finding the right metric: measuring hotel performance is a tricky business
The revenue management (RM) departments of hotels focus on identifying appropriate benchmarking for their performance, but it’s not a straightforward process.
Revenue management has moved beyond rooms. It is still early days but today it is increasingly being applied to function space, and can even include revenue streams from spas, restaurants, and golf courses.
That’s not all. A new metric is needed to measure consumer satisfaction and loyalty or in simple terms engagement metrics, says Dhiraj Trivedi, assistant vice president of revenue management and electronic distribution, Royal Orchid Hotels.
“Engagement metrics will help us in recognising consumer actions, recognising value that comes from transactions and also account for profitability through consumer influence,” says Trivedi. But how does one track engagement metrics? Through web analytics, brand monitoring, consumer surveys, social media platform metrics and so on which are “all measurable”. To do this the group uses cloud-based CRM (real-time integration with 3rd parties) for engagement. At the same time, REVPAR remains the ideal metric for measuring room performance.
EyeforTravel’s Ritesh Gupta talks to Trivedi about finalising a relevant metric for measuring a range of hotel functions.
EFT: How should one go about finalising a relevant metric?
DT:The first step is to decipher the primary focus of the activity. The second would be to take a step back and review your properties success and failure rate in the previous year. The third is to understand the concerns expressed by the ‘guests’ to management and last but not least is to forecast the impact of the activity and to reach a relevant consensus.
EFT: RevPAR continues to be the most common assessment criteria within the industry. Why?
DT: RevPar is defined as a hotel performance metric. It is a measurement for a point in time to measure performance such as date, month and year. It is often used as a comparison to competitors within a defined market across hotels of the same type. The fact that competitive data is widely available through various tools makes it the most highly used metric system in the room’s division segment.
EFT: In case of F&B and ancillary revenue, how should one go about measuring performance?
DT: Normally RevPar would be used as a common measure among hotels. But as it fails to provide a accurate picture of the overall performance of the hotel, it would not be the ideal metric to measure performance. GOPPAR would be the ideal metric to be considered from an overall performance perspective. However, the main criteria remain the same in both cases, profitability.
EFT: Where does GOPPAR fit in?
DT: In order to understand and determine the impact of decisions made by the management on overall profitability of an organisation, GOPPAR would be considered as the ideal benchmark.
However, it would not provide an in-depth comparison during specific time periods as it would not consider costs and revenue generated from ancillary services. It provides a clearer picture of efficiency and profitability from either the top or the bottom line which cannot be derived from REVPAR.
EFT: GOPPAR, unlike REVPAR, is not a like-to-like measure since it doesn’t take the diversity of revenue generation centres into account. How should one deal with this conundrum?
DT: The standard measure for top line performance across several hotels is REVPAR, but most often it doesn’t reveal detailed information. From an owner’s perspective, GOPPAR provides an accurate measure of effectiveness and an accurate perspective on the profitability to the owning company. It provides a more comprehensive picture of a company’s financial position with regard to flow-through profit, efficiency and expense when coupled with REVPAR.
EFT: Should GOPPAR be used for both yielding and accounting even though there could be differences in how each is calculated?
DT: GOPPAR is basically a benchmarking tool designed for those people who would like to analyse more than their top top-line revenues. It allows a company to compare revenue, expense, profits against select group of hotels which fall within their segmentation. REVPAR, on the other hand, is the best metric for comparison from the rooms’ division perspective. Therefore, a mix of both is needed in order to be an effective metric and it would be incorrect to compare either as a yield or accounting metric.
EFT: What do you make of net rooms revenue per available room (NREVPAR), which considers net revenues and accounts for distribution costs, transaction fees and agency commissions?
DT: Any hotel would agree that the strategy used is not specific to only maximising room revenue but the total revenue spend at the hotel. Therefore, ideally revenue generation could be measured through a variety of metrics.
NREVPAR is very similar to GOPPAR, however due to the fact that it also accounts for facts such as distribution costs , travel agents commission and on – it fails to provide a fair comparison against competition (an apple-to-apple comparison) which is necessary for an effective measure of any property’s revenue strategies.
EFT: Can you explain the utility of REVPAST or revenue per available space time and CONPAST (contribution per available space time)?
DT: Revenue management has evolved in the recent years and now it is utilised to maximise on revenue contribution of available function spaces for each time period when the space is available. CONPAST – helps measure contribution which eventually leads to revenue generation as revenue itself does not account for varying profit margins. Fixed and variable costs are not considered and an overall profitability of food, beverage and other revenue is considered (other revenue – audio hire and so on). By comparing data, revenue managers are able to set prices according to demand levels. This, in turn, ensures price sensitive consumers are able to purchase services at favourable rates during both off-season and peak season.