Evaluating Hotel Revenue Performance in a Digital Age

By Mark Lomanno

For as long as hotels have compared themselves to competing properties, the industry has strived to improve the accuracy and timeliness of these measurements. Perhaps there are only a few still around who remember the early days of tracking, when one of the most favored tactics was calling around to competing hotels and asking them what their occupancy and room rate were for the previous night. Or sending out one of your front desk clerks to count the number of cars in competitors’ parking lots at a specified time each night. And, if you were unfortunate enough to be in the center of a major metropolitan area, that clerk may be assigned to count the number of lights that were on in competitors’ windows at night. While these methods were all crude and undeniably inaccurate, they certainly provided a rudimentary way to measure your place in the hotel universe and clearly demonstrated the importance the hotel industry places on competitive benchmark information.

Since then, two developments have facilitated a giant leap forward in industry tracking. The first, and perhaps most important, was technological advancements and resultant ability to accurately track, store and analyze data in a timely manner. This was coupled with enlightened hotel industry management who collectively began to fully understand the benefits of sharing performance information in a way that was lawful while still protecting each property and brand confidentially. With these new developments, hotels could track the revenue side of the equation in a timely, accurate and protected manner.

During the early years of hotel development, the number of ways that a consumer could reserve a hotel room was limited and obtaining detailed information about a hotel was a cumbersome process. At this time, a majority of guests contacted the hotel directly, initially exclusively by phone or just “walking in” with some using travel agents who booked through the airlines’ Global Distribution Systems (GDSs). More importantly, the costs associated with having a guest reserve a room through these third parties were relatively minor. In that world, tracking revenue as a top-line metric was sufficient for competitive measurement.

As we look at today’s lodging environment, one that exists in an increasingly social, digital, mobile and transparent world, the buying behavior and patterns of guests have changed dramatically. The hotel is no longer the primary point of contact in shopping and buying processes. There are multitudes of gatekeepers through which a guest must pass through to gain access to hotel information and buying options. And, in virtually every case, the gatekeeper charges the hotel a substantial toll for each guest that passes through their portal. When you combine these tolls with the ever growing sales and marketing expenses required to acquire a guest, the result is an exploding customer acquisition cost that, over the past decade, is upwards of 15%-25% of room revenue.

In this kind of world, top-line metrics (generally revenue) alone are no longer sufficient to accurately measure hotel revenue performance. It is imperative that they are supplemented with equally accurate and timely metrics to evaluate the cost of acquiring that revenue. To exclude these metrics would be the equivalent of a professional football team measuring how many points they scored in a game while completely ignoring the points they gave up to the opposition. Sure, you can score the most points in the league, but without a good defense, you are never going to win the Super Bowl. The winners are not those who work their way to RevPAR superiority, but rather those who do it efficiently by minimizing the associated acquisition costs.