What is driving the industry’s move to revenue strategy?

When the hotel industry started adopting revenue management as a practice, it was born out of a need to manage rates and inventory at a very transactional level. Very often front office managers, reservations managers and others who didn’t necessarily sign up for this job, were being asked to also be ‘Revenue Managers,’ but not to quit their day job. As the discipline has evolved, grown and become more scientific in its approach, we’ve discovered that there is a real need to keep the business strategy top of mind and the term “Revenue Strategy” was born.

Revenue Strategy continues to evolve as a way to manage all of the many moving parts:

  • Managing the overall strategy of the channel mix, including the acquisition costs associated with that business

  • Adding groups on the books to the right time

  • Working to collaborate between disciplines of sales, marketing, digital marketing, and operations to have a successful overall strategy for the hotel

It’s no longer about limiting one person in one role to manage all the rate decisions on a day-to-day, hour-to-hour basis but really focusing on the overall long term strategy for the hotel and its business.

Contact us to learn more about a revenue strategy platform that tracks acquisition costs and surfaces the most profitable business for both your hotel as well as opportunities that you could look to win back from the benchmark group.

What impact might Airbnb have on the hotel industry in another recession?

A lot has changed in the past ten years since the depths of the ‘Great Recession.’ In 2008/2009, Airbnb was only just launching and really wasn’t a major player, however, Mark Lomanno explains how things may be a little different the next time around, as consumers booking habits have changed and their accommodation preferences have evolved. When consumers tighten the purse strings, hotel pricing tends to be very reactionary during a recession. It’s not unrealistic to think, if unemployment rises and people need to make tough decisions, this could cause an influx of alternative accommodation inventory as homeowners seek to monetize their own homes to make ends meet. As more supply enters the market seemingly overnight, what sort of impact does this have on hotel pricing in an already distressed market?

Keep an eye on Airbnb supply in your market, and the health of the hotel industry in your market.

Does this type of scenario keep you up at night? Let’s discuss what insights can help you stay better informed on the trends in your market.

Three Metrics to Know Before Deciding to Develop Downtown or in the Suburbs

A Philadelphia Analysis

By: Jeremy Gilston - Manager, Real Estate Revenue Strategy

Understanding and utilizing the following three metrics will have drastic implications on the type, size, and level of finishings (chain scale) selected for a hotel development in a major downtown urban area when compared to the outskirts of that same market.

So what additional unique data can a developer utilize to make better development decisions?

1. Channel Mix

2. ADR By Channel

3. Booking Lead Time by Channel

With rising labor costs and interest rates at this stage in the cycle, development opportunities are becoming harder to find. Today we’ll review a Hotel Industry Performance Overview report to compare the downtown Philadelphia market (Center City) to the larger Philadelphia MSA to explore how Kalibri Labs’ granular data can allow for better-informed investment decisions.

Downtown vs surrounding suburbs.

As expected, the downtown Philadelphia market, Center City, experiences higher RevPAR than the larger Philadelphia MSA, which includes Center City in addition to the surrounding suburbs (Appendix 1). This is due to diversified and increased demand, compression nights, city-wide events, in addition to other macroeconomic forces that exist in a downtown urban market. As such, in 2018, Center City experienced the following when compared to the larger Philadelphia MSA:

Occupancy - + 9%

Guest-Paid ADR - + $58

COPE RevPAR - + 60%

Sure, building costs such as materials, land, and labor are central considerations when looking to build a hotel in a major city as opposed to its suburbs, but what about channel mix?

Channel Mix

Philadelphia MSA

Group – 18%

Property Direct – 20% 

Philadelphia Center City

Group – 34%

Property Direct – 9%

This channel mix breakout will help a developer identify just how much meeting square footage is required to capture group demand.

ADR by Channel

The graph below outlines the rate differential between the previously addressed sources of business. A top-line analysis must be done to understand the channel mix trade-off when determining a development site. Group has the highest ADR in the Philadelphia MSA and third highest in Center City, whereas the Property Direct ADR is 50% less in the Philadelphia MSA as compared to Center City. Therefore, (and as a former underwriter, myself) a developer’s underwriting model should project the additional revenue by channel in order to make the most informed investment decision:

Group Revenue = Captured Group Demand x Group ADR

This analysis should also include an ancillary revenue per occupied room (POR) estimation to account for additional revenues not captured in the Group ADR. Ancillary revenues typically include meeting room rentals, food and beverage, AV equipment, and more.

Booking Lead Time by Channel

Another valuable metric in this analysis is booking lead time by channel. Group business in both Center City and the greater Philadelphia MSA both have about a ~45 day booking lead time. It is important to consider that Property Direct (Appendix 2) books less than two weeks out in Center City and has a longer lead time in the Philadelphia MSA. This means that a group-heavy Center City hotel can fill roughly a third of its available rooms with high-rated Group business a month and a half in advance.

Understanding this has implications for the rest of the channel mix as well as sales and marketing costs and may ultimately allow the hotel to be less reliant on more expensive indirect channels such as online travel agencies (OTAs).

Conclusion

Before conducting a highest and best use analysis, know what data is now available to you. If a developer is considering building a hotel in a downtown area or a suburban area, they will make a better-informed decision when considering these three important metrics: demand mix, ADR by channel, and booking lead time by channel. These metrics inform how a developer can build the optimal hotel and staff a sales and marketing department to capture the highest-rated business with the lowest-associated expenses.

To learn more about our suite of hotel development reports and specialized insights for the hotel investment ecosystem, please schedule a demo.

Consider purchasing a HIPO Report to gain macroeconomic insights into a market before spending millions to develop a hotel.


Appendix 1 – Geographic Definitions

Center City Philadelphia (Defined as Zip Codes - 19102, 19103, 19104, 19106, 19107)

Philadelphia MSA (Defined as Counties - New Castle County, DE (10003); Cecil County, MD (24015); Burlington County, NJ (34005); Camden County, NJ (34007); Gloucester County, NJ (34015); Salem County, NJ (34033); Bucks County, PA (42017); Chester County, PA (42029); Delaware County, PA (42045); Montgomery County, PA (42091); Philadelphia County, PA (42101)                                                                                                                  

Appendix 2 – Definitions

REVENUE TYPES

COPE Revenue
COPE stands for Contribution to Operating Profit and Expenses and is a form of net revenue after booking costs are deducted from Guest Paid Revenue. These costs include channel and transaction fees, retail and wholesale commissions, loyalty fees, and amenity costs (luxury hotels only). COPE Revenue does not account for Sales and Marketing expenses.

Guest Paid Revenue
The amount of revenue a guest pays for a booking, whether they pay the hotel directly or a third party. This includes the portion the hotel keeps plus the wholesale commission paid directly to a third party such as a traditional wholesaler or OTA (merchant model or opaque).

CHANNEL DEFINITIONS

Group
Bookings from Group market segments, regardless of the booking channel.

Property Direct
Transient bookings made with the property directly. Typically includes reservations made with the front desk through walk-ins or calls as well as contract/crew bookings. This does not include groups/meetings, rooming lists or other sources that are tracked separately.

Voice
Transient bookings made through a call center, central reservations office, or on property reservations desk.

The 3 Things Every Revenue Manager Needs to be Successful

The three things that every revenue strategy leader needs to be successful, according to Jennifer Hill, VP of Client Engagement at Kalibri Labs, are:

  1. Access to granular data

  2. Time to strategize

  3. Collaboration with colleagues

Let’s dig in.

Access to Granular Data

Having detailed data segmented by Channel, Rate Category, and Cost of Acquisition allows the revenue strategy team to take specific actions with confidence that they are precisely targeting where the demand is coming from for their hotel, or for their competitors, in order to shift the most profitable business that exists in the market to their hotel.

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Time to Strategize

It is critical for a revenue strategy leader to have time to analyze and implement those strategies in order to avoid being reactionary and stay on the front foot taking a proactive approach to their revenue strategy.

Collaboration

Lastly, collaboration amongst the different revenue strategy disciplines and breaking down the silos between them is really important. Learning from your colleagues market experience and having a forum to review the strategies, discuss the insights and ideas and collaborate to operationalize those strategies will be crucial to a revenue strategy team’s success. 

For more information about a revenue strategy platform that is built with that framework in mind and to foster productive revenue strategy conversations, please contact us or schedule a demo.

What is your Optimal Business Mix and how can you calculate it?

Jennifer Hill, VP of Client Engagement, explains the two core components that make up Kalibri Labs’ proprietary Optimal Business Mix (OBM) algorithm. The first phase is a much more in-depth look at the competitors in the market which goes far beyond the current subjective nature of selecting a traditional comp set. The competitive benchmark group defined by the Optimal Business Mix algorithm looks across all the reservations in the market and breaks them down by rate segment and weekpart, in order to find similar business that the subject hotel could have realistically competed with on that day for those room nights.

With Optimal Business Mix, a hotel is no longer limited to comparing against the average of a fixed group of hotels for all of their business. Instead the hotel can focus on the best they can possibly achieve for each rate segment and weekpart. This means the subject hotel likely competes with a much broader set of hotels than they have in their current traditional comp set.  The Optimal Business Mix algorithm can identify the competition by specific rate segment and weekpart, producing a much more highly targeted unique benchmark group for each segment and weekpart, like weekend group vs. corporate weekday. 

The second major piece to the Optimal Business Mix algorithm is the actual optimization component where we compare your historical performance with the optimal availability in your market. We are able to parse out and identify the capturable business in your market and show you which of those room nights are available from which of those competitors so you can focus your efforts on activating strategies that drive that business back to your property.

For more information on Optimal Business Mix, and our Revenue Strategy Platform, please schedule a demo or contact us.

Accurate Underwriting for Extended Stay Properties

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Underwriting an extended stay hotel using length-of-stay metrics can better inform bottom-line projections, according to Jeremy Gilston, Manager of Real Estate Revenue Strategy. With that in mind, we’ll explore a recent case study that sheds light on how Kalibri Labs' more granular data set led an investor to more accurately assess an extended stay transaction.

Challenge

A mid-sized hotel investment firm was looking to acquire an upscale full-service property in a prominent Midwest Suburb that converted a year prior from a DoubleTree by Hilton to an upscale extended stay property. The converted hotel had not realized its anticipated performance growth and was underperforming in the market. In assessing this deal, leadership believed there was considerable upside opportunity by increasing average length of stay and thus mitigating some operational expense with room turnover. They needed a way to understand just how much extended stay demand was achievable in order to more accurately project top-line performance and associated expenses.  

When underwriting the property based on traditional data sources at first, this investor’s initial calculations did not get them close enough to the asking price to put in a competitive offer.  However, they still believed their hypothesis and sought out more granular data for their due diligence to project more accurate and refined profit potential for the property.

Solution

The investor used a Kalibri Labs Extended Stay Market Profile report powered by a database that houses more than 33,000 U.S. hotels and transaction level data from over seven billion bookings. The insights contained in this report, which benchmarked the subject property against a selected comp set and the greater market by length-of-stay buckets, allowed the company to underwrite this property in a new way. With this data, they could more accurately project extended stay occupancy by length-of-stay penetration and link this to specific line-item expenses and Housekeeping Key Performance Indicators (KPIs) such as Full Time Equivalents (FTEs) and Minutes per Occupied Room (MPOR).

This investor struggled with a way to justify their analysis until they could confirm the long term stay volume in the market, stating “It was amazing to see that level of detail. Nobody else is doing this – the fact that [Kalibri Labs is] able to provide Extended Stay data for the market and for the competitors is unique and allowed us to put together a realistic and competitive offer.”

Results

The data in the report supported the investor’s upside hypothesis to the tune of +$400k in Net Operating Income, allowing them to confidently increase their offer.  Because of this data, the company put forth a competitive bid that was far better informed than the original take and put them in finalist contention for the property.

To learn more about Extended Stay reports, a variety of other use cases or to review sample reports, please book a demo or contact sales.

Tips for communicating with your owner or asset manager

According to Jennifer Hill, VP of Client Engagement at Kalibri Labs, Revenue Strategists should always have a seat at the table with owners and asset managers when there are other disciplines represented. When at the table, Revenue Strategists should provide simple, clear and effective messaging as to what is happening in the market, why it's happening and what they are doing to accomplish a particular strategy.

It's really important to be able define a challenge or upcoming obstacle, understand how they are going to implement their strategies, and then deliver that message very clearly so that the owners and asset managers understand it’s a known problem but the team is aware of it and taking a proactive approach to resolve it. If the team is celebrating success, it's really important to showcase how that success was accomplished and the obstacles the team overcame.

For more information on a Hotel Revenue Strategy Platform built with that framework in mind, please schedule a demo.

What are some leading indicators of another economic recession?

Is another recession looming? It’s the question on the minds of analysts and leaders across the hotel industry. When asked if the hotel industry is more or less prepared for another recession, Mark Lomanno, partner and senior advisor at Kalibri Labs, couldn’t help but laugh. He said, by every measure hotels should be more prepared, having seen a few of these over the last 15 or 20 years, but being prepared and behaving accordingly are two entirely separate issues.

Access to advanced metrics at the market or U.S. level can aid in tracking the cycle strength and can help project whether we’re at the start or end of a particular cycle. Mark mentions how one new leading indicator from these advanced metrics would be a contracting Length of Stay and Booking Lead Time which may signal that tides are starting to change and budgets are tightening.

In the case below, a 6-month look at the YOY% change of Booking Lead Time and Length of Stay appears to show both metrics growing, or at least holding steady, versus same month in the previous year, indicating the health of the industry remains in tact.

Booking Lead Time continued to expand versus the same time in 2017 but trended downward last fall, prior to ticking back up in December.  

Length of Stay and Booking Lead Time.PNG

Hotel distribution and the booking trends of consumers are light years different than even 10 years ago at the start of the great recession. Ensure you’re using next-generation metrics, powered by the Kalibri Labs database, to better understand the conditions in your market.

 
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U.S. Hotel Industry Performance Overview (US HIPO)

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Market Level Hotel Industry Performance Overview (Geo HIPO)

 

Are you evaluating the correct hotels in your comp set? How to know and what to do about it…

Mark Lomanno explains how hotel benchmarking is quickly changing. Historically, the way the industry has evaluated success is viewing a subject hotel or sub-market against an aggregate, whether that be a comp set, or a chain scale catagory in a certain market. There has been a movement from average to optimal, where hotels are less focused on the average of a localized grouping of hotels and more tuned into the best they can acheive, based on real market data.

Hotels don't compete with each hotel in their comp set for 100% of their business. Kalibri Labs has introduced the Optimal Business Mix algorithm that enables hotels to see what hotels they compete with for each segment of their business and rate categories there is captureable opportunity for the subject hotel to go after. This paradigm shift moves hotels from striving for average, to optimal.

Hotel operators, asset managers and revenue managers, learn more about Hummingbird PXM, our hotel revenue strategy platform or contact us.

Brokers, underwriters, and those in the hotel investment community, learn how Optimal Business Mix can be applied to hotel real estate reports.

Read the featured article on HotelMarketing.com.

Metrics Made for the Digital Age - Going Beyond RevPAR

Mark Lomanno, Kalibri Labs’ partner and senior advisor and former STR president, talks about the power of big data. When hotel data is sourced at the transaction level with rate code, channel, arrival/departure dates as well as price and acquisition cost information, the granularity and level of detail allows brokers, underwriters and developers to go significantly deeper in terms of analysis.

Mark also shares a brief history of hotel performance benchmarking, from the accounting consulting firms who produced the first industry standard metrics, to the late 1980s when Smith Travel Research pioneered the benchmarking field, to where we are today with Kalibri Labs creating a new set of benchmarks and metrics for the digital age.

Learn more about our subscription based Industry Performance Reports.

Reports for Brokers, Underwriters and the Hotel Investment & Real Estate Community.

Or learn more about options for Destination Marketing Organization & CVB’s.

What impact has Airbnb had on hotel development supply?

Mark Lomanno, Partner and Senior Advisor at Kalibri Labs, analyzes the impact Airbnb has had on hotel development supply. When looking to develop a new hotel, he says, developers at least need to take pause and consider how alternate accommodations may affect the market and how they might operate differently in peak periods or during a down cycle.

According to Lomanno, the presence of Airbnb is definitely something people are, or should be, evaluating but perhaps haven't completely adjusted their models to account for the influx of supply in accommodations and this newfound demand for alternate accommodations.

He goes on to describe that the effects of Airbnb go beyond just additional supply in the market and that some hotel companies have evolved their brands and developed new hotel concepts.

More information on hotel comparable short-term rental supply in your market is available - click here to learn more.

Kalibri Labs' 2019 Hotel Industry Performance Forecast

Text originally published on HotelsMag.com - “How changing booking habits will impact 2019 profits

By: Mark Lomanno

Heading into 2019, when looking at the traditionally tracked metrics of Hotel Collected RevPAR, ADR, and Occupancy, we expect US the lodging industry to perform generally in line with the last several years. Supply growth looks to remain steady at the long-term average, and demand should continue to outpace the level on new room growth by a small amount resulting in rising occupancy. In fact, national occupancy numbers will again reach all time high levels since performance data began being accurately tracked in the 1980’s. Therefore, that supply/demand relationship will remain strong, which is the primary driver of ADR and RevPAR growth, however at levels well-below what the underlying fundamentals would suggest. See figure 1 for Kalibri Labs’ 2019 traditional metrics forecast.

While there are many factors at the root of the sluggish room rate growth over the past several years, one of the more compelling drivers has been the rapid shift in the way customers book hotel rooms. In 2019, at a national level, more than half of all hotel bookings will be made online versus only 35% just 4 years ago. This has a perceived effect on pricing power at the property level and the associated cost of the bookings is greatly impacted. Specifically, in the same four-year time frame, more than 201,400 rooms booked per day have shifted to another channel away from Property Direct, the most direct means of booking a reservation via walk-ins or phone calls handled directly by the front desk staff. That level of change in such a short time period is staggering and will continue to have a profound effect on ADRs and hotel profitability.

Generally, that shift in booking behavior has resulted in increased reservations through either brand.com or the OTAs. On a per room night basis, in the same time frame, the average daily rooms booked through brand.com has risen by approximately 203,000 rooms booked per night compared to an increase of about 186,000 rooms booked per night through the OTAs. Further analysis of these results displays an increase of about 270,000 incremental rooms booked per night, in absolute room night demand over the same 4 year period. Chart 2 shows the change in room night booking demand by channel between 2015 and our forecast for 2019. It’s clear that the majority of the change in consumer behavior is happening in 3 main channels. It must also be pointed out that while an examination of this dynamic by market or property type would reveal considerably different magnitudes of change, the underlying pattern would be the same.

In addition to the industry standard metrics shown in figures 1 and 2, Kalibri Labs has projected many other advanced metrics displayed on Chart 3. As shown, booking costs per room (measured as the costs directly associated with the booking, like wholesale commissions, retail commissions, loyalty investment and channel costs), will continue to rise in 2019. While these costs, aggregated at the national level, are a blended result of all the booking channels, the costs associated with certain channels are increasing at a faster rate than others, both from an absolute cost perspective as well as a booking volume perspective.

In 2019, the industry will continue to see increases in loyalty contribution, or the percentage of bookings made by loyalty program members, which we expect will rise about 2% to just under 50% of all room night bookings. Again, this is a meteoric rise from just 5 years ago when industry wide loyalty contribution was about 40%. Also shown in figure 3, we project the change in booking lead time, up slightly over 2018 and average length of stay, which should remain mostly flat over the prior year.

With modest changes in most metrics year-over-year, it’s important further analyze more advanced metrics that can give context and nuance to the standard industry metrics, and when actioned correctly, can potentially drive more Net RevPAR.

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For more information on using the Kalibri Labs database for your hotel revenue strategy and benchmarking needs, please visit or contact us.

How will Revenue Strategy improve the health of the hotel industry?

As Cindy notes, many hotel owners and operators are not as readily aware of the impact of customer acquisition costs on the overall asset value of the hotel.

 

Where do you see the discipline of Revenue Strategy going over the next 5 years?

Cindy Estis Green explains that an organization built around revenue strategy absolutely needs to be in place going forward. Today, the industry is dealing with a certain set of costs, channels and segments of business but they will inevitably change and processes need to be in place to manage and measure the opportunities and costs that arise from the constantly shifting distribution landscape.

 

Why is Revenue Strategy the answer to today’s challenges?

Kalibri Labs’ CEO & Co-founder, Cindy Estis Green, explains why the industry has reached a point where it needs to manage costs of acquisition in a similar way as it manages labor costs. Operating in the digital world calls for a move to Revenue Strategy which is very different than the traditional approach taken in the analog world because it integrates all of the revenue generation disciplines and has a focus on profit contribution.

 

HSMAI DC 2018 State of the Industry Recap

By Ken Barna

Jennifer Hill, our VP of Business Development, joined an esteemed panel of presenters headlining the HSMAI DC chapter's 2018 State of the Industry held at the MGM National Harbor last week. The event coincides with many hotels’ budget planning seasons so, presumably, attendees were looking for DC and U.S. national trends, key performance indicators and insights around which they can base their budget projections for 2019.

Elliott Ferguson II, President and CEO of Destination DC, Mark Woodworth, Senior Managing Director of CBRE Hotels Americas Research, and John Hach, Senior Hotel Industry Analyst & Advisor at TravelClick all shared their different viewpoints on how the industry has performed over the last 1-2 years as well as forward looking analysis as to where the hotel industry could be headed as we move into 2019 and beyond. While the data was primarily focused on the Washington DC region there are elements that would apply to many first-tier cities across the country, despite the unique makeup of a DC hotel’s business mix with its proximity to the federal government

Mark Woodworth presented a conundrum. While occupancy across the industry has maintained a more-than-healthy percentage since 2010, ADR has not been growing in tandem since Q2 2015.

Modeled ADR - CBRE HOtels' Amercias Research, STR Q2 2018.

Historically, and rationally, as the law of supply and demand would dictate, occupancy and ADR have remained tethered in their growth and decline. This recent anomaly, or at minimum abnormality, coupled with John Hach’s analysis showing softness in on-the-books reservations for 2019 gives pause for concern, or at least potentially re-considering a less aggressive RevPAR growth projection for the 2019 budgets currently being planned.

Woodworth mentioned that CBRE has come up with 15 different hypotheses as to what could be causing this so-called conundrum, and I’m sure you may be thinking of a few yourself right now, but one thing is clear, if ADR isn’t rising in lock-step with occupancy, you will need to squeeze every dollar out of your Net RevPAR with an intelligent revenue strategy. Jennifer Hill spoke at length about the different ‘types’ of revenue that can help revenue managers and strategists compare each channel or source of business apples-to-apples by removing the costs of acquisition they incur. Having this depth of data is often the hard part, but Kalibri Labs has spent the last six years building a best-in-class database of over 31,000 hotels across the U.S. that not only tabulates ADR, Occupancy and RevPAR, but tracks the cost of acquisition so you can see beyond what might appear on a hotel’s P&L, the Hotel-Collected Revenue.

Hill explained that understanding the Guest-Paid Revenue, or the rate the guest actually transacts when they book, is very important and is often, depending on the booking channel, far different than what would be remitted back to the hotel by a third party. It is also critical that those costs of acquisition are considered and tracked when formulating your 2019 budget or any time you’re thinking of making a shift in your hotel’s revenue strategy. COPE Revenue, she joked, is your way of ‘coping with third-party acquisition costs,’ but it is a very real and important acronym in the revenue strategy vocabulary she presented, meaning Contribution to Operating Profit and Expense (COPE). COPE Revenue is, simply, Guest-Paid Revenue with all direct transaction-related costs removed. Going one step further, by also removing sales and marketing expenses, a hotel can view their Net Revenue.

So how do you get your hands on this level of data?

Our ETL (extract, transform and load) process normalizes guest folio datasets from brands across the industry, including the channel and rate category through which the guest booked, when they booked, whether they are a loyalty member, and the acquisition costs associated with that transaction, such as commissions (retail or wholesale), loyalty investment, and channel costs.  This data is used to derive Guest-Paid and COPE Revenue from the Hotel-Collected Revenue total that a hotel is accustomed to seeing. With this information, revenue strategists can draw much more valuable insights understanding where lies the most profitable business and then develop an action plan to go after it.

So how could you use these insights?

If you are a DORM or asset manager, for starters, you would want to utilize Hummingbird PXM, our hotel revenue strategy digital platform, that shows your business mix using the detailed revenue types outlined and defined above, but also allows comparison and benchmarking to a customized benchmark group or selected comp set. Hummingbird PXM refreshes data every month, so it most definitely should be part of your ongoing revenue strategy discussions and decision-making process. For all the reasons highlighted at the HSMAI State of the Industry event, this budgeting season is the ideal time to understand all the intricacies of your market, and benchmark against your hotel’s revenue performance in order to better prepare your hotel for what could be an uncertain 2019 in Washington, DC.

Schedule your personalized demo with Jennifer Hill

Better understand guest behavior using length of stay metrics

In the first four segments of this series we’ve explored the value in upgrading your KPIs to track revenue and profit contribution through a series of next-generation hotel industry benchmarking metrics. We discussed how Guest Paid ADR, COPE %, Loyalty Contribution and Booking Lead Time remain interconnected and how trends from each metric can affect both a hotel's bottom line, as well as that of the broader industry.

As we observe the growth and evolution of brand loyalty programs, Length of Stay becomes an important variable in the equation. Length of Stay, or the number of actualized room nights per booking, is impacted by a variety of factors, as well as economic and societal trends.  For instance, a recent Forbes.com article said "78% of millennials intentionally carved out personal time on their business trips."

Weekdays still represent a higher loyalty contribution than weekend stays, but trends like ‘bleisure’ will begin to be woven into the fabric of loyalty programs to encourage and incentivize extending a business trip for personal purposes, generating a longer length of stay.

Transparency and granularity in data at scale across the industry can only help all operators stay in tune with the emerging trends the industry is facing as the digital marketplace continues to rapidly evolve.

One thought as to the cause of the decline is an expanding volume of total bookings in combination with group business declining, or remaining relatively flat, producing a drop in Length of Stay when compared to the same month of the previous year. 

For the complete report and to purchase an annual subscription to the Hotel Industry Performance Overview (HIPO) report, please visit the link below. With HIPO report you will receive monthly updates on the U.S. Hotel Industry or the Metro Areas (MSAs) that are important to you. 

Increase Booking Lead Time to manage costs

With a higher loyalty contribution, one would expect Profit Contribution (COPE)% to be higher, due to the current correlation between Loyalty Contribution representing an increase in direct bookings and thus lower acquisition costs. Booking Lead Time and COPE % are related but perhaps more indirectly, as a shorter booking lead time can force a hotel to begin to use more costly sources of business as inventory becomes distressed, and can act as a leading-edge symptom of declining cycle strength.

A longer Booking Lead Time should result in higher Guest Paid ADR. With an emphasis on driving Loyalty Contribution, the direct and repeat bookings would generate a higher Profit Contribution (COPE) % and thereby more NET revenue flowing through to the bottom line. Historically, the industry has evaluated performance based on top-line revenue and on occupancy statistics. However, it is evident that the five critical hotel KPIs for the digital age are highly intertwined and essential in anticipating movement that can affect your hotel, markets and establish the trends that drive the overall health of the industry.

For the complete report and to purchase an annual subscription to receive monthly updates on the U.S. Hotel Industry or the Metro Areas (MSAs) that are important to you, please visit the link below.

In our next segment we will review Length of Stay, its trends and importance in tracking across the industry.

Drive repeat stays and direct bookings using Loyalty Contribution %

The Profit Contribution % or COPE % tracks the proportion of room revenue after commissions, transaction and channel costs are removed. The lower the COPE percentage, the costlier the business is for the hotel and the less room revenue remains, after costs are factored out. To move the needle back to a healthier balance, following Loyalty Contribution % is a key component to fulfilling the hotel’s optimal business mix. Loyalty Contribution % is the proportion of room night demand associated with a loyalty membership, and vital to continually filling the hotel through direct channels and with repeat business. When reported by Kalibri Labs, this Loyalty Contribution % only includes the brands that have a formal loyalty program.

Over the past 18 months the Book Direct campaigns from the major hotel brands have made growing loyalty programs and brand.com bookings a top priority. Within the HIPO report you can track the growth in Loyalty Contribution across the U.S. as well as in top markets, by property size, weekday vs weekend and by rate bands that are important to you. This emphasis on loyalty program growth is only going to intensify, as Loyalty Contribution is becoming the new system contribution across the industry.

For the complete report and to purchase an annual subscription to receive monthly updates on the U.S. Hotel Industry or the Metro Areas (MSAs) that are important to you, please visit the link below.

In our next segment we will review Booking Lead Time, its trends and importance in tracking across the industry.

Maximize Profit Contribution using COPE %

Having established the importance of tracking Guest Paid ADR in our last post, next in our informational series is getting to the bottom (line), pun intended, of COPE %. Contribution to Operating Profit and Expense percentage (COPE %), also known as profit contribution, is quite simply, a bottom line key performance indicator that displays the proportion of room revenue after commissions, transaction and channel costs are removed. While COPE % an easy concept to understand, the data has not always been easy to obtain.

Only Kalibri Labs has been able to aggregate the cost of acquisition data from our hotel partners across the industry at this scale. Therefore, COPE % is new terminology to many and needs its own introduction.

COPE ADR is the room revenue the hotel keeps after individual costs of acquisition per transaction are removed and COPE % is the proportion of COPE ADR to Guest Paid ADR.  

Most hotels are good at tracking ADR by channel, and they understand that certain channels drive higher rates. But what happens to those ADRs when you begin to factor in the commissions and transaction fees associated with each reservation. Identifying your COPE percentage in each channel is the first step in improving your channel mix.

Tech titans and third-party intermediaries have invested millions of dollars to simplify the online booking process and aggregate demand through their own channels in an attempt to attract users with a smooth and convenient user experience. While this can provide options to users and extend distribution, it can also lead to a spike in costs, if not tracked continually. Track COPE % at the U.S. level or in your specific geographic markets of interest in the Hotel Industry Performance Overview (HIPO) report.

For the complete report and to purchase an annual subscription to receive monthly updates on the U.S. Hotel Industry or the Metro Areas (MSAs) that are important to you, please visit the link below.

In our next segment we will review Loyalty Contribution, its growth and importance in tracking across the industry.