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HSMAI | Improving the Way We Measure Hotel Performance
The list of things that have changed and shifted since the COVID-19 pandemic hit the U.S. three years ago is long. In the hospitality industry, one of the most critical conversations has been around how we measure hotel performance “post-pandemic.” One thing is for certain – there’s no return to normal, and it’s time to stop referencing pre-pandemic numbers as a benchmark to measure success or predict future performance.
OVERALL, measuring hotel performance has become more sophisticated and holistic, taking into account not just financial metrics but also measures of guest, employee, and sustainability metrics such as:
- Increased focus on guest satisfaction: In the past, we largely measured hotel performance by financial metrics such as occupancy and room rates. However, there’s a heightened emphasis on measuring guest satisfaction through feedback and reviews – and understanding the implications for a hotel’s commercial activity.
- More granular metrics from big data: The continued growth of “big data” allows hotels to collect and analyze vast amounts of information on their guests, operations, and competitors. This has led to more accurate and detailed performance metrics, such as guest lifetime value, repeat guest rate, and guest segmentation. It can also cause a “too much” problem, leaving commercial leaders confused about what data and metrics are most relevant.
- New ways to compare performance with technology: Technology has also played a big role in changing the way hotels measure performance. In addition to using revenue management systems and property management systems to track real-time occupancy, rates, and pace, there are more business intelligence tools available today than ever before.
- More focus on sustainability: Hotels are now paying more attention to their environmental impact and are starting to measure performance through sustainability metrics such as energy and water usage. Like guest satisfaction and reviews, the visibility, accuracy, and depth of these activities are increasingly significant to a hotel’s commercial strategy.
- Increased focus on employee performance and satisfaction: The labor market is tighter than ever, and employee satisfaction and retention at all levels and in all disciplines is a hot topic for hoteliers. Having the right talent in the right roles is critical to every measure of a hotel’s success.
- Expanded perspective on performance: Hotels are now measuring performance from a broader perspective than just financials. Metrics include brand reputation, online reputation, guest loyalty, and guest engagement. Additional commercial success measures like profitability, optimal business mix, and effective deployment of resources are also critical.
With all the changes the industry is experiencing, where do we begin to improve the way we measure a hotel’s commercial performance?
At the core of any performance conversation is one simple question: “How do we know if we’re doing well compared to our competitors?” Before 2020, data was relatively reliable and consistently available. Since then, competitors' data has become limited, difficult to interpret and often unpredictable. As a result, we have to rethink the ways we measure hotel performance and define success. These conversations are happening in hotels, meeting rooms, and corporate boardrooms around the country. They’ve also been hot topics for conferences and the work of industry leaders, especially the Hospitality Sales and Marketing Association International’s (HSMAI) Rising Revenue Leader Council and the Advisory Boards for Revenue Optimization, Sales and Marketing.
Four Tips to Measure Hotel Performance
Focus more conversations around profitability. This must be the top priority in every conversation around revenue generation and overall performance measurement. Gone are the days where we measure the success of our revenue and sales leaders by comparing their performance to that of counterparts at competitor hotels. While performance metrics like index and fair share are helpful in understanding relative performance and positioning, they’re faulty measures of the success of the team’s strategies, tactics and actions.
To achieve greater profitability and optimal performance, strategic and tactical actions must focus on realistic, quantified opportunities. In order to be most effective, the team must proactively target these opportunities by considering the allocation and deployment of resources as one team with one goal: profit. Look to answer three critical questions when setting up your plan of action:
1. WHO ARE YOUR COMPETITORS FOR THIS OPPORTUNITY?
Be specific. Knowing the competitors for specific opportunities or business types can help you sharpen your competitive intelligence and inspiration.
2. WHAT’S THE COST OF THIS OPPORTUNITY?
What are the shared resources required to win? Consider resources such as time, talent, and true spend (e.g. digital or account-based marketing).
3. WHAT’S UNDER YOUR CONTROL?
In the past, hotels have based decisions on what their competitors are doing. Being reactive immediately puts you at a disadvantage. The pursuit of profitability hinges on focusing on what is in your control and proactively serving the targeted opportunity.
Ask these questions during strategy meetings to evaluate your tactics:
De-emphasize year-over-year or “vs. 2019” performance. Hotels have long measured performance by comparing growth or decline in a current period over a past period. Whether it’s actualized performance or pace, the metric we’ve relied upon historically has been last year. However, we now need to identify and understand trends by comparing performance week-over-week or month-over-month vs. year-over-year.
4. ARE YOU EVALUATING YOUR TACTICS?
Ask these questions during strategy meetings to evaluate your tactics:
- How is your hotel or portfolio performing compared to the previous period?
- What metrics are most relevant for that time period and the goal you’re trying to achieve? For example for a high-demand period, it might be appropriate to focus on average daily rate (ADR) or ADR growth to measure rate strategy efficiency.
- If your focus is a future period, what actions can you take to impact the trajectory of your performance?
- If your focus is on the past, is there anything you would have done differently that can apply to future, similar periods? What worked well at this specific time?
Think about the data available for evaluation during these time periods. This list may include internal reporting from your revenue management system (RMS), property management system (PMS), or brand. You might also include subscriptions to industry business intelligence tools. They can help you compare your hotel’s performance to your competitors, other hotels in your market or submarket, or an analytically derived list of competitors by guest segment.
