The hotel sales landscape is a complex tapestry of numbers and figures. This article, the sixth part of our series, aims to unpack some crucial metrics relevant to room sales, delve into the technology that simplifies their monitoring, and provide concrete examples of strategic decisions based on these data points.
1. Crucial Metrics in Detail
a. Revenue per Available Room (RevPAR): A critical performance metric, RevPAR offers an average of the revenue earned per room, factoring in occupancy. The formula for calculating RevPAR is (Total Room Revenue / Total Rooms Available) or alternatively, (Average Daily Rate * Occupancy Rate). It gives you an immediate understanding of your property's revenue-generating efficiency.
b. Average Daily Rate (ADR): The ADR is the average revenue earned from each occupied room in a specific period. To calculate ADR, divide the total room revenue by the number of rooms sold (Total Room Revenue / Number of Rooms Sold). This metric is vital for monitoring the daily economic performance of your rooms.
c. Occupancy Rate: Expressed as a percentage, this metric shows the proportion of occupied rooms out of the total available. The formula to calculate the Occupancy Rate is (Number of Rooms Sold / Number of Rooms Available) * 100. Higher occupancy rates generally signal increased revenue, but a balanced approach considering occupancy, ADR, and RevPAR is crucial for optimal results.
2. Technology to Aid Metrics Monitoring
Property Management Systems (PMS) like Oracle's OPERA, eZee Frontdesk, and Hotelogix are invaluable for tracking these metrics. These solutions provide a wide range of services, from reservations and front office operations to sales and more.
Take OPERA PMS, for example. It offers in-depth reports on key metrics such as RevPAR, ADR, and Occupancy Rate. Pricing for OPERA is available upon request. eZee Frontdesk, another comprehensive PMS solution, has pricing starting at $1150 for a one-time license fee (as of May 2023). Hotelogix offers customized pricing based on your property's size and specific needs, making it a flexible option.
3. Interpreting Metrics for Actionable Strategies
Understanding these metrics is just the first step. Next, they must be utilized to inform strategic decisions.
For instance, if you have a high Occupancy Rate but a low RevPAR, your rooms might be underpriced. A dynamic pricing strategy could be the solution here, where room prices are increased during high occupancy periods, thereby boosting ADR and subsequently, RevPAR.
Conversely, if ADR is high but Occupancy Rate is low, potential guests might perceive your rooms as overpriced. In this case, offering special deals or discounts during off-peak times might attract more price-sensitive guests, leading to increased occupancy.
The use of data in hotel sales is both an art and a science. By carefully tracking and interpreting these metrics, and implementing strategic initiatives, hoteliers can optimise their performance and profitability.
d. Gross Operating Profit per Available Room (GOPPAR): This metric offers an accurate picture of your hotel's operational profitability, taking into account operating expenses. It is calculated by subtracting the total operating expenses from total revenue, and then dividing the result by the total available rooms.
e. Booking Lead Time: This metric refers to the period between the booking date and the actual stay date. While there's no standard formula to calculate it, you can compute the average booking lead time by dividing the sum of all lead times (in days) by the number of bookings. It is valuable for forecasting and pricing strategies.
f. Cancellation Rate: This indicates the percentage of bookings that are cancelled before arrival. The formula is (Number of Cancellations / Total Bookings) * 100. A high cancellation rate could signal issues with pricing, policies, or customer satisfaction.
4. Advanced Tools for Enhanced Monitoring
While Property Management Systems (PMS) can cover many bases, sometimes specialized tools can provide deeper insights. For instance, RMS Cloud, a hospitality software offering real-time business analytics, caters to the needs of revenue management by focusing on dynamic pricing and profitability. Its pricing starts at $85 per month (as of May 2023).
Another software, Mews Commander, not only acts as a PMS but also offers a Booking Engine, Payment Automation, and other integrations. Pricing is available upon request.
5. Putting the Metrics into Practice
Consider a scenario where your hotel has a higher than average Cancellation Rate. One approach to address this is to review your booking and cancellation policies, perhaps offering more flexible conditions or adopting a deposit system to secure bookings.
If your GOPPAR is declining, investigate your operating expenses. Perhaps a specific department is overspending, or maybe cost-saving measures are required in areas like energy consumption or procurement.
Understanding Booking Lead Time can significantly improve your revenue management strategies. For instance, if most bookings are made close to the arrival date, you might increase prices as the arrival date nears to maximize revenue from last-minute bookings.
Let's delve into more advanced metrics, the technology to monitor them, and how to interpret these measurements to optimize your hospitality operations.
Total Revenue Per Available Room (TRevPAR): This metric extends beyond RevPAR by considering all revenues (rooms, food and beverage, spa, etc.). It's calculated by dividing the total gross revenue by the total available rooms. TRevPAR provides a holistic view of your property's revenue-generating capabilities. One can track this metric using property management systems (PMS) like Oracle Hospitality or eZee Absolute. Pricing for these platforms is usually custom, varying on the size and specific needs of the property.
Gross Operating Profit Per Available Room (GOPPAR): GOPPAR is a profitability metric that takes into account the operational costs of running your hotel. It's calculated by deducting the total operating expenses from the total revenue, and then dividing that by the number of available rooms. Systems like RoomKeyPMS, which starts at $125 per month for smaller properties, can provide you with this crucial metric.
Distribution Cost Per Booking (DCPB): Distribution Cost Per Booking is a metric to measure the cost of each booking generated from different channels (OTAs, direct booking, etc.). You can calculate it by dividing the total cost of distribution by the total number of bookings. Understanding DCPB helps you evaluate the profitability of different distribution channels. Tools like Duetto GameChanger, which operates on a quote-based pricing system, can assist in tracking and analyzing this metric.
Customer Acquisition Cost (CAC): This is the cost of acquiring a new customer, calculated by dividing the total costs associated with acquisition by total new customers, over a specific time period. It’s crucial to keep track of CAC to ensure the cost of attracting new customers isn’t eroding your profits. Salesforce, a customer relationship management tool, can assist in managing and reducing CAC. Its pricing starts at $25 per user per month.
Net Promoter Score (NPS): NPS measures customer loyalty and satisfaction. It’s based on the question "On a scale of 0-10, how likely are you to recommend us to a friend or colleague?" Depending on the score, customers are classified as Detractors (0-6), Passives (7-8), or Promoters (9-10). NPS is the percentage of promoters minus the percentage of detractors. Tools like ReviewPro, starting at around $199 per month, can help you measure and analyze NPS, providing insights into customer satisfaction and areas of improvement.
Exploring further, we now move to additional tools that can offer a comprehensive understanding of your hotel operations.
ProfitSword is a business intelligence tool that aids in financial analysis and operational data management. It provides valuable insights into all aspects of your hotel's performance and aids in tracking several critical metrics like TRevPAR and GOPPAR. This software uses real-time data to provide accurate forecasts, enhancing your decision-making abilities. The cost of ProfitSword is custom-based, tailored to the unique needs of each business.
Next up is IDeaS. IDeaS Revenue Management System uses advanced analytics to provide revenue forecasts and pricing recommendations, helping track metrics like RevPAR and TRevPAR. It also offers real-time insights into demand trends. Pricing is custom, considering the specific needs of the hotel.
Cloudbeds is a property management system that allows you to manage your bookings, rates, availability, and guest interactions in one place. It helps track numerous key metrics, including ADR, RevPAR, Occupancy Rate, etc. The pricing for Cloudbeds begins at $200 per month.
SiteMinder is a leading cloud platform for hotels, providing solutions to connect hotels with guests globally. It offers features like an efficient channel manager and a booking engine, helping hotels increase their reach and occupancy rates. SiteMinder pricing starts at $40 per month.
Revinate is a guest data platform for the hospitality industry. It helps hotels to effectively manage online reputation, keep track of guest satisfaction metrics like NPS, and personalize the guest experience. Pricing for Revinate is quote-based.
Last but not least is Google Analytics, an indispensable tool for measuring your hotel website's performance. It offers insights into customer behavior, booking trends, channel performance, and more. Google Analytics is free to use, with a premium version, Google Analytics 360, available for businesses with more extensive needs.
Let's now illustrate the practical application of these key metrics using specific technological solutions:
1. Gross Operating Profit per Available Room (GOPPAR) with ProfitSword: A boutique hotel in Paris found that their GOPPAR was declining, even though they were maintaining high occupancy rates. Upon adopting ProfitSword, they delved into their financial data and noticed their mini-bar expenses were unexpectedly high. By cross-referencing this with guest feedback, they learned that many guests found the mini-bar offerings too expensive, leading to high spoilage and restocking costs. By adjusting the mini-bar prices to be more in line with guest expectations, they managed to reduce wastage, improve sales, and thus enhance GOPPAR.
2. Average Daily Rate (ADR) with IDeaS: A hotel in Toronto observed a decrease in ADR while the city was experiencing a tourism boom. With the assistance of IDeaS, they analyzed historical booking patterns and competitive set data. They identified that their pricing was static and failed to take into account key events in the city which increased demand. By adjusting their rates dynamically to consider city-wide events and demand peaks, they successfully increased their ADR.
3. Revenue per Available Room (RevPAR) with RainMaker: A ski resort in Colorado noticed that their RevPAR was not consistent with the area's peak skiing season. By using RainMaker, they were able to monitor their room rates and occupancy trends. They realized they were not adjusting room rates sufficiently during the peak skiing months. To correct this, they implemented dynamic pricing based on the ski season, leading to a more consistent RevPAR that aligned with the seasonal demand.
4. Walk-ins with Cloudbeds: A family-run inn in the Cotswolds found that the number of walk-in customers was significantly lower than regional averages despite their excellent location. By analyzing their front desk data with Cloudbeds, they discovered that their advertised walk-in rates were higher than local competitors. They decided to introduce competitive same-day rates and prominently display them outside the inn, leading to an increase in walk-in customers.
5. Booking Lead Time with eZee Absolute: A beachfront hotel in Miami observed operational difficulties due to a trend of last-minute bookings. Using eZee Absolute, they tracked their Booking Lead Time and found that over 50% of their bookings were made within 24 hours of check-in. To mitigate the associated operational strain, they implemented a "Book Early, Save More" strategy, incentivizing guests to book well in advance. This strategy led to a smoother reservation flow and better preparedness for guest arrivals.
6. Occupancy Rate with Hotelogix: A boutique hotel in Florence found their occupancy rate declining in the winter months. After implementing Hotelogix, they found their marketing efforts were primarily focused on the summer season. To address this, they introduced winter-specific packages and increased their winter marketing efforts. As a result, they saw a significant improvement in their off-season occupancy rate.
Three important metrics that require specific technology:
Average Rate Index (ARI). ARI allows a hotel to juxtapose its Average Daily Rate (ADR) against its competitors. The formula used is your hotel's ADR divided by the overall market ADR. Assume your ADR is $150 while the market average stands at $100. Your ARI would be 1.5, signifying an above-market pricing strategy.
A practical tool that can streamline the tracking of your ARI is RateGain. This multifaceted platform amalgamates rate intelligence, channel management, and online reputation management under one umbrella, making ARI monitoring a breeze. The investment for this technology solution begins at $80 per month.
Progressing to our next vital performance indicator, we find the Revenue Generation Index (RGI). RGI provides a window into your hotel's total revenue per available room (RevPAR) in relation to your competition's RevPAR. The calculation involves dividing your Hotel RevPAR by the Market RevPAR. An RGI exceeding 1 signifies your establishment is generating a greater share of revenue compared to rivals.
A competent ally in your quest to optimize RGI is RevControl. This revenue management platform offers real-time analytics and dynamic pricing, thereby refining your RGI tracking process. Prospective users can explore the functionalities via a free demo while pricing details are made available upon request.
Rounding up our metric trio is the Market Penetration Index (MPI). MPI enables your hotel to measure its occupancy rate in comparison to your competitive set. The metric is computed by dividing your Hotel Occupancy % by the Market Occupancy %. An MPI score over 1 reveals that your occupancy share exceeds your competition.
A valuable technology companion for efficient MPI tracking is STR Global, providing wide-ranging data benchmarking and analytical insights for the worldwide hospitality sector. The pricing structure for STR Global can be requested directly from the company.
By utilizing these technologies, hotels can effectively keep track of crucial metrics and leverage them to enhance guest satisfaction, optimize room rates, maximize occupancy, and ultimately, increase profitability. In the upcoming section, we will discuss real-life examples demonstrating the application and benefits of these metrics.
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