Just as sportsmen will tell you the only statistic that matters is whether you win, hotel owners may argue that profit is the only metric that is truly important. However, in both cases the journey towards that ultimate goal can be measured in many different ways, with each isolated element playing its own specific role in the eventual creation of success.
For hoteliers, there exist a host of different metrics to consider, and if those aren’t enough on their own, you can also combine metrics to create new metrics. With so many to choose from, the more important task is to decide the underlying reason for using metrics. That is, do you want metrics to give you a picture of how your business is performing, or do you already have specific ideas of where you need to make business improvements, and you need metrics to help analyze the process.
For example, one of the things you might want to focus on is the need to drive more customer traffic through your own website instead of through third party distribution channels. In this case you could look at WCR (Web Conversion Rate), MCPB (Marketing Cost Per Booking), and possibly something like TripAdvisor’s Sentiment Score.
First of all, MCPB allows an overview of acquisition costs by tracking the various costs of each distribution channel. These distribution costs are then subtracted from the income generated from bookings. If revenues are increased by spending on the wrong channels, such as the OTAs, a higher MCPB will be the result. On the other hand, a very low MCPB may not represent the ideal solution if it is the result of lower occupancy and thus lower total revenue. This metric is only a part of the process of working towards the perfect mix of channels to maximize profits.
Lowering the MCPB can often be accomplished by generating more bookings through the hotel’s own website, so the WCR will be vital. Typically, hotels can expect around 3% of website visits to be converted into bookings, so WCR can be used to see how you match up to that figure. As you implement strategies aimed at increasing web traffic and bookings, you can use WCR to see if a greater percentage of site visitors will now book – but once again, this metric doesn’t tell you everything. If your latest strategy sees WCR fall while the number of site visitors increases, you may actually appear to be better off as total bookings rise, but the underlying performance would suggest improvements are essential.
One factor which has been shown to have a strong influence upon online bookings is customer feedback in the form of scores and reviews. Sentiment Scores can be employed as a way to track your online reputation in terms of guest satisfaction and complaints. You can then quickly see where you might need to make performance upgrades, and when you need to make positive responses to manage your reputation or brand image.
If you simply want to know more generally how your hotel is doing, one common metric to apply is RevPAR (Revenue Per Available Room). This works exactly as advertised, and only includes revenues from room sales. Clearly, this value will differ wildly depending upon the market segment in which you operate. In isolation, however, RevPAR is just a number that we’d always like to be higher.
You might, therefore, be wiser to look at a derivative of RevPAR, which is RGI (Revenue Generation Index). To calculate RGI, you take RevPAR for your hotel and divide by RevPAR for the market as a whole. This allows you to compare yourself with your rivals. If RGI falls below a value of 1.00, you’re not doing as well as your competitors. A number greater than 1.00 shows that you are on the way to becoming a market leader.
While these examples barely scratch the surface of metric analysis, they do show how metrics can be combined and employed to help you to achieve your objectives. The examples also show that a single metric can only tell you so much; it’s important to think carefully about exactly what information is being conveyed statistically, and how changes in one metric can have knock-on effects in other areas which must also be taken into consideration. In short, there is a metric for almost everything these days, but if you’re going to use one effectively, make sure you understand how it is calculated, what it truly means, and exactly how relevant it is to your aims.