Benchmarking, the practice of comparing performance metrics to industry bests and competitors, plays a crucial role in understanding a hotel’s performance. This article delves into the widely used Revenue Management and Performance Review KPIs in the hospitality industry.
Discover several key Revenue Management benchmarking KPIs that hoteliers can utilize to gauge their performance. The following are some of the most popular ones to kickstart your benchmarking journey. Remember, creating an accurate benchmark requires establishing a competitive set.
Average Rate Index (ARI)
This metric requires you to do a bit of market research beforehand to calculate what the various ADRs are within your competitor set.
The average rate index shows whether your rate is fair, above average or below average. It is recorded by comparing your average recurring revenue with that of your competitors.
How to calculate Average Rate Index (ARI)?
ARI is calculated by comparing the Average Daily Rate (ADR) across a range of competitor hotels.
The formula is: ARI = Your ADR / Competitors average ADR.
A rate greater than 1 shows that your hotel is, on average, priced higher than your competitors. While a rate lower than 1 means that you are priced lower.
Average Rate Index (ARI) Formula and Example
ARI = Your Average Rate Index (ARI) / Competitor’s Average Rate Index (ARI)
Example: for the month of June a property made €30,000 room revenue with 10 rooms – keep in mind we’re assuming a 100% occupancy rate – by following the formula we get:
€30,000 / ( 10 * 30 ) = €100 ADR for the month of June.
The average daily rate of the competitors was €120.
By following the formula, we have €100 / €123 = 0.81 (lower than 1) this means that the hotel rate was lower than its competitors!
Why is Average Rate Index (ARI) a Useful Metric?
Once you have this data to hand, you can make a decision on whether to adjust your rates to increase more bookings or take the lower occupancy/higher revenue approach.
Remember, it’s not always the ideal situation to run at 100% occupancy if the revenues are too low.
Market Penetration Index (MPI)
Marketing penetration compares your property’s Occupancy percentage to your competitor set’s occupancy.
It will allow you to see how much – or how little – your property features in your market.
Why is Market Penetration Index (MPI) a Useful Metric?
When you’re aware of your own Occupancy Rate (OR), you can then make comparison with your competitor’s.
This will give you an indication of how you are performing within your select niche.
Market Penetration Index (MPI) Formula and Example
MPI = Hotel occupancy % / Market occupancy %
Example: the average occupancy percentage for a property in the past month was 54% compared to the average market occupancy 90%.
By following the formula 54% / 90% = 0.6 * 100 = 60% you can see that you’re not getting a fair share of the market demand!
How to Calculate Market Penetration Index (MPI)
You can calculate it by dividing your hotel’s Occupancy Rate by that of your competitor set and multiplying the result by 100.
Any number below 100 will mean that you are not getting your fair share of demand in your given market and any number over 100 means that you’re doing an excellent job!
MPI is the best metric to show how you are doing compared to others in your industry.
How to use Market Penetration Index (MPI)?
Once you know how you’re positioned within the market, you can adjust your marketing to entice customers to book with you instead of your peers.
However, a high percentage of occupancy isn’t always the best indicator of a successful hotel. If your hotel lower the rates and raises occupancy, you could still lose money through ailing margins.
By taking a close look at MPI over a period of time, you will be able to identify your property’s ideal occupancy and how to achieve it!
Tools like PMS (Property Management System) and CM (Channel Manager) only assist lodging establishments in operating more simply, saving time, and being more efficient compared to not using them. However, that is not the root of growth or the challenges faced in the accommodation business. If you want to effectively manage OTA channels and create stable growth, you should have a clear understanding of how OTA platforms operate, such as their nature, operational models, and how they display, calculate displayed prices, and collect prices (after deducting commissions). Of course, larger hotels that want to approach it systematically will do it synchronously from the beginning, but smaller lodging establishments wanting to reduce operational costs should overlook it and focus on optimizing display and providing outstanding customer care.
Synthesized by: OTA Lyst
