Hotel Benchmarking: A Detailed Guide

December 16, 2022
Hotel Benchmarking: A Detailed Guide

'Hotel Benchmarking' is a potent decision-making tool that facilitates more direct bookings. Due to the market's dynamic nature, hoteliers must act reactively and keep up with the constantly changing demand. But how can anybody make sure that it has been done well? By incorporating hotel benchmarking strategies, it is much more convenient to gain insights and ensure that keeping up with the changing demands has been done accurately. Furthermore, hotel benchmarking allows hoteliers to keep track of the hotel's performance and analyze its strengths and weaknesses to give a picture of the hotel's positioning among its competitors.

This blog will help you understand the basics of hotel benchmarking and its significance. Later, we will discuss various strategies to implement a successful hotel direct channel expansion plan. Let's dive in!

What is Hotel Benchmarking?

Hotel Benchmarking refers to the process of comparing the hotel’s performance against the performance of competing properties in the same field. Compared to the competition, it helps to discover the areas that should be strengthened and those that are already successful. For example, operational costs and service quality are two standard benchmarks in the hotel sector.

Why is hotel benchmarking important?

- To identify opportunities

If you are unaware of an existing opportunity, you cannot take full advantage of it. Benchmarking highlights all the opportunities from every angle and helps you to make informed decisions about the hotel.

- To make wise financial choices

To drive yield and revenue management initiatives, the hotels monitor daily, weekly, and monthly top-line performance, predictions, monthly P&L, and forward bookings.

- To understand the current situation of the hotel

The hospitality industry leverages hotel benchmarking to track and monitor the competitive landscape and assess the effectiveness of each department to see if they are on pace to meet their performance targets.

- To measure success and continue making improvements

The detailed insights provided by benchmarking determine success in the hospitality industry. Departments such as sales, marketing, revenue management, or distribution require insights for effective functioning. After analyzing the differences, the hoteliers can implement effective strategies to overcome the gaps and to improvise continuously.

What are the important hotel benchmarking metrics?

The KPIs that every hotel manager should look out for in order to evaluate the hotels’ performance and benchmark its results with the competitors are as follows:

1) Average Daily Rate (ADR)

The average daily rate is used to calculate the average rate per occupied room.

Formula: ADR = Revenue of Room / Number of Rooms Sold

2) Revenue Per Available Room (RevPAR)

RevPAR is pretty similar to the average daily rate, but empty rooms are also taken into account in this metric.

Formula: RevPAR = Average Daily Rate * Occupancy Rate

OR

RevPAR = Room Revenue / Number of Rooms Available

3) Occupancy Rate (OR)

Occupancy rate (OR) indicates the percentage of rooms that were open and sold during a given time frame. It is calculated by dividing the number of sold rooms by the number of available rooms.

Formula: Total Number Of Occupied Rooms / Total Number Of Available Rooms

4) Average Length of Stay (LOS)

(LOS) indicates the average number of nights spent by a guest in a hotel.

Formula: LOS = Total Occupied Room Nights / Number Of Bookings

5) Gross Operating Profit Per Available Room (GOPPAR)

(GOPPAR) metric is used to determine the asset value of a business.

Formula: GOPPAR = Total Room Revenue - Gross Operating Expenses / Number Of Available Rooms

7) Cost Per Occupied Room (CPOR)

Hoteliers can assess your property's efficiency by looking at this hotel benchmarking metric. You must divide the total gross operating profit by the total number of rooms offered to get CPOR

Formula: CPOR = Total Rooms Departments Cost / Total Rooms Sold

8) Adjusted Revenue Per Available Room (ARPAR)

(ARPAR) is pretty similar to RevPAR and is used when variable costs and revenue are also considered.

This metric precomputes the average additional revenue per occupied room from other revenue-generating departments and the average variable expenses per occupied room based on your historical accounting data.

Formula: ARPAR = ADR – Variable costs per occupied room + Additional Revenues Per Occupied Rooms x Occupancy

Now that we have what hotel benchmarking is, its advantages, and the KPIs that every hotelier needs to be aware of, it is time to discuss the most efficient techniques to carry out hotel benchmarking.

5 Tips to master Hotel Benchmarking

1) Have a clear understanding of your competitors

The first and most crucial step in hotel benchmarking is identifying your competitors. Often, hoteliers restrict themselves by comparing their performance with those they consider direct competitors (similar hotels in the same areas or hotels under the same brand).

In today’s global world, hoteliers must leverage the opportunity to analyze and learn from hotels worldwide. Doing so opens up immense opportunities to compare the hotels with similar ones in different parts of the world. The comparison is enriched with meaningful insights and findings. With the help of these insights, hoteliers have the chance to adopt profitable techniques used by their rivals.

2) Choose the appropriate metrics for comparison

An immense amount of data gets collected during the process of hotel benchmarking. Selecting the right metric is the most crucial step in this process. Therefore, hoteliers must evaluate, compare, and keep track of the metrics most crucial to their plan. We have already explained all those metrics in the preceding section for your benefit. The metric you will use will depend on the goal of your comparison. For instance, if you are concerned about your competitor's performance of occupancy rate, then you will consider the same metric for your hotel's performance. The analysis is easier and more doable when using the same metric for comparison.

3) Filter out the collected data

The collected data is unstructured and unorganized. Hence, filtering out data according to the search dates, travel party, or even the traffic source might reveal a lot about the advantages and disadvantages of your hotel. Let’s understand this with the help of an example:-

Let's say you wish to search for a given visitor's average duration of stay among direct hotel bookings. Place: Vancouver. This filter helps determine the average length of stay for Vancouver visitors at your hotel compared to your hotel’s competitors. These insights enable you to identify which aspects of your marketing strategy need to be modified to increase income.

4) Compare results to previous periods

The whole concept of hotel benchmarking relies on comparing data and deriving meaningful conclusions. Therefore, it is also essential to compare your data from past periods to identify which strategies worked and which did not perform well and predict future strategies. However, we recommend taking the historical data with a grain of salt, especially considering the last few pandemic-ridden years where a lot of data was askew and unpredictable. Instead, consider comparing your data, like comparing this month’s performance with the last 2 or 3 months.

5) Based on benchmarking insights, take action

The final step is the most significant as it holds power to change everything. After data analysis, some effective measures should be taken to solidify the learnings gained. Once you have gathered competitive insights, brainstorm and document strategies to help you replicate some of the competitive practices in your hotel to help increase traction and revenue. Finally, after implementing the changes, always be on the lookout for results and keep track of how much you have evolved from the last time.

Wrapping Up

Well, now you know the hotel benchmarking in-depth and how crucial it is for any hotel to stay afloat in the hospitality industry. So let us know which metrics are the most important for you while evaluating your hotel’s performance with its competitors.

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