As a revenue manager, you know that assessing your hotel’s performance is crucial to staying competitive in your market. But how do you know if you’re truly keeping up with the competition? This is where benchmarking comes in.
NB: This is an article from Lighthouse
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Benchmarking provides the necessary context (answering the compared-to-what question from your GM) but also allows you to identify aspects of your revenue management strategy that you can adjust to ensure that your hotel is keeping up with the growth and success of the hotels you’re competing with.
Benchmarking is also a valuable tool to track your performance against internal key success metrics, such as your budget and forecast.
As you compare your current results to previous ones, you can establish a baseline and set realistic targets and goals.
This way, you can use benchmarking as a yardstick to ensure you’re on track to reach them, and put in place measures to change course if you’re not.
However, benchmarking effectively is easier said than done.
In this blog post we will explore some common benchmarking mistakes in revenue management and provide guidance on how to avoid them.
1) Not selecting the right competitors for your hotel’s competitive set
One of the most common mistakes that you can make when benchmarking your hotel’s performance is not selecting the right competitors for your hotel’s competitive set. A competitive set, or compset, is a group of hotels that are comparable in terms of location, amenities, size and target market.
If you measure against a competitive set that is not truly comparable, it may appear to be performing better or worse than it actually is and you could end up drawing the wrong conclusions.
This will inevitably undermine your benchmarking efforts as you will more than likely make incorrect assumptions about your hotel’s market position leading to poor decisions and lost revenue.
When assessing a hotel’s occupancy performance, you’d naturally want to know if your competitive set has the same occupancy levels. Comparing a hotel with significantly fewer rooms might give the impression that the larger hotel is underperforming and you would probably find your ranking on all metrics you are monitoring to be well off your compset.
In the same vein, if your compset contains hotels that are too high-end, where you are benchmarking against a higher ADR, you may inadvertently set prices to match. This will inevitably lead to you pricing yourself out of the market, receiving less than your fair share in occupancy and revenue.
Conversely, by benchmarking against a competitive set that has a lower offering than you could mean your revenue potential is not fully realized, especially if you were to follow your competitors too closely by selling at lower rates than a property of your quality commands.
