Let me ask you a question: Does achieving a budget mean you are a fantastic hotelier? Or does it just mean that you/ the general manager is skilled at creating achievable budgets?
In 2008, just before the financial crisis hit, few hotels were able to achieve their budgets in the last months of that year. So did that mean the managers were all suddenly terrible at their jobs? No, of course not. So how do we evaluate the perfomance of hotel managers in the context of other managers and the larger markets? In other words, how do we find the right benchmarking KPIs for our hotel?
In an ongoing Revenue Management process it is important to be able to evaluate how well you are doing. So let’s take a closer look at how we can compare performance benchmarking KPIs between hotels, in a way that is not subject to the failures of budgets.
A note: A basic knowledge of hotel and revenue management best practices is recommended in order to follow along with some of the examples below. But if you need to look up any terms, you can always use The Hotel Technology Index!
The Average Rate Index
The first index I would like to look at is the simplest to understand and calculate: The Average Rate Index or (ARI).
The idea is to convert your average achieved rate into an index (out of 100) compared to the average rate that your competitors have achieved. The value of this is it standardizes your comparison across an estate of hotels and puts your performance in the context of the competitive set; rather than on the basis of the actual number.
To get to an index you calculate your ADR divided by the average consolidated market ADR. Let’s look at January 2014 in this example below. My ADR for this property is 57,64 while the competitor set has on average achieved 88 EUR in January. 57,64 divided by 88,00 multiplied by 100, gives us an index of 65,5. So in other words we are only achieving 65,5% of the rate that the competitors are achieving.