What is the Best Revenue Metric? Is ADR and RevPar Enough?
As Revenue Professionals, we all understand the power of numbers. We love data, we live for data and often we can drown in data…
NB: This is an article from Right Revenue
We have often addressed the issue of really diving deep into your figures and getting the very best metric for you, but what is the best metric? Is ADR and RevPar enough? Honestly, no, it is not. Today we need to understand the value of TrevPar (Total Revenue per Available Room), COCA (Cost of Customer Acquisition), Customer LTV (Life Time Value) and even plain old cost of occupied room. But before I make you head for the water cooler, I would like to throw something else into the mix and I promise, it is not for the sake of it…
We absolutely should measure many (probably all of the above metrics) but these focus solely on your own internal figures ie how your own property is performing – period. But should we look at how we are bench-marking against our competitors and what does that even mean and most importantly, what actions should we take once we have the numbers?
Well, let’s start with 3 well-known measurements (known to most of us who use external bench-marking companies) such as the wonderful MPI or Market Penetration Index. Many of you are very aware of this but for those who aren’t the calculation is:
Your occupancy % divided by your competitor’s occupancy or as an example: Your occupancy is 80%/ Your comp set 76% or 80/76 = 105. As a guide, if your value is 100, you are completely in line with your competitors; below and you are trending behind, and above you are leading and gaining market share.
Now let’s throw in ARI or Average Rate Index which again is simply your rate divided by your competitor’s rate eg £103.00/£109.00 or 94. You can see at a glance that you are trending behind on rate.
Add this into the first metric were you are ahead on occupancy, but now you have the added layer of information to tell you that you are behind on rate and surprise, surprise, you have gone for occupancy to the detriment to rate and it looks very like your competition may have outperformed you.
One last metric is RGI or Revenue Generating Index which is your RevPar divided by your competitors RevPar. Now it is a little trickier to ascertain without third party software such as SiteMinder but again the maths are simple: your RevPar divided by your competitors Revpar. I am a big fan of RevPar as I do feel it is the most insightful metric you can use against your comp set, but even if you don’t have access to RevPar figures then MRI and ARI are a great place to start.
So what happens when you track this over a period of time (and yes it is do-able even without the technology) – more manual of course – but simply chose your Comp Sep and track their daily selling rate. This isn’t ideal, but it is a start and can start to give you a straightforward overview of your market. It will highlight seasonal changes and demand impacts that you may not even have realised mattered.
One other ‘revenue 101’ metric to track is how you are performing each day and to assign a traffic light system. So for example:
- Track each day what you are selling at eg Thu 01 Oct £98.00, Fri 02 Oct £102.00, Sat 03 Oct £120.00, Sun 04 Oct £85.00
- Now apply a traffic light to your rates eg: under £100.00 red / between £101.00 and £115.00 amber / over £115.00 green.
- Then do exactly the same for your competitors.
What does this tell you? What would you understand if you applied occupancy and applied MRI and ARI to the above?
We all know that understanding your competitive set is important but it is not and should never be your main metric, otherwise you fall into the trap of ‘commodity pricing’, but it is something that we should be aware of.
One final consideration (which would be a blog in itself) is choosing your competitive set… We all understand that studies confirm that different channels will present a differing comp set, but if you want somewhere to start; if this metric is new to you; if you only have so-many-hours-in-the-day… my advice would be pick what you believe your comp set is for now and make that your starting point.