To properly manage a hotel’s revenue management strategy, we need key indicators (or KPI for our English friends, translate Key performance Indicators). They can be qualitative or quantitative in nature depending on the aspect of the activity being observed. These indicators serve as a thermometer to measure or ensure the “good health” of our hotel, campsite etc…. and allow us to judge the performance of the yield management strategy chosen.
As mentioned in a previous article, to successfully implement a revenue management strategy, you must be able to read & analyze these indicators from anywhere. They still need to be up to date.
And yes… For more relevance, especially in our industry (hotels, campsites, residences…), it goes without saying that the data used to calculate its yield management indicators must be “fresh”. For the time of this article, let’s consider that we are in the best of worlds and that the indicators used to manage our yield strategy are more than ever calculated on real-time data. Top… Yes, but there is one but…
These indicators, as simple as they may seem, can become a real headache. This can to some extent distort your judgment. Let me explain…
Let’s analyze the most well-known yield performance indicators: the occupancy rate and the average price.
The occupancy rate
Often abbreviated TO… First indicator of revenue management. What is it? Percentage of rooms occupied among the built ones. Nothing could be easier you will tell me….
Yes, but in reality there are some elements that can complicate its calculation.
It turns out that in a hotel, some rooms are being renovated, thus changing the number of built rooms available for sale. The longer the work takes, the more the basis for calculating the TO will vary… Elementary yes, but many people fall into the trap.
And that’s not all… With the advent of influencers (aka Miss or Mister Facebook or Instagram), we are getting into the habit (good or bad I don’t know) of offering nights. Question: Is the room offered considered occupied?
Reminder: An overnight stay is considered as offered as soon as the accommodation service is invoiced at zero euros in the PMS. This can be subject to VAT (details that are forgotten in operation, but that the accountant skilfully reminds us at the end of the financial year). If so, a direct consequence: the more nights offered, the more the TO will increase or decrease depending on whether these elements are considered included or not.
On the other hand, another problem arises.
What to do with the optional rooms? A case that is often found in group bookings, seminars, etc. Do we count these from the disposals, and therefore consider them as sold?
In the end, a good ( and “true”) occupancy rate is not so easy to build….
The average price:
PM in French or ADR (Average Daily Rate in English), is used to measure sales performance… At what price did I sell my rooms on average? Its calculation: The hosting sales revenue divided by the number of rooms sold. Quite simple, isn’t it….
Let’s take the case of the room offered. If it’s considered as sold, it must logically be taken into account in the calculation of the PM, which will not please everyone… For a “yield” and commercial reading, it should not be taken into consideration in the calculation of the PM. And this to follow what was actually sold.
This indicator is also subject to other traps:
- The invoice for a night spent is logically not modifiable… So, in the case of a billing error, the front desk operates to regularize the day of departure… The average price for the day is therefore higher… So false from a commercial point of view.
- Let us also consider group bookings for which invoicing is associated with a single reservation, i.e. a single room. We can then end up with an absurd average price because it is excessively high.
- Think also of the Accommodation turnover smoothed over a stay… it is simply spread equally over the different nights, whereas each night is supposed to be invoiced with a different price. Especially if you do yield management in your hotel.
We encounter traps like every day. Management habits do not necessarily help to keep a critical eye on evidences. And yes… Obviously. The one that blinds you, when she doesn’t look out of sight.
Discover more about the challenges of the yield management :