You can't improve what you don't measure. When defining the pricing for your property and rooms, your marketing and revenue management strategy, distribution across different sales channels, or identifying the activities needed to increase your revenues, you need to keep an eye on some important useful indicators. for your business.
If you didn't, it would be like going on the highway without the dashboard panel.
There are so many important indicators to monitor and this can be confusing, taking you away from your goal.
To know if your structure is performing you need to monitor the right measurement indicators (KPIs).
In this article, you will discover 3 fundamental ones, which will allow you to know the basic information that can guide every strategic decision regarding hotel management.
You do not need to constantly monitor all the indicators, in this article you will discover 3 fundamental ones thanks to which you will be able to know the information behind any strategic decision regarding hotel management. With these indicators you can for example:
- know your performance compared to your competitor hotels in terms of occupancy and average rates acquired
- understand if your revenue management and marketing strategies are working
- know the attractiveness of your property with respect to your destination
- obtain financing by communicating your positioning with respect to the business on your local market to your bank.
These three indicators are:
MPI - market penetration index , it is calculated as your occupation / the average occupation of your competitors
ARI - Average Rate Index, it is calculated as your average rate compared to the average rate acquired by your competitors
RGI - Revenue Generation Index, it is calculated as your average revpar / revpar of your competitors
These indices can be calculated over different time periods and compared with different competitor hotel groups in the market you are in. MPI, RGI and ARI should always be above 100.
If the value of these indices is 100 it means that you are performing exactly like the average of your market or competitive set. If, on the other hand, it is higher than 100 it means that your hotel is performing better, if it is lower than 100 it means that your hotel has secured a lower share of occupancy than the market or group of competitors. If your index value is in fact equal to 100 it means that you are performing exactly like the average of your market or group of hotels that you take as a reference, if it is above 100 it means that you are performing better, if below 100 it means that you are underperforming.
For example, if your MPI was 90, it means you have a 10% lower average occupancy rate, meaning that some of your competitors are converting more businesses, getting more jobs. if your RGI was 120 it means that your strategy has led your hotel to have a capacity to generate revenues 20% higher than the group of hotels you have taken as reference. As you have already guessed your RGI value depends on your values MPI and ARI, i.e. from your pricing or employment strategies.
In fact, your ability to generate revenues expressed in RGI is a direct consequence of your strategic choices such as reducing prices (lower ARI) to favour higher employment (higher MPI) or vice versa. Regardless of what your strategy is whether it is focused on occupancy or higher rates, the only important value that determines the attractiveness of your property is the RGI, which is your ability to generate revenues. you are getting a higher or lower RGI, identify the days of the week or weekend, the market segment that is more or less profitable for you compared to your competitors, and the pricing for each market segment.
Where you can monitor this important information?
You will be able to monitor your ARI, MPI and RGI day by day against your competitors on HBenchmark which is the control panel of your hotel. In HBenchmark these indicators are calculated automatically and you can clearly see when the lights come on. The spies on HBenchmark allow you to immediately know when the value of these indicators is below 100, and implement all the necessary tactics to prevent small problems from having serious consequences on your business.
Let's see a practical example
In the HBenchmark dashboard, we see how the positioning of the hotel compared to its competitors is MPI of 101.2 and ARI 81.2, and RGI of 82.3 but in an increasing trend (+ 3.3% in the last year). This means that the hotel has a strategy in place that aims to increase occupancy at the expense of average prices. The RGI shows us how this strategy is not winning over its competitors as the RGI, or the ability to generate revenues is less than 100.