Every benchmarking tool in the industry teaches us an index of 100% or more is good, and anything below 100% is bad. However, is this always true? Some believe the biggest mistake the hospitality industry made was creating indices, encouraging hotels to spend more time comparing themselves to competitors than they spend comparing to their own performance. This post will illustrate why you need to take more than competitive benchmarking into account.
Let’s look at the example below. On each date, the hotel is above the 100% mark in rate index. If you take the metric at face value, you might think the hotel is in a good place. But, is that truly the whole picture?
Taken in isolation, the hotel might go into these dates thinking its rate index would lead to significant revenue growth. This is where a good business intelligence tool is crucial. How is the hotel pacing relative to last year on those same dates? Is it pacing up or down? This information may change how “good” your rate index really is.
Diving into the dates, we see the hotel is pacing down over five of the seven dates across all metrics except ADR. The significant rate growth is not leading to revenue growth and is most likely the cause of the declines over the other metrics. What could happen if the hotel pulled back on rate, attempted to have a more balanced rate index?
Across these dates, the year over year rate changes range from a minor decrease of 1.5% to an increase of 26.8%. If the hotel cut back by 50% on the rate growth and could capture 10% more room nights, the revenue decline drops to $5,525.01. If the hotel captured 15% more room nights, it would actually realize year over year growth of $857. All from being slightly less aggressive in rate position.
The moral of this story is you can’t look at index in isolation. You must go one step further and balance your indices against how your own year over year performance. Taking a more balanced approach will help you balance occupancy and ADR to close gaps in revenue shortfalls.
Understanding how you’re doing against your competitors, with a tool such as revcaster, is a necessary part of a well-rounded revenue strategy. But, to balance your rate index against pace, employing a solution like revintel creates the perfect marriage of competitive benchmarking and internal performance. Bottom line: make sure you use rate analytics stabilized by internal comparison metrics before you make a decision on whether your index is actually good.
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