Hotel Revenue Management: 3 Mistakes You Should Avoid when Benchmarking

On a Wednesday morning, while making your way to the weekly revenue management meeting, you run into your GM, and during a casual conversation, you remark on how good the hotel's weekend was, only to be met with a thought-provoking response: 'Compared to what?'

On a Wednesday morning, while making your way to the weekly revenue management meeting, you run into your GM, and during a casual conversation, you remark on how good the hotel's weekend was, only to be met with a thought-provoking response:

"Compared to what?"

As a revenue manager, you know that assessing your hotel's performance is crucial to staying competitive in your market. But how do you know if you're truly keeping up with the competition? This is where benchmarking comes in.

Benchmarking provides the necessary context (answering the compared-to-what question from your GM) but also allows you to identify aspects of your revenue management strategy that you can adjust to ensure that your hotel is keeping up with the growth and success of the hotels you’re competing with.

By assessing what they are doing successfully, or could improve on, you can then start implementing a plan to boost your performance and take advantage of any opportunities in your market.

Benchmarking is also a valuable tool to track your performance against internal key success metrics, such as your budget and forecast.

As you compare your current results to previous ones, you can establish a baseline and set realistic targets and goals.

This way, you can use benchmarking as a yardstick to ensure you're on track to reach them, and put in place measures to change course if you’re not.

However, benchmarking effectively is easier said than done.

In this blog post we will explore some common benchmarking mistakes in revenue management and provide guidance on how to avoid them.

1) Not selecting the right competitors for your hotel's competitive set

One of the most common mistakes that you can make when benchmarking your hotel's performance is not selecting the right competitors for your hotel's competitive set. A competitive set, or compset, is a group of hotels that are comparable in terms of location, amenities, size and target market.

If you measure against a competitive set that is not truly comparable, it may appear to be performing better or worse than it actually is and you could end up drawing the wrong conclusions.

This will inevitably undermine your benchmarking efforts as you will more than likely make incorrect assumptions about your hotel's market position leading to poor decisions and lost revenue.

When assessing a hotel's occupancy performance, you’d naturally want to know if your competitive set has the same occupancy levels. Comparing a hotel with significantly fewer rooms might give the impression that the larger hotel is underperforming and you would probably find your ranking on all metrics you are monitoring to be well off your compset.

In the same vein, if your compset contains hotels that are too high-end, where you are benchmarking against a higher ADR, you may inadvertently set prices to match. This will inevitably lead to you pricing yourself out of the market, receiving less than your fair share in occupancy and revenue.

Conversely, by benchmarking against a competitive set that has a lower offering than you could mean your revenue potential is not fully realized, especially if you were to follow your competitors too closely by selling at lower rates than a property of your quality commands.

There’s a lot of science that can go into selecting a competitive set, as there are several different factors that influence that grouping. However, a simple way of determining a compset would be to ask yourself if your hotel was to sell out, where would guests looking for accommodation turn to as an alternative to your property and offering?

To avoid being misled, and to ensure you are using relevant data to benchmark with, your compset should consist of hotels that have similar characteristics. If you're managing a mid-range hotel in a popular tourist destination, your competitive set could include other mid-range hotels in the area with similar amenities and target markets.

By benchmarking against these hotels, you will be able to gain a better understanding of how your hotel is performing in the market and identify areas for improvement.

2) Not monitoring market demand outside of your compset

In as much as benchmarking against the right competitive set is essential, another common mistake when benchmarking in revenue management is not factoring in a broad view of the market.

It's important to remember that your hotel doesn't exist in a vacuum and that external factors can have a significant impact on the market at large, and thus your own property’s performance.

To seize potential opportunities, it's crucial to stay alert and keep an open mind about what's happening in the market beyond your compset - particularly given the dynamic nature of the hospitality industry in recent times.

Too narrow a view of the market can influence you into assuming that your competitive set is representative of your market, when in reality there are likely to be other hotels that could be eating into your market share or eking out new opportunities that you aren’t aware of.

A prime example of this is the rise in bleisure travel, where travelers blend business and leisure trips into one, leading many hotels and brands to develop offerings that cater to travelers looking for a longer stay by providing amenities such as kitchen, workspaces, and self-service laundry.

By not considering what’s trending in your market you risk falling behind and losing out on potential revenue you could generate.

At the same time, ignoring micro trends in your market, by not fully grasping the key market demand generators, or missing a local event from your calendar could result in potential revenue opportunities missed.

For example, if your hotel is located in a popular beach destination, it's important to take into account the seasonal nature of the market and adjust your benchmarking accordingly.

Similarly, if there's a major event in town, it's important to consider how that high demand might affect your hotel's performance relative to your competitors.

If you aren’t aware of these broader market conditions, you risk setting rates or managing inventory controls inappropriately. This could result in below below-average market share in occupancy, or a lower-than-market Revenue Per Available Room (RevPAR) during event dates.

Furthermore, you might miss out on opportunities to capture demand from travelers who are willing to pay a premium for a unique guest experience or a specific location.

Taking a broad view of the market is crucial to effective benchmarking as you can gain valuable insights that could open up the possibility of growing your business in new and creative ways, outside of what your competitors are doing.

3) Not being patient enough with your revenue decisions

When assessing your revenue strategy, it is important to focus on continuous improvement. And to do so, with the understanding that a strategy takes time before you start seeing any gains.

One common mistake that revenue managers make is changing their strategy too frequently in reaction to an underperforming KPI in a benchmarking report, and then when you see there is no immediate difference in the results, making another change. It then becomes difficult to know exactly which changes worked, or didn’t.

The secret to effective benchmarking is knowing when it is time to adapt or adjust your strategy. This confidence comes with experience in your market and your role, but also with the addition of quality data to support your hypotheses.

As traveler behavior has become less predictable, booking patterns have changed and previously held assumptions are constantly being called into question. Booking windows, lengths of stay, source markets and customer profiles have all shifted, making benchmarking quite challenging.

This is exacerbated by the fact that in most cases, revenue managers are using data to benchmark that is only updated once a week, meaning there will always be a lag between the latest data and the effect of any adjustment you make to your strategy.

Hotels never close and thus the data is constantly changing. What was relevant a day ago is no longer necessarily relevant. This becomes even more true when you are managing tight booking windows.

A good starting point would be to establish what is “normal” for your market - how often do prices change, what are the typical lead times, average daily rate (ADR)? This requires constant data analysis. You would do this by monitoring competitor pricing, and tracking key metrics such as ADR, RevPAR and occupancy rate over a period of time so that you can spot trends.

Using your in-house Property Management System (PMS), which has a whole database of important historical data, you can also measure these trends against previous periods by keeping tabs on your pickup vs yesterday or vs last week and monitoring how you are pacing against last year or your budget and forecast in those key metrics. Integrating your PMS data with a robust BI platform allows you to unlock access to those detailed performance insights.

By constantly tracking those metrics relative to the market, and monitoring how your property is performing against them, you will begin to see where and when you are deviating from your KPIs and put in place measures to steer your back on course.

Conclusion

Benchmarking is a critical tool for revenue managers, when applied correctly. It helps to ensure that you stay on the path to revenue growth by keeping track of the KPIs that matter to your business, allowing you to spot areas where you can improve while bringing new opportunities to light.

The key to avoiding these mistakes starts with having the right data at your fingertips.

Benchmark Insight is the latest market intelligence solution from Lighthouse, offering market and compset benchmarking so that you can immediately understand your position, conduct performance analysis and adjust your strategy with confidence.

More than just historical and forward-looking performance data, Benchmark Insight delivers insights that hoteliers can access through an intuitive and dynamic dashboard, allowing them to benchmark their occupancy, ADR, and RevPAR performance against their competitors in real time.

By using Benchmark Insight, you can spot competitive trends, pinpoint areas that will deliver the highest impact, and then take action.

All of this is so you can answer the initial question of “compared to what”. Answering this question is key to identifying and driving success.

Benchmarking is not a one-time exercise but a continuous process that requires patience and a broad view of your market.

With Benchmark Insight, you can avoid making these common mistakes and have the data you need to make decisions confidently. In doing so, you can ensure that you keep your business on track to reach your targets and goals, while growing your bottom line.

About Lighthouse

Lighthouse (formerly OTA Insight) is the leading commercial platform for the travel & hospitality industry. We transform complexity into confidence by providing actionable market insights, business intelligence, and pricing tools that maximize revenue growth. We continually innovate to deliver the best platform for hospitality professionals to price more effectively, measure performance more efficiently, and understand the market in new ways.

Trusted by over 65,000 hotels in 185 countries, Lighthouse is the only solution that provides real-time hotel and short-term rental data in a single platform. We strive to deliver the best possible experience with unmatched customer service. We consider our clients as true partnersÑtheir success is our success.