According to STR, Hotel benchmarking is the process of comparing your property’s performance against the competition, adding a layer of context to what success and failure look like in your circumstances and environment.

Want to learn the basics of Benchmarking? Please read our previous article here

Benchmarking reports, like the STAR report produced by STR include a vast amount of data paired with many different comparisons. It is important to understand how to read these reports and identify information that can be turned into actionable intelligence.

An experience revenue manager uses the STAR reports to look for trends and identify opportunities.

It is key to look at the reports and analyse how the hotel’s occupancy progressed and how that compares to the comp set. Once a trend is identified, it is vital to put it in perspective and identify what coursing this trend.

• Was there a change in the hotel’s availability?

If 25% of the bedroom stock is out of order due to the refurbishment and is taken out of the inventory, the MPI will increase as now 25% fewer rooms need to be sold to achieve 100% occupancy. On the other hand, if it is not taken out of the inventory, and only put out of service, the hotel’s MPI will drop significantly as now selling all available rooms will leave the hotel with a 75% occupancy level.

• Was there a change in the comp set?

If a hotel in the comp set had a significant inventory reduction your hotel’s MPI will suffer, whereas if a hotel in the comp set had an extra wing added, their MPI will drop and your hotel’s will increase.

• Did your hotel secure a large corporate group for an extended period?

Securing a large business group will boost your hotel’s occupancy as this is on top of the regular booking patterns.

If the Occupancy level goes up, but the MPI index remains the same, it tells us that there is an increased demand in the marketplace which your hotel has benefitted the same way as the comp set did.

The changes in the achieved ADR and ARI index have to be analysed in the same way. If there is a trend, we need to look at what is coursing it.

• Was there a change in the hotel’s offerings?

If the hotel increases the level of service provided, the rate offered can also be increased and this will lead to outperformance of the comp set and increased ARI levels.

• Was there a change in the comp set?

If the comp set has gone through a refurbishment, it can command a higher rate, and this can lead to a decrease in your hotel’s ARI even if the achieved ADR stays the same level.

• Did your hotel secure a large corporate group for an extended period?

Having a stable base business allows a good revenue manager to increase the rate and achieve higher yields, higher ARI

Looking at the MPI and ARI movements can help identify some trends, but it does not take into account how one can interact with the other. Therefore, measuring and paying close attention to changes in the RGI index is vital.

• Increased ARI + Increased MPI

If ARI and MPI are increasing RGI is going up exponentially and it is a testament to a job well done.

• Increased ARI + Decreased MPI

Depending on the level of increase/decrease, this could be a warning sign of pushing rates too high and sacrificing occupancy, if the RGI index is decreasing. If the RGI index goes up, this can be the most profitable combination as increased RevPAR with lower occupancy leads to increased profitability.

• Decreased ARI + Increased MPI

Lowering the rates to increase occupancy can be a dangerous tactic, as increased occupancy directly increases costs. On the other hand, if the rate drops by 5%, but occupancy increases by 20%, this is the best strategy to implement under current market conditions, as this leads to RGI and profitability increase

• Decreased ARI + Decreased MPI

This is a sign of danger to the business. A trend like this requires immediate action as the hotel is losing out on the comp set. Courses need to be addressed as soon as possible. It is vital to look at the state of the hotel, the offerings and the commercial strategies in place (revenue, sales, marketing).

These are only a few key areas to look at when searching for underlying reasons for the changes in the indexes. Not being able to understand and interpret what the data tells you can leave significant revenue and profit in the hands of the competitors.

Next week we will continue talking about these metrics to gain further understanding of what the indexes tell us. We will also look at what Natural RGI is and how to calculate it and what other exceptions are there for these rules.

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