Metrics: How to Measure Profits and Performance

It’s certainly been a rollercoaster of year. But the best thing about 2016? 2017 is just around the corner – which means another year to improve upon your business, and make it the very best it can be.

As the year comes to an end, ask yourself two questions: is your hotel doing better than it was this time last year? And what can you improve upon next year?

To answer these fundamental questions, we look to performance metrics for guidance. The problem is, there are so many metrics out there to choose from – RevPAR, net RevPAR, GOPPAR, ADR, reputation scores, debt ratio, margins, costs – that when used in isolation can cause operational imbalance. So the question is, what is a busy hotelier to do?

One of the questions I am most frequently asked by hotel owners is about metrics, and what metrics we should be using to measure profits and performance. My job as CEO of Magnuson Hotels is to make sure that hotel owners make more money today, and in to the New Year, than they did this time last year. That means working alongside 1,000 hotel owners, to improve upon the sales of almost 100,000 rooms, every night.

What we’ve discovered, is that a hotel’s performance boils down to taking control of a few basic principles that apply just about everywhere. And as far as metrics are concerned, the below three dials are all you need:

Focus your attentions on analyzing and improving upon these three basic performance metrics – rates, reviews and rooms sold.

Where do your rates sit compared to those of your competitors? If your rates are too low, potential customers won’t make a booking as they will assume you run a low-quality property. If your rates are too high and not open to flexibility, you will also alienate customers. The safest strategy is to position yourself just above the average rates of your closest competitors – without being the cheapest option, or the most expensive. If you are close to the city center but not directly in it, position yourself as the best option for the smart traveler, with a unique tagline such as; ‘Seattle for less. Avoid the traffic, and enjoy free parking too’.

Reviews on trusted websites such as TripAdvisor are the fastest way to increase your rating. You can compete directly with a hotel that has more luxury amenities than your own, but if your hotel is rated as ‘the friendliest hotel in town’ you will be able to achieve another 10-15 per cent in rate. If you receive a negative review, respond to it proactively and with honesty – trust me, it will pay off.

And finally, rooms sold. Are you selling more rooms than you did last year? If not, why not? What do you need to do differently? Perhaps you need to focus on increasing the number of positive reviews for your property, winning a loyal customer base and moderating your rates. Make these targets your focus, and 80-90 per cent of your problems will rectify themselves.

A smart hotelier knows that you can’t take ADR or RevPAR to the bank. So focus on net profit, and hopefully lots more of it in the New Year!