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Customer-focused or competitor-focused KPIs?

11 August 2022
Hotel general managers love the idea of single-point accountability (SPA) for each team member. SPA is attractive since a general manager can hold people accountable for specific tasks, decisions, and KPIs. However, the general manager will meet challenges in managing the business since employees only focus on what they are measured and rewarded for and miss the ability to take action that would make the whole business more successful.
The commercial work in hotels has traditionally been divided into marketing, sales, and revenue management, where each department has a SPA with its own, often conflicting, KPIs. For almost a decade, discussion about tearing down the silos has been ongoing. Finally, there is a drive toward creating a commercial team instead of continuing to work in silos. A new way of working also needs refined areas of responsibilities and new KPIs. So, what are the primary KPIs for the commercial team?

Customer-focused KPIs

The commercial department is responsible for the top line of the P&L in the hotel. All actions and measurements should focus on growing the top line, leading to increased profits. A hotel has multiple products and services and serves guests in numerous geographies. The roles within the commercial department need to work closely together to capture the highest paying guests in the market. Collaboration within the commercial team will be a competitive advantage over hotels where commercial roles work in silos.
There are only two ways to grow the top line in a hotel. One is to attract more guests and customers. The other is to sell more to each guest and customer. A hotel needs to measure the number of guests/customers and the average revenue per guest/customer. Start by measuring the total for the past year to understand the current situation. Then set the goal for how many additional guests/customers the team should acquire for the next year and how much they should sell to each guest/customer. Unfortunately, KPIs such as the number of guests and the average revenue per guest are lagging KPIs measuring historical outcomes.
Hotels also need a leading KPI to have an early warning measurement to understand if the team will succeed in creating the desired growth. Leading KPIs are a bit more challenging to measure. Many leading KPIs focus on measuring activities. Examples could be the number of sales calls, incoming inquiries, number of campaigns, and business on the books. The idea is that if the salespeople make more sales calls, they will acquire more customers. Measure the activity level to predict future sales.
Start measuring the activity levels within the team, and the hotel will see an increase in the number of guests/customers and the average revenue per guest/customer.

Competitor-focused KPIs

The most used KPIs in the hotel industry are competitor-focused and capacity utilization-focused. These KPIs have nothing to do with guests or customers and only measure if hotels win or lose against their competitors. RevPAR measures how well the hotel managed to use the room capacity to create room revenue, and RGI measures if the hotel won or lost against the competition. Occupancy and average rate are also KPIs focused on filling hotel rooms.
Hotel revenue managers apply the same capacity thinking when improving the measurements to include total revenue. The most popular are TrevPAR (Total revenue per available room) and GOPPAR (Gross operating profit per available room). Hotels lost guests/customers during the process and have only become focused on transactions. These KPIs create a bit of frustration between marketing, sales, and revenue management and a massive divide between revenue management and operations facing the guests/customers. Guest expectations are directly related to the price they pay for the stay. Therefore, it is not easy to manage customer expectations when revenue managers keep changing the rates.

The right KPIs for a hotel business

The purpose of a business is to create a customer, so customers should always have the attention of the hotel management. Guest/customer measurements are the most important KPIs in hotels (or any other business). Capacity, competitive, or productivity measurements are vital for understanding how to create a profit from the revenues that guests/customers generate. Still, these measurements will always be secondary to customer-centric KPIs.