New hotel guest KPIs

07 June 2022
The guest funnel is the new way for hotels to apply total revenue management. The idea is to maximize the average guest spending on all hotel products and services. Hotels need to change how they think about commercial work and the KPIs to measure success.
There are KPIs in all the steps in the guest funnel. Some of the KPIs are old and familiar, while some are new to most hotels. Hotels also need to let go of some KPIs that are not relevant any longer. Let's look at KPIs at each stage in the guest funnel.

Capture demand

The top of the funnel captures travelers to the destination. The main reason for traveling to the destination is not to stay in a hotel, but they need to sleep and rest overnight, creating demand for hotel rooms. The traditional measurements of annual occupancy, total room revenue, and ADR are interesting but not very useful for making decisions. Hotels need to understand the demand pattern for hotel rooms day-by-day and the needs of the travelers based on the reason they are traveling to the destination.
 
No KPI measures how successful the hotel is in capturing guest spending at a destination. Revenue Generation Index (RGI) measures how successfully the hotel captures the room revenue in the destination compared to the market or a specific comp set. However, RGI is not accurate since hotels sell their rooms in many different ways, such as retail, merchant, and packaged with other products and services. The lack of accuracy is probably the same over time, so tracking the changes in RGI is better to understand if the hotel is moving in the right direction.

Is TrevPAR a relevant KPI?

The hotel industry has tried to invent a new KPI, TrevPAR, that includes all revenue sources in the hotel divided by the available number of rooms. Total Revenue Generation Index (TRGI) would then measure how the hotel successfully captures the demand of all types of revenue sources accounted for in hotels in a destination. However, TRGI will not work if comparing a B&B with a full-service hotel. Instead, it might work as a comparison of market share in a limited comp set consisting of hotels with precisely the same facilities. From a destination perspective, when measuring guest spending, should other facilities, such as restaurants, museums, arenas, etc., outside hotels be included in a destination's total tourism spending? A hotel could then measure its market share as total revenue divided by tourism spending at the destination.
 
Another problem with TrevPAR is that it includes all revenue sources but only the room capacity. A hotel with many rooms and no other facilities could have the same TrevPAR as a hotel with few rooms and several F&B outlets. What is the point of comparing TrevPAR when the facilities are different?

The new guest KPI for hotels

The definition of a hotel is primarily selling hotel rooms, so the starting point for a KPI is to measure how well hotels succeed in acquiring room revenue. RevPAR fluctuates with demand during seasons, the day of the week, and when there are events at the destination, so RevPAR is just an internal KPI and has no meaning unless compared to something else. The best KPI to measure success in capturing room revenue available in the market is RGI.
 
The primary challenge for a hotel is to capture its fair share of the market. Then the hotel can add revenue by satisfying the additional needs of its guests by offering more products and services.
 
The new internal KPI could be the additional spending calculated as total revenue divided by room revenue. Here is an example.
 
Total revenue €800 / Room revenue €500 = 160 % (or +60 % additional spending)

Measuring problems

Hotels capture the bulk of guest transactions on the guest folio because hotels charge the room revenue to the guest folio and all parts of packages and additional spending in other facilities, provided that the guest will add the spending to the guest folio. Ideally, the guest will charge everything to the room. However, some guests will pay directly at consumption in other outlets, and therefore the hotel cannot connect the additional spending to a specific guest.
 
The first action is to measure how much of the total revenue shows up on the guest folios. It is good enough if more than 90 % of the total revenue appears on the guest folios. If the number is lower, the hotel needs to analyze additional sales. One reason could be that the outlet attracts guests not staying in the hotel. Another reason could be that hotel guests would like to separate company reimbursed expenses from private expenses. Most hotel PMS can handle two or more separate folios, but the guest might not know about this feature.
 
A hotel could also develop an incentive for guests to charge all spending to the room to increase data quality and get a better precision in measuring guest spending.
 
All KPIs have measuring problems, but the point is to have a measurement that measures the right thing, not one that is perfectly calculated.