New Tech Means New Metrics

WASHINGTON, DC—The advent of new technology changes the way we do business. And the innovations in hospitality have given the industry access to more and more data points in real time—information that many in the industry say should change the way hotels approach revenue management.

At the Revenue Strategy Summit held here earlier this quarter, Mark Morrison, VP of corporate strategy, Hilton Worldwide, commented that there needs to be less focus on gross revenue and more focus on net revenue. “We’re all focused on the STR index and those numbers don’t tell the whole story,” he said.

Sloan Dean, VP of revenue optimization, Ashford, Inc., later highlighted that point. “From an owner’s perspective, STR is a great benchmarking tool and was really a game changer 20-25 years ago, but to maximize EBITDA, which all the public companies in the room are worried about, we need a new metric,” he said. “Net RevPAR is a great starting point… There are some companies positioned to do that and the ownership community is already starting to embrace that.”

So what exactly is Net RevPAR? Rebecca Bucnis, EVP and chief commercial officer, Kalibri Labs, explained. “It’s not just about P&L revenue anymore; it’s about Net RevPAR,” she said. “Net RevPAR is just like classic P&L RevPAR, but there’s a question: how much did it cost for me to get that business?” Net RevPAR takes the revenue per available room and factors in customer acquisition costs, such as commissions, money spent on sales and marketing, and other expenses.

“Net RevPAR is knowing how much it took them to get to the door,” Bucnis continued. She noted that voice calls, OTAs, GDS and the CRS can all drastically affect those numbers. “That topline revenue is going to change dramatically,” she said, noting that there are two metrics to take into account. The first is COPE—the cost of operating expense to profit. “How do I cope with each one of my channels and how much business do they bring me? Those are buying costs,” she said. “Just to make the transaction, how much do I have to pay?” The second metric is shopping cost. “Now I have to compete to get the attention of the consumer. How much is spent on sales and marketing?” she asked.

Bucnis noted that RevPAR shouldn’t be thrown away, but it can be misleading. “We’ve seen in studies that we can drive up our RevPAR but the cost of doing business is cutting off that topline and we’re losing money,” she said. “Maybe we should start tracking some of these costs.”

Shalabh Kayastha, executive director, performance strategy, FRHI Hotels & Resorts, weighed in. “A variety of data is available but hasn’t been implemented,” he said, noting that while historical data is important, “That information is not as actionable.”

Kayastha added that properly training and empowering revenue managers to look at all of the data sources available—both structured and unstructured—is a part of this. “The end user is overwhelmed,” he said, adding that in the modern world, people are inundated with information and tend to retreat to the familiar. “The biggest challenge is not bringing the data together and the analysis; that’s less than half the battle,” he said. “How do you get your colleagues to engage with the information and make the decisions to drive our line on this? People go back to making decisions the way they always did. People go back to the email of the historical data report. That’s static.”

“It’s time for us to move to a greater benchmarking tool,” said Dean. “Net RevPAR is paramount for a lot of us, particularly the ownership community. We have the data and we need to move in that direction.”