Legendary Capital’s Cory R. Maple On Understanding the Key Performance Indicators in Hospitality

Corey Maple, Chairman of Legendary Capital, explains that in the dynamic world of hospitality, key performance indicators (KPIs) play a pivotal role in assessing the success and efficiency of hotel operations. These metrics provide valuable insights to hotel owners, managers, and stakeholders, helping them make informed decisions and drive improvements.

Legendary Capital’s Cory R. Maple delves into the essential KPIs that shape the hospitality industry:

Average Daily Rate (ADR): ADR represents the average price charged per occupied room. It reflects pricing strategies and revenue generation. The formula for ADR is:

ADR is a crucial metric in the hospitality industry, and it matters for several reasons:

A higher ADR would indicate the opportunity to charge higher room rates when executing a pricing strategy. It also reflects how well rooms are filled via occupancy levels and how it can impact the overall financial performance of the asset. However, fluctuations in ADR are often due to events, changing seasons, and various demand patterns. Understanding when these fluctuations are expected to happen helps in setting effective rate structures. Legendary Capital’s Cory R. Maple explains that over time, hotels can analyze year-over-year data to proactively identify trends and missed opportunities to increase revenue through strategic ADR management.

Occupancy Rate: This KPI indicates the percentage of rooms occupied during a specific time period. Higher occupancy rates generally lead to better revenue.

It’s a simple calculation usually expressed as a percentage:

For example, if a 100-room hotel sold 80 rooms last night, its occupancy rate would be 80%. Legendary Capital’s Cory R. Maple understands that this metric helps hoteliers assess room utilization and overall performance.

The Best Available Rate (BAR) refers to the lowest non-discounted room rate at a hotel on a night. It’s typically offered to guests who book their rooms in advance and do not qualify for any other discounts or promotions. Essentially, the standard rate helps balance the need to fill rooms while also focusing on profitability. Legendary Capital’s Cory R. Maple explains that this rate is typically transparent and reflects direct booking rates compared to third-party websites. Hoteliers can have different BAR plans per season, ensuring greater flexibility while maintaining competitiveness.

Another pricing acronym commonly used in the hospitality industry is LNRs. These are Locally Negotiated Rates (LNR) or Corporate Negotiated Rates (CNR), which describe an agreement between a hotel and a corporate group or organization. These contracts offer more competitive rates for rooms, meeting spaces, and event venues over a specified period. Unlike fixed permanent rates, LNRs remain flexible and are typically unavailable to the general public. Legendary Capital’s Cory R. Maple explains that their primary function is to encourage companies to consistently choose a particular hotel for their business needs year after year.

Revenue per Available Room (RevPAR): RevPAR combines occupancy and ADR to evaluate overall revenue. It’s calculated as ADR multiplied by the occupancy rate.

Understanding RevPAR in the hospitality industry is necessary to evaluate the revenue stream of the hotel effectively. By monitoring, it can assess and identify trends, help in creating more effective pricing strategies and assist in evaluating the overall financial health of the asset. For instance, high RevPAR indicates a well-managed balance between room rates and occupancy. A balance that is crucial for maximizing profits. For these reasons, hoteliers can make informed decisions about revenue management based on RevPAR insights.

The Revenue Generation Index (RGI) is a benchmarking tool used in the hospitality industry. It compares a hotel’s revenue performance against a selected competitive set (or COMP SET) of hotels. Legendary Capital’s Cory R. Maple emphasizes that by calculating RGI, hoteliers gain insights into their market share and revenue generation effectiveness, helping them understand competitive positioning and market dynamics. To calculate your RGI, collect the total revenue generated by the hotel. Obtain the total revenue of a selected comp set (other like hotels in the same market). This information can be obtained via industry reports such as a STAR (STR). Legendary Capital’s Cory R. Maple explains that a hotel management analytics firm, Smith Travel Research, developed this. Then, divide your hotel revenue by the competitor’s revenue and times that by 100%.

For example, suppose your hotel’s revenue is $1,000,000, and a competitor’s revenue is $800,000. $1,000,000 / $800,000 X 100% = 125.00%

A higher RGI indicates better revenue performance relative to your competitors.

Examples include:

RGI > 100: Your hotel is outperforming the market.

RGI = 100: Your hotel is performing on par with the market.

RGI < 100: Your hotel is underperforming compared to the market.

Average Length of Stay (ALOS): ALOS measures the average number of nights guests stay. Longer stays can positively impact revenue. To calculate ALOS, you divide the total number of guest nights (the sum of nights each guest stayed) by the total number of guests. For example, if a hotel had 300 guests who stayed 1500 nights, the ALOS would be approximately 5.00 nights.

The importance of ALOS is that it helps hoteliers understand guest behavior and tailor marketing strategies accordingly. Longer stays lead to higher revenue. However, it is also an effective tool for determining staffing needs, housekeeping schedules, and inventory management. Hotels can better allocate resources more efficiently with a thorough knowledge of ALOS. Guest satisfaction can also be impacted. Longer stays allow guests to explore amenities and enjoy a more relaxed experience. Legendary Capital’s Cory R. Maple explains that it is important to remember that ALOS varies by hotel type, location, and season, so tracking and analyzing it regularly is essential.

Room Type Index (ReRTI): ReRTI assesses the performance of different room types within a hotel. To calculate ReRTI, divide the number of rooms sold for a specific room type by the total available rooms of that type:

For example, if a hotel sold 80 out of 100 deluxe rooms, the ReRTI for deluxe rooms would be 80%.

ReRTI helps hoteliers allocate resources efficiently based on demand for specific room types. Understanding which room types perform well allows hotels to adjust pricing and promotions accordingly. Offering popular room types enhances guest satisfaction and loyalty. Legendary Capital’s Cory R. Maple understands that it is important to remember that ReRTI provides insights into room type performance, aiding in strategic decisions for better guest experiences.

Managing ReRTI does have its share of challenges in the hospitality industry. For example, double bookings can occur when a room is booked by multiple parties simultaneously. Loose controls in systems or manual errors can lead to stressful situations that lead to poor experiences and reviews. No-shows result in empty rooms despite being booked due to people failing to cancel reservations.

Additionally, hotel administrators and sales managers may not always be aware of all the available meeting rooms, especially in larger organizations. Underutilized rooms can result in poor visibility, so it is vital that the hotel utilizes efficient operating systems, communicates clearly with staff, and engages in proactive management.

Market Penetration Index (MPI): MPI compares a hotel’s occupancy rate to its competitive set. Legendary Capital’s Cory R. Maple explains that it is a valuable metric used in the hotel industry to assess market saturation within a specific geographic area. Here’s how it works: MPI measures the level of market penetration achieved by a hotel. It quantifies how well a hotel is filling its available rooms compared to the total room capacity.

To calculate MPI, divide the number of occupied rooms by the total number of available rooms.

An MPI greater than 100 indicates that a hotel is capturing a larger share of the market than the average hotel in its competitive set. Conversely, an MPI below 100% suggests that the hotel is underperforming relative to its competitors.

Factors that affect MPI would include location, amenities, service quality, and price. Desirable locations tend to yield higher MPI as well as competitive pricing. Additionally, hotels offering more amenities while providing excellent service will contribute significantly to a higher MPI.

There are several other KPIs that have a direct impact on the hotel’s profitability. Understanding expense management, budget and cost analysis, and service metrics helps hoteliers make informed decisions, improve productivity and efficiency, and enhance guest experience.

Let’s examine some of the more important metrics.

Cost per Occupied Room (CPOR). This metric calculates the cost associated with each occupied room. It includes expenses like housekeeping, utilities, and maintenance. To determine the CPOR, divide the total operating expenses of the hotel by the number of occupied rooms during a specific time frame.

CPOR allows hotel General Managers to understand their hotel’s profitability. A high CPOR versus your competitive set may indicate overspending on operating costs, while a lower CPOR score suggests efficient operations. There are several factors that affect CPOR, including the hotel’s size, location, amenities, and occupancy rate. Larger hotels in popular tourist destinations that have more amenities typically have lower occupancy rates. Low occupancy with better cost distribution in the larger hotels leads to a low CPOR.

Gross Operating Profit per Available Room (GOPPAR): Unlike RevPAR, which focuses solely on room revenue, GOPPAR considers both revenue and operating expenses. It provides a comprehensive view of profitability per available room. To accurately calculate GOPPAR, divide the total gross operating profit of the hotel by the total number of available rooms.

A thorough understanding and monitoring of GOPPAR helps hotel general managers make informed decisions and optimize financial performance.

Customer Acquisition Cost (CAC): CAC represents and measures the cost of acquiring a new guest. Basically, the cost of turning a potential customer from “just browsing” to a booked guest. It includes expenses related to marketing, advertising, commissions paid to travel agencies or booking channels, reservation systems, and loyalty program costs. Legendary Capital’s Cory R. Maple explains that to calculate the CAC, you add up all expenses tied to acquiring new customers (marketing, salaries, tools, etc.). Count the number of new customers gained during the same period, then divide total costs by the number of new customers acquired. For example, if you spent $70,000 on marketing and sales efforts, welcoming 500 new customers, your CAC formula would be: CAC = $70,000/500 = $140.

What this illustrates is that you spent $140 for each new customer. To determine if your calculated CAC is in-line with that of competitors, typically in the hospitality sector, the cost of customer acquisition ranges from 15% – 20% of guest paid revenue. As such, this is a good benchmark to shoot for. Remember, understanding your CAC helps evaluate marketing efficiency and ensures wise investment in growing your customer base without draining resources.

Food and Beverage Revenue per Available Seat: This KPI assesses F&B revenue relative to the number of available seats for hotels with restaurants or bars. A hotel’s food and beverage department generates revenue from two main components. The first includes sales from restaurants, in-room dining, bakeries, snack shops, spas, catered banquets or conferences, and other dining facilities within the hotel. The second is through the sale of alcoholic beverages in the lounge, in-room service, and mini-bars. Each of these components is tracked separately to better benchmark performance more effectively. Calculating the REVPAR for food and beverage sales simply divides the total F&B revenue by the available rooms. Analyzing F&B revenue is essential for optimizing hotel operations, identifying opportunities to make improvements or changes, and staying competitive.

The Repeat Guest Rate (RGR) in the hotel industry refers to the percentage of visitors who have stayed at your hotel at least once. Legendary Capital’s Cory R. Maple explains that it is an important metric because it can reflect how guests perceive your hotel. It matters because a high RGR indicates that guests are satisfied with their previous experiences and are willing to return. Satisfied and happy guests drive loyalty, and repeat guests are more cost-effective. You’ve already invested in acquiring them, so retaining them reduces the cost of acquiring new customers. Return guests are also easier to upsell because they know the hotel’s services. Loyal guests also recommend your hotel to others, which leads to more bookings through referrals and essentially serves as free marketing.

To calculate RGR, determine the total number of guests who have stayed at your hotel and count the number of repeat guests who have stayed at least one time before. Divide repeat guests by total guests times 100%.

While benchmarking an effective RGR varies by hotel type and location, a reasonable target to shoot for is anywhere from 30%-40%. Some luxury hotels with exceptional customer service may achieve RGR’s exceeding 70%. Tracking the percentage of returning guests helps evaluate loyalty and guest satisfaction.

Online Reviews: Monitoring guest reviews and ratings on platforms like TripAdvisor or Google can provide insights into guest satisfaction and reputation. These insights help general managers make informed decisions to improve guest satisfaction, service improvements, amenities, consumer preferences, marketing strategies, or correcting problems before they become bigger issues. Negative reviews can seriously harm your brand’s reputation, so be sure not to let them linger. Timely responses to negative feedback demonstrate your commitment to guest satisfaction and mitigate damage. Often, guests will make an updated review of how quickly their concerns were addressed by the staff, turning a negative into a positive. Legendary Capital’s Cory R. Maple explains that this is called trust conversion, which can boost customer loyalty. Potential guests read reviews before booking. Positive reviews build trust and the likelihood of bookings. Good reviews lead to more website clicks, increasing online traffic and improving search engine rankings. Monitoring reviews can be tedious, but it is necessary to ensure you stay competitive and maintain a positive image.

The Employee Satisfaction Index (ESI) measures how content and fulfilled your employees are with their work. Happy employees lead to better guest experiences. Legendary Capital’s Cory R. Maple explains that the key areas impacting the ESI are work-life balance, intrinsic rewards (satisfaction from work, job fulfillment), extrinsic rewards (pay and benefits), timely recognition of extraordinary achievements, and developing strong work relations and interactions with colleagues and supervisors. In essence, building a strong network of teamwork is paramount. To calculate the ESI via a survey tool, add the intrinsic rewards score, extrinsic rewards score, work-life balance score, and work relations score, and then divide their sum by 4. For example, suppose employees rate intrinsic rewards as 8, extrinsic rewards as 7, work relations as 9, and work-life balance as 6 (on a scale of 1 to 10). Plugging those values into the formula, the result is an ESI of 7.50 out of 10.

Remember, a higher ESI indicates satisfied and motivated employees, and regularly measuring employee satisfaction scores helps identify areas for improvement.

Capturing and monitoring Key Performance Indicators (KPIs) in the hospitality industry is crucial for maintaining high standards of service, optimizing operational efficiency, and enhancing guest satisfaction. Legendary Capital’s Cory R. Maple emphasizes that by regularly tracking KPIs, businesses can identify areas for improvement, make data-driven decisions, and stay competitive in a dynamic market. Ultimately, effective KPI management leads to better resource allocation, increased profitability, and a superior guest experience.