What is Hotel Benchmarking?

Hotel benchmarking is the process of comparing your property's or portfolio’s performance against the competition, adding a layer of context to what success and failure looks like in your circumstances and environment.

Hotel benchmarking can help you answer questions such as:

• Am I ahead of the competition or can I make gains in occupancy and average daily rate?
• Which days of week, months or seasons provide opportunity for further growth?
• Was focusing on occupancy or rate the right strategy?
• How are F&B revenues trending across the market and among my competition? What may be influencing other revenue sources relative to room revenue?
• What are the underlying factors behind changes in demand and rate? A shift in transient or group demand sources?
• Are my future bookings ahead or behind the market?

What is the key to answering questions like these? Benchmarking top-line historical performance, profitability data, and forward bookings – both yours and that of the competition.

Some of the benefits of competitive hotel benchmarking

The different elements of hotel benchmarking are vital for revenue management, performance management, financial management and stakeholder management.

• Identify opportunity: It’s impossible to take advantage of an opportunity if you don’t know it exists. Benchmarking shines the light on opportunities from every angle and informs coordinated decisions across all areas of your business.
• Understand the health of your business: Hospitality businesses use data benchmarking to track and monitor the competitive landscape, measure departmental efficiencies, and determine if they are on track to achieve agreed upon performance goals.
• Make sound financial decisions: Through monitoring daily, weekly and monthly top-line performance as well as forecasts, monthly P&L and forward bookings, hotels have the necessary information to build and adhere to budgets as well as drive yield and revenue management strategies.
• Measure success: No matter which strategy you are grading and adjusting—distribution, revenue management, sales or marketing—success is determined by the insights provided by benchmarking.

Three important hotel benchmarking metrics

To achieve basic and effective historical hotel benchmarking, you’ll need to understand occupancy, ADR and RevPAR. Whatever your role or department, understanding how your past performance measures against the competition empowers you to make data-driven decisions and create effective strategies.

• Occupancy - Percentage of available rooms sold during a specified time period. Occupancy is calculated by dividing the number of rooms sold by rooms available.
• Average Daily Rate - A measure of the average rate paid for rooms sold, calculated by dividing room revenue by rooms sold.
• Revenue per available room (RevPAR) - Total room revenue divided by the total number of available rooms.

Creating effective Comp Sets

Regardless of the data set you are benchmarking, aggregated performance data for a selected set of your competitors is key to making the whole process work. This grouping is commonly referred to as a Competitive Set (or Comp Set).

Without a Comp Set, you are left to compare your business against yourself and market. While those comparisons are important, comp sets provide the most granular intel available in learning where you can improve the performance of your property or portfolio.

When selecting a Comp Set at the property level, we recommend that you don’t simply select those hotels “across the street” from your subject property. Instead, we encourage you to consider the characteristics of the hotels in your area, such as their class, room count, meeting space, etc. This is because selecting hotels that perform at different levels than your own property can produce misleading results.

Applying benchmarking to your hotel

Whatever your role or department, understanding how your performance measures against the competition empowers you to make data-driven decisions and create effective strategies, which is what makes benchmarking so important at every level of a property or portfolio.

A test-and-learn approach is vital for revenue managers when it comes to developing competitive pricing in the hospitality industry. Benchmarking data gives hoteliers an understanding of demand levels for specific offerings as well as the opportunity to test different rates to determine which are most effective in generating demand for each hotel business segment.

Top-Line Historical Data

For most hotels, the first step is understanding how performance has compared with their market or comp set in the past days, weeks, months and year. How far back in the past you want to go is ultimately up to you, depending on the trends affecting your business. Regardless, you should have strong historical data on both your own property and your competition.

Profitability

Monthly profitability takes your benchmarking to the next level with a full picture of bottom-line performance. P&L data equips hoteliers to index overall profitability and compare all revenue departments, expenses, and labor costs by department against the local market.

Forward Bookings

Understanding the next 365 days of occupancy on the books is equally important in building your strategies. This data sets rounds out a 360-degree view of your performance.

In a nutshell, you have the power and data to make effective short-term changes to your pricing and marketing strategies. Whether you’re ahead of the competition or find yourself a little behind pace, these are the insights that help you act accordingly.

Hotel A vs. Hotel B – an example of benchmarking in practice

At first glance, you’d probably be tempted to say Hotel A is outperforming hotel B. But not everything is always as it seems.

If hotel A and B operate in the same market and have similar pricing, property type and amenities, then hotel A can count that month’s performance as a win—reporting a 7% increase compared to its competitor's 3% decline.

But what if they’re operating in two different markets?

Hotel A might have reported 7% growth, but when the competition increased at an average of 15%, benchmarking highlights that this property wasn’t able to capitalize on the market’s growth as effectively as the competition. Back to hotel B, in the context of the competition’s 10% decrease, a 3% decline suggests that the property is actually ahead from a performance perspective.

Without benchmarking and the context this offers, hotel A and B would most likely be blissfully unaware and unnecessarily concerned, respectively.

How we can help you understand the wider picture

With the world’s largest hotel data sample, CoStar and STR enable properties and portfolios across the world to gain an understanding of their performance levels in relation to their market or competition and make confident, informed decisions.

More hotels get their insights from us because of our unrivaled data quality, global coverage, industry relationships, and commitment to confidentiality.

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