How Data Platforms Enable Business Metrics Beyond RevPAR

My take remains the same: there is no such thing as "total" revenue management. Revenue is revenue, period. When you buy a pair of Nikes at a sneaker shop, they come with shoelaces; shoelaces are not considered "ancillary" revenue. If you're selling it, then it's revenue. And if it's revenue, then you can manage it. And if you can manage it, then you're a revenue manager. You see where I'm going with this? Otherwise, you're a "fractional" revenue manager—a room manager, something else, but not a revenue manager. This obsession with creating new terms to describe what is common sense in other industries drives me nuts. I would phrase it differently. The problem in hospitality is that we are overly focused on rooms, likely due to the limited expertise of some revenue managers whose performance is solely evaluated based on room revenue or, at best, revenue net of marketing or distribution costs. Another issue is data collection. The hospitality industry is traditionally very siloed, with data fragmented across various software systems. You can only achieve true revenue management if you understand your guests beyond what is shown in your PMS. Tasks such as creating single-guest profiles and establishing unique sources of truth for guests are critical. Solve the guest data puzzle, be less room-obsessed, and you won't need new terms and KPIs.

The evolution of the Revenue Management discipline in our industry, since its inception 40 years ago, has been driven by large franchised organizations and management companies that care about RevPAR because that's how their business models are structured and that is how they are incentivized. As the industry evolves, we're starting to pay more attention to the needs of the key stakeholder - the actual owners of the assets, who are in business of generating profit. And contrary to popular belief, profit and RevPAR don't always grow in the same direction.

This discovery (simple math that wasn't revealed until only about 15 years ago) resulted in various attempts to originate other metrics that would help track, maximize and benchmark profit. For that, the metric needs to incorporate the other side of the equation - costs, not just revenues.

Back in 2014, I published an article Things you didn’t know about RevPAR where I described the limitations of RevPAR using specific examples and introduced a new metric - Adjusted RevPAR (or ARPAR, for the lack of a better term) that is now used by hospitality professionals as a more accurate performance indicator. Unlike RevPAR, ARPAR takes into account variable expenses and incremental revenues, so it's a much more objective measure of profitability.

However, there's a bigger problem in our industry - data exchange and integration flows. We can come up with all kinds of metrics and even be able to manually calculate them now and then to assess our performance. But to truly improve our operations and performance - those metrics need to be incorporated into our technology solutions (RMS and BI tools) and calculated automatically on the fly. And as a next step, we need to be able to benchmark those calculations against our competitors (who are hopefully using the same set of metrics) to understand whether we're performing well or not.

For that to happen, we need to establish reliable transfer of necessary data elements between systems, which is not yet available in our industry, especially when it comes to the expense side of the equation (from accounting systems). CDP platforms exist to collect and unify customer profiles so I don't see them playing a big role in unifying and standardizing profit-oriented performance metrics. It will be on BI tools and RMS platforms to solve this issue for our industry. 

One of the big megatrends for hospitality is the increasing value of mixed-use branded properties where every revenue stream (rooms, ancillaries and stay-independent) acts to synergize each other. All the greatest hoteliers have tacitly appreciated this quality, especially in luxury, but they haven’t been able quantify the relationships between spending habits within different verticals because of the disconnected nature of software databases.

While it’s fascinating to drill down and compare the nuances of RevPAG versus TRevPAR (I’m a fan of both!), the all-encompassing metric that I propose hoteliers learn is customer lifetime value (CLV) – the overall value of each guest instead of that for all guests in aggregate (LTV).

My rationale here is that this KPI looks at an individual’s propensity of return visits or ecommerce sales and continuing the brand relationship beyond a single stay, segmentation or the generation of lookalike audiences. When measured properly as guided by versatile data workflow systems like a CDP, the customer-centric viewpoint offered by CLV can incorporate not only their spending habits but also non-revenue weightings like their sentiment towards the hotel or what factors will prompt them to strengthen their brand affiliation over time.

When it comes to measurements for hotel leaders, profitability stands out as the most crucial. It's the reason why top-line teams like sales, marketing, and revenue are now turning their attention to systems that can help understand the profitability of a piece of business, revenue channel, or rate program. Ultimately, it's at the bottom line where we determine success or failure, making it everyone's responsibility in the organization to contribute to profitability growth.

Taking a more holistic approach to assessing a hotel’s success is important, leading us to view Net Operating Income (NOI) as an essential metric. At EOS Hospitality, we’re shifting our focus towards commercial strategy. While the interpretation of commercial strategy varies, I define it as the alignment of all departments within a hotel under a unified goal structure, collectively working towards a common objective — our North Star. For instance, we ask ourselves what objectives must be achieved for Hotel X to outperform the expected performance. Those objectives should be broad enough to touch all departments within the hotel and force everyone to realign their thinking about their departmental strategies to align with our North Star. For those working within the hotel or as part of a management or ownership group, NOI is an essential metric.

I’ve had a lot of great discussions with hospitality leaders recently and I think Net Operating Income (NOI) is and will continue to be the most important metric to assess a hotel’s health. Now, I say that because all departments - sales, marketing, operations, revenue, and digital - can get behind this KPI and focus on finding the most profitable opportunities. Since NOI is a measure of how profitable a property is, it also has a significant impact on asset value. And at the end of the day, asset value is what hotel owners care about the most. If we can increase our NOI, we are, in turn, increasing asset value.

Real-time data connections will help us drive more direct revenues and go beyond rooms, leveraging data across outlets and services. Storing guest data in a centralized and easy-to-use CDP allows us to use email, voice, web, and messaging channels to connect with them and encourage them to book directly. We can offer them the best rates, exclusive promotions, flexible cancelation, modern loyalty programs, and more. Reaching out to the right guests at the right time, with the right offer decreases our reliance on OTAs, and increases our revenue capture, which will ultimately increase our NOI.

Real-time data connections are going to help us drive more direct revenues. For example, when our guest data is stored in a centralized and easy-to-use CDP, we can use email, voice, web, and messaging channels to reach our guests and encourage them to book directly, by offering them the best rates, exclusive promotions, flexible cancelation, modern loyalty programs, and more. By using guest data to reach out to the right guests at the right time, with the right offer, we can decrease our reliance on OTAs, and increase our revenue capture, which will ultimately increase our NOI.

The hospitality industry has undergone significant changes, yet it has struggled to update its metrics to reflect impactful shifts, such as those related to the future of work. Traditional KPIs, like Revenue per Available Room (RevPAR), which I have used during my time with brands like Marriott and Hilton and learned about at Hotelschool, have not evolved to meet new industry demands. They are now being replaced with more comprehensive metrics that allow deeper insights into a hotel's performance. Among the newer metrics are RevPAM (revenue per available square meter), GAC (guest acquisition cost), and LTV (guest lifetime value). These metrics, made possible through AI-driven live data connections, are what the new-age hotelier taps into to maximize operational efficiency and revenue optimization.

As the hospitality industry evolves, a combination of RevPAR (Revenue Per Available Room) and COPE (Contribution to Operating Profit and Expenses) Revenue will emerge as the most crucial KPIs for assessing a hotel's performance. These metrics provide a comprehensive view of both top-line performance and true profitability, essential for strategic decision-making.

RevPAR remains a vital indicator as it reflects a hotel's ability to generate revenue relative to its available room inventory. However, focusing solely on RevPAR can be misleading if not paired with an understanding of profitability. This is where COPE Revenue, a Kalibri Labs metric, becomes invaluable. COPE Revenue accounts for the costs associated with acquiring bookings, offering a clearer picture of net revenue and profitability. Kalibri Labs' findings highlight that customer acquisition costs can consume 15%-25% of guest-paid revenue, underscoring the importance of this metric. Asset value enhancement is becoming an increasingly critical measurement for hotel health and performance. There's a growing emphasis on understanding the true cost of guest acquisition and its impact on profitability from owners. Data shows hotels that focus on optimizing their channel mix and reducing acquisition costs can significantly boost their profit margins and, consequently, their asset value.

Access to booking data, channel performance, and market dynamics allows hoteliers to make swift decisions on pricing and distribution, directly impacting profit contribution. Real-time data connections will help leverage these insights. Moreover, these data-driven strategies contribute to long-term asset value growth by establishing more sustainable and profitable business models.

Additionally, it’s critical to recognize the importance of guest loyalty in driving profit and asset value. Real-time data connections enable hoteliers to analyze guest behavior patterns, personalize experiences, and implement targeted loyalty programs. By harnessing this data, hotels can increase repeat bookings and direct reservations, leading to an improvement in net revenue performance. This focus on building guest loyalty not only enhances short-term profitability but also contributes to long-term asset value by creating a stable, high-value customer base. As the industry continues to evolve, the ability to leverage these real-time, data-driven insights will be crucial for hoteliers aiming to maximize both profit contribution and asset value.