Become a benchmarking expert and harness key insights to outpace your competition and elevate your business performance with these 6 practical tips.
Top 6 tips: How to become a benchmarking expert
Did you know that you're just a few steps away from not only understanding where exactly you stand in your industry but also from discovering how to beat the competition? Yes, that's the promise of benchmarking (when done right). Here are six practical tips on becoming a benchmarking expert – transforming data into insight, and insight into strategic action.
1. Identify and measure your KPIs
Your first step is to correctly identify and measure Key Performance Indicators (KPIs) applicable to your business. This is a critical step as it allows you to measure your performance (simply put). In the hospitality industry, the most critical KPIs are:
- Occupancy Cost per Available Room (OCC)
Calculates the cost per room when it's available for guests. A lower OCC typically indicates a higher profit margin, as it means your operating costs are well-controlled.
- Average Room Rate (ADR)
The average income per paid occupied room in a given time period. It's a good indicator of your pricing strategy's effectiveness.
- Revenue per Available Room (RevPAR)
Measures your hotel's ability to fill its available rooms at an average rate. If RevPAR is low, it might indicate that your rooms are underpriced or your occupancy rate is low.
- Total Revenue per Available Room (TRevPAR)
Extends RevPAR by considering total revenue (including food and beverage, spa, etc.) and gives a more holistic view of your hotel's revenue.
2. Start small
Benchmarking can seem overwhelming due to the multitude of KPIs and the volume of data involved. However, you can fight this feeling by starting small. Rather than trying to analyze all KPIs at once, focus initially on one that is particular to your situation.
Once you've mastered one KPI, gradually expand your scope to include others. This way, you can build your benchmarking steps step by step while also making the process manageable.
Focusing on one KPI at a time also enables you to understand the relationships between different performance indicators. As you begin to make improvements in one area, you might start noticing impacts on other KPIs.
For example, an increase in ADR might initially lead to a decrease in OCC. But with the right balance, you could enhance your RevPAR, leading to an overall increase in profitability.
3. Follow one trend at a time
The third step to becoming a benchmarking expert is to develop an eye for trend analysis. More specifically, you need to understand how your performance trends compare to your competitors over a specific period (such as a four-week interval). That way, you can track if you're leading, trailing, or running parallel with the rest of the market.
However, don’t overwhelm yourself with too much data at once. Looking at everything at the same time might cause you to miss out on spotting important trends. The key is to systematically dissect your performance by focusing on specific metrics for your given time period.
Focus on the OCC and RevPAR for the first four weeks of Q2. Once you've identified a trend and taken appropriate action, you can move on to another.
This focused approach lets you dive deep into each metric, discern patterns, identify anomalies, and gain a more nuanced understanding of your competitive position.
4. Look at weekday averages
Becoming a benchmarking expert isn't just about understanding the 'what,' but also the 'when’. And a proven strategy for that is to look at your weekday averages. Unlike the broad view that monthly or yearly averages provide, analyzing weekday averages offers more immediate and actionable insights. This allows you to spot short-term fluctuations and react promptly, making it particularly effective when monitoring the impact of recent strategic decisions or marketing campaigns.
Suppose you've initiated a new promotional campaign. By focusing on the weekday averages, you're able to assess its effectiveness in real-time. Have your RevPAR and TRevPAR increased in the last four weeks compared to the previous period? Are you noticing any significant trends on specific weekdays? Answers to these questions offer valuable insights into the effectiveness of your campaign.
5. Don't just focus on one set of competitors
The fifth step is diversifying the analysis of your competitors. This is where the concept of a 'compset', or Hotel Competitive Set, comes into play. A compset is a group of selected hotels that provides an average performance benchmark, rather than comparing against just a single competitor.
But don’t limit your focus to just one compset. Each competitor set offers unique insights, and by examining multiple sets, you gain a more comprehensive view of your market position.
Diversify your compsets and start comparing your performance against different kinds of competitors. For instance, you might measure your occupancy rate against one compset, and your TRevPAR against another. This strategy will help you spot various trends and identify the most relevant benchmarks for your hotel.
6. Continually reassess your competitors and compsets
IIneffective benchmarking, you need to reassess and validate your competitors regularly. Just because you've identified a set of competitors at one point doesn't mean they should remain your competitors forever.
Ask yourself: Are the ones you've chosen still comparable to your business, or might there be others that are a better match? It's important to make adjustments periodically to not get locked into viewing your competition through a static lens. Markets evolve, businesses pivot, and new competitors emerge. Therefore, your actual competitors should reflect these dynamics.
QUIZ:, Ask yourself these questions:
- Have you made any major changes in your business strategy ever since?
- Is there an ongoing shift in your customer demographics?
- Are there any new market trends?
- Do you have any new competitors?
If your answer is ‘yes’ to at least one of them, it’s time to redefine your competitors.
Mastering benchmarking is the first step in beating the competition. Ready to take the second step? Check out how our digital platform can offer tailored insights, streamline your comparative analysis, and provide actionable strategies to elevate your business performance even further.