Measurement Flashcards
Measurement
There are both internal and external measures or standards against which managers can evaluate the result of operations.
“Internal Measures” compare what items: (3) examples?
Compare to past records of operation, compare to budget, and compare to industry averages.
Revenue
The amount of sales, measured in the appropriate currency, generated from the sale of goods and services. It is referred to as a top-line item to reflect its position in the income statement. It can be compared as current year over last year, actual vs budget, the fiscal year-to-date, or any other way that serves a purpose.
Room revenue =
Room revenue = Room nights sold x Room rate charged
Define “Occupancy Percentage”.
Expresses the proportion of rooms sold to total rooms.
Occupancy percentage =
Occupancy percentage = (Room nights sold in a period / Room nights available in that same period) x 100
Average Daily Rate (ADR)
Expresses the average room rate realized from the sale of rooms in a given period. It should be calculated on a daily, weekly, and monthly basis. According to the Uniform System of Accounts for the Lodging Industry, if a room night was not sold for revenue (comp rooms), it should not be counted for sales performance analysis.
ADR =
ADR = Room revenue / number of room nights sold
RevPAR
Combined occupancy percentage and ADR in a single statistic known as Revenue Per Available Room.
RevPAR =
RevPAR = ADR x Occupancy percentage
Contribution Margin (Net Revenue)
The amount of sales revenue left over to contribute to covering fixed costs and, once fixed costs are paid, profit. The overall rooms division contribution margin is determined by totaling the margins of the individual rooms (different room types may be priced differently and incur different variable costs)
Contribution margin =
Contribution margin = Room rate – Variable cost
Identical Net Revenue
Analyzing scenarios with changing price points and occupancy levels. The objective of this calculation is to identify the occupancy percentages that will generate identical net room revenue at changing average rates (ADR).
Required new occupancy =
Required new occupancy = (Current contribution margin / New contribution margin)
x (Current Occupancy %) x 100
Marginal Revenue
The additional revenue gained from selling one more product unit.
Marginal Cost
The additional cost incurred from selling one more product unit (basically another name for a single unit’s variable cost).
GOPPAR
Gross operating profit per available room. The calculation is done monthly, quarterly or annually. This measure assesses cost efficiency and bottom line and can expose operational inefficiencies. This is also known as EBIDTA and this refers to earnings before interest, depreciation, tax, and amortization.
GOPPAR =
GOPPAR = Gross operating profit for a period / Available rooms during that period
TrevPAR
Total revenue per available room. Considers total revenue from all revenue centers
RevPAC
Revenue per available customer. This is difficult to track as there is a challenge to establish an accurate house count.
External Measures
Measures that compare the hotel with its competitors in the marketplace.
What is “Competitive Set” and what are three questions to consider about your compset?
Comp Set. A hotels comparison with hotels it considers to be its competition based on geographic location, amenities, rates, ratings, and brand affiliation.
Three questions to consider about your compset:
1. Can I reasonably expect to steal business from this hotel?
2. Does this hotel consider me a competitor?
3. Do my customers consider this hotel when making a buying decision?
What is “Fair Share” of “Market Share”?
The term fair share refers to the idea that, all things being equal, each hotel will get a portion of the total market that equals it capacity market share.
Penetration Index
Measures chosen indicators in relation to the market average of the same indicators. An index greater than 100 percent is a measure of market penetration that exceeds market average and indexes lower than 100 show that the indicator did not reach market average.
Who provides Macro-Market Information?
Market intelligence provided by STR (Smith Travel Research), PwC (PricewaterhouseCoopers), PKF (Pannell Kerr Forster), and Horwath Consulting.
Who provides Micro-Market Information?
Market intelligence where STR, PKF, and TravelCLICK are the highest profile sources in the North American hospitality industry.
Measurement Challenges
Can the hotel determine what portion of the changes are the results of applied revenue management and what portion would have happened anyway due to other factors? Can a hotel determine whether a hotel with a revenue management system performs better than a hotel without one? When it comes to accurately quantifying the outcome of systematic revenue management solutions, the accuracy of measurement, tracking, and benchmarking can be problematic.
