Benchmarking uses a number of hotel KPIs to make comparisons against competing hotels. Examples of KPIs used in hotel benchmarking include prices, level of service, product offerings, location, and distribution channels. Some competitors may compete on all factors at all times. Others may only compete in a few segments and for different times, such as peak holidays or weekends.
In addition to using benchmarking to make comparisons with competitors, a hotel can use internal benchmarking to compare its own internal operations and processes. Benchmarking can also be used to make functional comparisons within a broad industry or generic comparisons to similar businesses, regardless of industry.
What is Benchmarking For?
Benchmarking is a technique for hotel revenue management. It allows a hotel to compare itself against competitors. Specific comparisons can be made based on hotel rates, products and services, and more. The most obvious use for benchmarking is to make rate comparisons, but revenue managers can also compare overall value offered by competitors versus the value offered by their hotel or property.
Benefits of Benchmarking
Benchmarking can be used to make specific changes that help a hotel or property compete better with other hotels. In addition to helping hotels compete over attracting bookings, it also helps them at the operations level. For example, by allowing hotels to compare how their employee salaries and benefits plan stacks up against the competition, helping them to attract and retain employees.
It can also benefit a hotel by helping managers better understand regional price differences, insurance coverage, and more. Overall, the greatest benefit of benchmarking is to give revenue managers more data that can be used to improve overall efficiency.
Limitations of Benchmarking
Benchmarking only provides a complete picture if all appropriate line items are being used for comparisons. If larger line items are left out, benchmarking won’t provide a clear picture of market competitiveness, and results of benchmarking won’t lead to opportunities to improve operations. There is also no universal process for benchmarking, which can cause difficulties in comparing hotel properties against one another.
How is Benchmarking Calculated
Benchmarking first requires calculating the right KPIs for your hotel. Examples include Average Rate Index (ARI), Fair Market Share, and Revenue Generation Index. There is no universally accepted method for benchmarking. Each hotel must decide the objective factors it will use to make comparisons.
Example of Benchmarking
An example of benchmarking in the hospitality industry is hotel star ratings. These ratings provide benchmarks for comparing across properties according to quality. It is a good benchmark for guests to provide feedback on their hotel experience. However, they can vary greatly from country-to-country and there is no uniform standard on which these ratings are based.