EXCELLENCE IS… Series Part 3

Excellence is…Result-driven

I’m assuming the word ‘results’ is close to the heart of many Ghanaians; ‘Election results’, ‘BECE results, WAEC WASSEC results’, ‘Covid-19 lab. test results’, ‘Lottery results and currently there is the ‘African Cup of Nations Qualification 2023 fixtures and results’.

In academia there are research or survey results and results of students’ assessments. In the business world in general, reference is made to various financial results.

Customers/guests relate ‘results’ to ‘value for money’ while students relate the same to certificates, diplomas or degrees earned! All of these point to outcomes of varied efforts made within one activity or other. You may continue with the list but the point is, most of us relate quite well to the outcome of activities (results/performance) except that we tend to use different metrics to measure the same results.

The hotel business is results-driven if it must be managed and operated professionally.

Hotels are made up of several departments with different functional areas including the front office, housekeeping, accounting, maintenance, sales and marketing, human resources, security, and food and beverage. Their operation is complex; calling for accountability in each department, irrespective of whether the department is a revenue generation center or a cost center which only incurs costs. With many hotels now using scorecards (having financial and non-financial metrics) to measure the performance of the different aspects of their operations, management receives meaningful feedback for use in optimizing their operations.

What does it mean to be results-driven in the context? The “results” part comes from completing tasks, while the “driven” part shows the attitude accompanying efforts to meet set targets.

It is said that arriving at a finish line (the results) takes a lot of effort, focus, and hard (or smart) work (the drive).

Having had opportunities to operate a hotel management company, entering into contractual relationships with hotel property owners (individuals and corporate) to manage their hotels in Greater Accra Region, Northern Region, Upper East Region and Western Region respectively, I must say, though a challenging venture, it is fulfilling to reach and/or exceed expectations! I wish to see local hotel management companies being formed to explore this vast ‘green pasture’.

I also know it’s not easy for an investor/owner to hand over a property to a third-party management company, especially in Ghana. It takes both conviction and trust. The owner must believe the property will be better off with the management company than without. Trust must be earned through the delivery of mutually agreed and positive results.

I’ve always had a soft spot for investor-hotel owners; creating a building of such quality and complexity as a well-designed and functional hotel (no matter how small), is not a job for the faint-hearted. Such hotels are dotted across the country. Why would an owner want to entrust a whole investment to a management group?

• Save time and energy, if there’s a core business to focus on.
• Reduce the risk of failure and enhance the probability of success.
• If the property value can be improved and operational results will be higher compared to what the owner can do on his/or her own.

Hotels generate volumes of a variety of data. Just collecting those facts and numbers is not enough. It’s vital to understand what information can be useful and give a better understanding of business processes — not only to measure success but also to assist in making decisions.

In hotel operations, choosing the right metrics and carefully tracking them can help in understanding how the hotel is performing, comparing it with competitors, and possibly finding the weak points and opportunities for improvement. Let’s delve into a few.

Occupancy rate

What does it show? An occupancy rate is measured by dividing the number of occupied rooms by the number of available rooms and multiplying by 100, showing the percentage of rooms occupied at a specific moment.

For example, if you have a 10-room hotel and last night you sold 5 rooms, then the occupancy rate would be 50 percent.

Purpose? The occupancy rate is an important Key Performance Indicator (KPI) showing how full a hotel is. Monitoring it over time lets you understand how the hotel is performing in different periods. It might show you that the property is most popular on the weekends or during a holiday season, or when funerals take place nearby. In any case, you will know better what to focus your marketing efforts (the drive) on to get that desired “No vacancy!” sign on your door.

Important to understand. Gone are the days when we were content with high room occupancy rates. However many hoteliers are still prioritizing them, forgetting that the ultimate goal is to increase revenue not fill up the rooms.

There are cases when higher occupancy doesn’t lead to bigger profit (for example, when you lower the rates)!

ADR (Average Daily Rate)

What does it show? ADR is used to calculate the average rental revenue per occupied room at a given time. To find ADR, divide your total room revenue by the number of rooms sold.

For example, if you sold 5 rooms out of your 10-room hotel and your total revenue was GHC2000.00 then ADR would be GHC400. Note that it makes sense to calculate this only if you have different room rates.

Purpose? ADR shows how much money each room brings you. You can monitor it throughout time (it’s great if its value increases) and compare it to competitors to make decisions about pricing strategies.

Important to understand. ADR tells only one part of the story; it doesn’t take into account your unsold rooms, nor the revenue that comes from other sources (bar, restaurant, rentals etc.), nor the associated costs. It’s a useful performance metric by itself by displaying the room-specific revenue, but it won’t show you the complete picture of your property’s financial results.

RevPAR (Revenue per Available Room)

What does it show? RevPAR shows the amount of revenue generated by one room, whether booked or not. There are two ways to calculate it. You can either divide your total room revenue by the total number of available rooms OR multiply ADR by the occupancy rate.

For example, selling 5 rooms out of 10 brought you GHC2000.00 so your RevPAR equals GHC200 (you’re getting the same result by multiplying your ADR of $400 by the occupancy rate of 0.5.)

Purpose? RevPAR is one of the most popular metrics in hospitality. It’s similar to ADR, but takes the unsold room into account, giving a more accurate picture. Needless to say, hoteliers have to aim at increasing their RevPAR since it reflects both the pricing for rooms and the ability to fill them.

Important to understand. Just like ADR, RevPAR doesn’t include additional revenue from other sources, so it only shows the inventory performance. It also doesn’t take into account any operational costs and other expenses and can’t be used to measure profitability.

Measure, analyze, optimize… repeat

It’s a highly competitive world out there!

Reference: RevPAR, Occupancy Rate, ADR, and Other Hotel Metrics: How to Evaluate Your Property’s Performance

Riddle for the week

What is dirty when it’s white?