Mr. Burchard

Sales & Marketing

Meaningful Metrics vs. Manipulated Math. Focus on Numbers That Reflect True Performance.

By Shaun Burchard, President, Meridian Hospitality Group, Inc.

How do you define the mission and communicate it to the teams expected to deliver the win? What are the true targets defining your desired performance? What numbers are meaningful and which are inconsequential? Knowing the difference is somewhat easier said than done. Why? I’m reminded of the Wizard of Oz and the ultimate realization that unless you pull back the curtain, the magical, mystical Oz merely creates the illusion that he has the power to change your destiny. The truth is that most of us focus on all of the wrong metrics to push our results in the right direction because we’re distracted by the smoke and mirror metrics, and the industry is happy to let us continue being so.

Lenders make money by lending money to those whose past performance indicates they will maintain sufficiently profitable hotel operations going forward thus enabling them to pay back the loan plus interest. Simple enough. Borrowers borrow to further develop their portfolios (empire expansion) and count on the performance of their current operations to convince lenders that they are a good risk. Simple enough. The relationship is symbiotic and both sides manipulate the data to continue the cycle – and both sides know (and accept) that they are dealing with, at least a good portion of the time, completely manipulated data. To work with true results is often in neither party’s interest (note I did not say “best interest”), so we continue on, and then we wonder how we find ourselves in 2010 with frozen credit markets and underperforming assets in overdeveloped markets.

A recent article in the Wall Street Journal details how the film industry crowns champions. The agreed upon metric is box-office revenue, but the current system does not adjust for inflation and other critical variables like population size and distribution. The result? 18 of the 25 top grossing films of all time have been released in just the past decade. According to the article, if we adjust for today’s higher admission prices, (factoring in inflation), “Avatar” would be the only one of those same 18 to make the list – at number 24 (because the movie is still in theaters as of this writing, this is subject to change as well). What if we determined success by the total number of admission tickets sold? “Gone With The Wind” has sold more than three times as many tickets as “Avatar.” How do we account for “Star Wars,” which has seen multiple re-releases since its game-changing debut? So what is the most successful movie of all time? Who knows? It depends on the metrics and who’s selling what to whom.

The point? All industries have metrics and all metrics are manipulated to present the picture we want our audience to see, and the same data set is maneuvered in different ways to produce “best in show” performance for different constituencies.

The hospitality industry has no shortage of data points – all representing some metric that we agonize and obsess over as each month, quarter and year come to an end and we have to share our editorialized performance with our lenders and other constituencies in order to continue our empire expansion. We micromanage occupancy percentage, average daily rate (ADR), revenue per available room (RevPAR), revenue growth index (RGI), cost per occupied room (CPOR), and the list continues. Are these valid data points? Are they meaningful? Other than to create a common context for discussion, not one of these metrics has any real value beyond planning for future or rationalizing past performance. You cannot pay a single bill, incent and retain a single valued associate, pay one dime of your mortgage or grow your empire with any of these data points, because they are simply data points and nothing else.

So what should you focus on instead?

Let’s start with the Guest - you know, the person who actually pays for your empire expansion. What is your Overall Satisfaction score and how are you using it to move your hotel operations forward?

Incent your teams to achieve defined levels of improvement and don’t limit it to only Overall Satisfaction. An example: offer to pay your Room Attendants $50 extra a month (that’s $12.50 a week, $0.31 cents an hour, and in many cases less than the operational cost of just two room nights) if they achieve a targeted Overall Cleanliness score (an “attainable reach” improvement score), and then use the new score as the benchmark to define the next “win” and do it again.

The benefit to you as the owner/operator is immeasurable and costs you nothing unless the mission is achieved. When it is achieved, the payback in guest loyalty and repeat buys makes the expense a pittance generating an almost incalculable positive ROI. Add the ancillary benefit of associate satisfaction (reduced turnover) and the financial upside increases. Furthermore, do you believe that having the cleanest operation on your corner will help to insulate you from whatever your competition does with rate? Do you believe that superior cleanliness erodes your valued guest’s resistance when you implement price point increases? Creatively and consistently use your various guest satisfaction metrics to incent the right behaviors and improved performance levels. They are objective third party results and should be used as a valuable tool in producing consistent wins. You win, the associate wins and most importantly, the Guest wins. Lather, rinse and repeat.

Guest scores are a good start. After that, the only real metric that matters is profit. Yes, we’re in the hospitality business – but it is a business, and the objective of all business is to offer products and/or services as profitably as possible.

Analyze your bottom line against a consistent unit of measure -- usually occupied rooms or available rooms. Gross Operating Profit per Occupied Room (GOPPOR) or Gross Operating Profit per Available Room (GOPPAR) is a far more definitive result than Gross Operating Profit percentage, and you can’t do anything with a percentage. I am consistently amazed at owners/operators whose definition of success is a blanket expectation of “45% GOP” or the like. These oversimplified mantras do nothing to account for mix-of-business, market differentiation, environment change or the critical impact on top-line revenue that results from strategic changes in mix of occupancy and rate change, etc. These approaches and belief systems are unsophisticated at best and foolish at worst.

The hospitality industry is widely recognized as a high-fixed, low-variable cost industry. Measuring your profit against either occupied or available rooms will indicate how effectively your teams are adjusting their operational models to the current business climate. Establish and communicate reasonable expectations of changes in GOPPOR or GOPPAR based on rate fluctuations or occupancy initiatives (these should be very different – rate is always significantly more profitable than occupancy). Using a GOPPOR or GOPPAR metric will allow you to focus your sales effort on the most profitable segments available to you (more on effectively targeting and measuring the impact of your sales team in a future article). Lastly, you can incent your leadership teams to achieve certain levels of “flow” of either revenue growth or erosion to the GOP line – which will give them “skin in the game” and a vested interest in managing the revenues you are producing, regardless of the direction they are trending.

In summary, owners and operators should spend far more effort focusing on the metrics that matter; those that can truly be controlled. The revenue erosion of 2009 was largely out of anyone’s direct control, making effective management of its impact on the bottom line critically important and a much better indicator of performance. Guest satisfaction and profit performance against static units of measurement are your most reliable performance indicators, and they don’t expose you to the risk of pulling back any curtain to discover that it was all an illusion.

Shaun Burchard, a hotel professional since 1986 and a Certified Hotel Administrator, is President and Operating Partner of Meridian Hospitality Group, Inc., a hotel performance company delivering superior hotel results since its formation in 2004. Mr. Burchard and his partners at MHG have built the company from a single distressed hotel to operating more than 26 hotels across the country including brands with Hilton, Marriott, IHG, Choice, and Best Western. Find/follow Shaun and MHG on Facebook by searching "Meridian Hospitality Group" and on Twitter at "MeridianHotels." Mr. Burchard can be contacted at 618-531-5177 or sburchard@shaunburchard.com Extended Bio...

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