Do I need to bother benchmarking for my hotel?

Do I need to bother benchmarking for my hotel?

If you want peace of mind for your hotel business, the answer is “YES, ABSOLUTELY!” writes leading accountant and business advisor to the hotel industry, Derrick Eube.

Does this sound like you? Your hotel is trading well, you’ve got a great team and you seem to be cutting it nicely against your competitors. Well and good. But can you honestly say you have peace of mind? Ask yourself, “what could be done better in my hotel business? And do I know what better is?” 

Three solid reasons you should benchmark your hotel:

  • to identify potential improvements
  • to analyse best-practice venues and learn from their success (what do they do that enables their high performance?)
  • you can use the information to improve your hotel’s performance.

Benchmarking helps identify your competitive advantage against your peers. Today’s technology dictates the need to adapt to new opportunities, rather than be complacent and do what you’ve always done. To achieve this you need to be up-to-date on the benchmarks and trends within the hotel industry. Without this information, how can you possibly keep up with an ever-changing market and make regular improvements to your venue?

I’m sure I don’t have to tell you that today’s hospitality environment is highly competitive. As leading business advisors to the hotel industry, we see real value in benchmarking. Here’s an example: a venue achieving turnover of $40,000 a week improves its turnover by 5%, resulting in profit improvement of $104,000 per annum. Add to that the potential valuation uplift! This can be realised by improvements in a combination of areas including product offering, stock control, pricing, wages management and cost management. 

So how does benchmarking work?

If you’re striving to improve profit margins, the process would first involve setting a target for your venue. From here you can:

  • review pricing to achieve the desired margins
  • ensure the hotel’s point-of-sale system reconciles to its accounting system (tighter internal controls will prevail) 
  • ensure any non-cash sales, promotions and loyalty programs are included in sales (this helps to identify shrinkage or excessive promotions, and establishes clear process) 
  • review trends over time, usually monthly or quarterly 
  • revisit and reset your benchmark, setting new processes to increase gross profit percentage. 

 

In relation to gaming, comparing your average-weekly net profit to the average in your local government area can be a handy tool for measuring performance. Compare yours to industry leaders and state averages to identify potential improvements. 

Many operators concentrate on being good publicans and assume the results will simply follow. In our view, trying to drive business performance without monitoring trends and properly considering benchmarking information (along with the supporting financial reporting) will most often result in a venue trading well below its potential. In severe cases that means a significant loss of capital or value. It’s good reason not to dismiss benchmarking as a bit of a bother.

Non-financial perspective

I’d also caution against overlooking the non-financial perspective of a successful venue. By this I mean tracking your customer profiles, analysing demographics, ensuring you have fabulous customer service and effectively managing social media. These all play a key role in boosting customer visitation and average spend. It’s important to review your venue’s key performance indicators against industry best-practice regularly. However, you should expect the benchmarks for each venue to differ, for reasons including:

• location

• age and demographic of customer base

• product mix of sales

• competition

• business size

• variety of products available

• management skills.

 

Like many other hotel operators, you may need guidance to interpret what all these factors mean for your venue. While a gross profit percentage of 65% might be great for a regional hotel, in a city this will be below peers.

I hope you’re a bit wiser as to why you should bother with benchmarking to boost the performance of your hotel. Remember, knowledge is power. In fact, peace of mind benchmarking is power! By committing to regular review of your hotel’s strategic actions against leading benchmarks, you can ensure your venue is well-placed to improve its financial viability. And for you that means peace of mind.


Derrick suit

 

Derrick Eube is a Partner at DFK Crosbie and has more than 20 year’s experience in taxation, accounting, business advice and the hotel industry. If you would like more information on benchmarking and how it can help your hotel performance, contact DFK Crosbie today on 02 4923 4000 or derrick.e@dfkcrosbie.com.au.