Repeat Guest Ratio, Average Length of Stay
Two sure paths to revenue growth nirvana for hotels are the repeat guest ratio and the average length of stay which are very critical indices of operational analysis.
Every business enterprise is chasing the perennial revenue growth nirvana which is the basic ingredient for continuous top and bottom line performance.
If you arrived at this post directly, you may want to visit Market Segmentation Reports – Road Map to Revenue Results and 5 Myths about Financial Analysis, to catch the thread of earlier related posts.
Repeat Guest Ratio
It is a kind of mantra in marketing circles that incremental revenue from existing customers is a faster, cheaper and better method of sustaining growth. In the hotel industry, this is measured by the Repeat Guest Ratio. What is this ratio about?
Repeat Guest Ratio is a simple ratio which measures the extent of guests who are coming back to patronize the hotel compared to the total number of guests. In effect, how many number of times a guest stays in a particular hotel.
Repeat Guest Ratio has two major elements to it:
- Room nights and
- Room stays.
Room nights measure the number of nights a guest stayed at your hotel in a particular stay or the total number of nights during a certain period. Stays measure the number of times a guest stayed at your hotel over that period irrespective of the number of room nights that constitutes. Both these elements are expressed in terms of number of guests.
3 Awesome benefits of a High Repeat Guest Ratio
A high repeat guest ratio simply means that a majority of the guests staying at a hotel during a certain period are guests who have stayed there before. This can be calculated by dividing the total number of guests in the hotel at any point of time who have been there before by the total number of all guests.
This is a very powerful method of measuring the perpetuation of growth in revenues and has numerous qualitative as well as quantitative benefits to it. Apart from the obvious benefits of appreciative guest patronage, referrals, etc., the three most awesome quantitative ones are:
- Revenue per guest goes up substantially if you consider that actually the number of guests are less (if you consider the repeat factor)
- Guests who patronize hotels repeatedly also talk to their friends, family and colleagues resulting in incremental revenue without resultant marketing costs
- High Repeat Guest Ratio also has a significant impact on the departmental profitability of rooms since average rates of repeat guests do not fluctuate wildly (as first time guests could possibly).
Average Length of Stay
Average Length of Stay is the other path to Revenue growth nirvana. While the repeat guest ratio measures the loyalty that guests feel and show towards a brand or hotel, the average length of stay is a direct element of the room stay (which is also tracked for repeat guests).
Simply stated, average length of stay is ratio of guest nights to guest arrivals. What it seeks to measure is how long a guest stay amounts to expressed in number of days. The higher the average length of stay, the higher the resultant revenues (not just room revenues but also from food and beverage and other facilities like, spa, laundry, gift shop etc.,).
Average length of stay is impacted by many factors like the extent of flights in and out of the city where the hotel is located (this may mean that guests do not stay over the weekends preferring to leave and return), the availability or otherwise of comparably priced serviced apartments, whether stay is for leisure or for business, whether it is a hotel or a resort to name a few. The key point is that often these factors are out of the control of the hotel.
3 Awesome benefits of a higher Average Length of Stay
- To begin with, the higher the average length of stay compared to a previous period, the higher will be the incremental revenue earned (room as well as others).
- A higher average length of stay also results in lesser manpower deployment (check-ins and check outs are averted since guest stays more nights in the same stay)and even some variable costs
- Finally and most importantly, the higher the average length of stay the better the contribution to departmental profitability generally speaking.
Repeat Guest Ratio & Guest Recognition and Loyalty Programs
Now that we have seen how beneficial it is from a revenue growth and profitability perspective to enjoy high repeat guest percentage and average lengths of stay, it is important to know that guest recognition and loyalty programs are put in place in hotels to attack these very indices (actually applies more to repeat guest factor than average length of stay). In fact, one can go as far to say that the success of these programs can be measured definitely by the success of the repeat guest percentage.
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In our next post in this series, we will be looking at Table Turnover Ratio and Meal Period Analysis, two major indices of restaurant revenue growth and how they contribute significantly to financial analysis carried out on monthly food and beverage departmental statements.
These are as critical to the food and beverage operation as repeat guest ratio and average length of stay are for the rooms operation.