Travel and Hospitality Industry KPIs

TH-KPIs-Blog

KPIs or Key Performance Indicators are values that can help airlines, hotels, and resorts measure their progress and stay on track with their revenue. KPIs help provide a clearer picture of a company's performance and health—companies in the travel and hospitality industries that don’t closely follow their KPIs will be less likely to operate at optimal efficiency and maximize profit. KPIs allow companies to analyze data and ensure that the business is going in the right direction—and if not, they help indicate where adjustments should be made that will boost company performance.

Different industries have different KPIs depending on their strategic goals. Next, we’ll take a look at a few of the most important KPIs for travel and hospitality that are critical in understanding and defining success within the industries:

Abandonment Rate

What it is and why you should measure it

Abandonment rate measure how often a prospect starts the conversion process online or on the phone, but they quit before finishing. These abandons rarely return to complete their order. Shopping cart abandonment rate refers to the percentage of customers who added at least one product to their online cart but did not complete the sales process. Call abandonment rate refers to the percentage of customers who hang up while waiting on hold. 

It's important to track shopping cart and call abandonment since high abandonment rates are typically indicators of poor customer interactions and missed booking opportunities. 

How to measure abandonment rates

As mentioned before, abandonment rate refers to the percentage of online shoppers who add items to a virtual shopping cart but then abandon it before completing the purchase, or the percentage or callers that abandon the call. For example, if you have 45 completed hotel bookings and 200 shopping carts created, the cart abandonment rate would be 77.5%:    1 - (45 / 200) x 100 = 77.5%.

Similarly, the call abandonment rate is calculated by the number of abandoned calls divided by the number of total calls. If a travel agency call center receives 1,000 calls each day and 25 are abandoned, the call abandon rate is 2.5%:   1 - (25 / 1,000) x 100 = 2.5%.

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How to improve abandonment rate

Average online cart abandonment rate 68%. Call abandon rates average at 5 to 8 percent. Even if your abandonment rates already fall below these benchmarks, they you can certainly improve them further if you haven't already tried these best practices: 

  • Speed up your website. The preferred load time for 47% of online shoppers is 2s or less. With a one-second delay, 11% of people abandon the website. Optimize images, and restrict the number of external plugins, check redirects and broken links.
  • Require fewer steps. 28% of people abandoned a cart due to long and complicated checkout. The best way out is to shorten the checkout process. Instead of cart > billing info > shipping info > shipping method > order preview > payment, shorten steps with shopping cart > billing & shipping info > payment.
  • Use local numbers or chat box for support. Local numbers are much more likely to be dialed by customers than international numbers. AVOXI provides local numbers that boost the local presence of a business and gives the company an image of being more accessible to callers. Additionally, having a support chatbot to help customers on your website can ensure that they can get help without needing to make a call.

There are many ways call abandonment can be reduced as well:

  • Adjust Schedules, Hire More Agents. Ensure that your support team is helping customers quickly and efficiently. Adjust schedules for peak times or seasons, and hire more agents as needed.
  • Offer Other Channels of Communication. This can include email, phone, chat, social media, knowledge base, etc.
  • Offer Customers a Call-Back. Give your customers time back in their day with queue callback, a hosted phone system feature. This lets customers avoid waiting on hold for long periods of time by allowing agents to call customers back once someone is available to speak with them.

Average Sale Value

What it is and why you should measure it

Average Sale Value is the average sum of money customers spend when making a purchase with your business. The average selling price can be used as a benchmark and analyzed by other businesses, analysts, and investors.

How to measure average sale value

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In the travel and hospitality industry, this can be translated to the average revenue per room in a hotel, or average revenue per seat on a flight. A similar metric called “average daily rate” shows the average rate customers will pay for a single day's stay.

For example, if a small travel agency had $40,000 is annual sales and wanted to know the average daily sales over the last year, they would divide the annual sales of $40,000 by 365 days to get $109.59 in average daily sales.

How to improve average sale value

Raising the average sale value can happen in several ways. Some examples include:

  • Use discount thresholds. This can be in the form of a coupon code you advertise on your site, or an automatically applied discount when an order value meets a certain threshold.
  • Provide volume discounts. Giving discounts for purchasing products or services in larger quantities to encourage bulk purchase, such as a hotel giving discounts for longer stays.

Conversion Rate

What it is and why you should measure it

The conversion rate measures the percentage of visitors who take a desired action, such as the percentage of visitors on a hotel's website that makes bookings. Tracking conversion rates lets businesses measure how well their webpages perform. And, by optimizing the conversion rate, businesses can increase revenue per visitor, acquire more customers, and grow their business.

How to measure conversion rates

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Conversion can be measured in the context of what action you want your customers to take, such as:

Number of Visitors That Became a Lead or Customer ÷ Number of Website Visits = Website Conversion Rate

Number of Prospects Signed ÷ Number of Calls Answered = Call Conversion Rate 

If a travel agency site receives 200 website visitors in a month and has 50 leads off of a CTA, the conversion rate would be 50 divided by 200, or 25%.

How to boost conversion rate

  • Add a pop-up to your site. Pop-ups can entice customers and highlight your best offerings.
  • Remove unnecessary form fields. Long forms can fatigue customers. Keep forms short and concise to ensure a better rate
  • Add testimonials, reviews, and logos. Making your business look reliable, especially with well-known brands, can make potential customers more likely to trust your service.
  • Make initial steps easy. Make your customer's first steps into converting as simple as possible to get them through the door.
  • Use local numbers in advertising. People are much more likely to answer a call from a local number, so using local numbers is a great way to get more opportunities to convert. Besides local numbers, AVOXI also provides TrueLocal numbers with local caller-id for both inbound and outbound calling as part of your marketing or sales process. 

Cost Per Acquisition

What it is and why you should measure it

Cost per Acquisition (CPA) is a KPI that defines how much you’re spending on advertising in relation to how many sales you are making. Cost per acquisition is important to measure since it can help determine if marketing costs are too high.

How to measure cost per acquisition

Cost per acquisition can be found with the following calculation:

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If a hotel chain spent $15,000 in the past month to acquire new customers (including marketing, sales, salaries, and overhead costs) and had 1000 purchases from new customers, the cost per acquisition would be $15.

How to reduce cost per acquisition

  • Use retargeting techniques. Run retargeting campaigns for visitors who abandon the cart, as these visitors have a higher chance of making a purchase.
  • Decrease the cost of per-minute rates. Audit your monthly telephone bill and compare your numbers to other vendors regularly. Many travel and hospitality partners have improved their call quality while cutting their monthly phone bills as much as 50% with AVOXI, just by transferring their overpriced phone lines from their current carrier to AVOXI's network.

Customer Lifetime Value

What it is and why you should measure it

Customer lifetime value is the entire net profit generated by each customer over the whole span of the customer relationship. Customer lifetime value is a great way to check if marketing costs are too high.

How to measure customer lifetime value

Customer lifetime value can be found with the following calculation:

Customer Lifetime Value

If profit generated by a hotel's customer each year was $1,000, the number of years that they are a customer of the brand was 5 years, and the cost to acquire the customer was $2,000, the customer lifetime value of this customer would be $1,000 X 5 – $2,000 = $3,000.

How to improve customer lifetime value

  • Offer high-end customer service. Studies reveal that one-third of consumers are likely to switch brands after one instance of poor customer service. Better customer service can be provided with offering omni-channel support or providing 24/7 support, for example.
  • Collect actionable feedback from customers. Send out customer satisfaction surveys, like the NPS (discussed later in this post) to see what is going well and to identify any pain points during the customer journey.

Customer Satisfaction / NPS

What it is and why you should measure it

Customer satisfaction measures how satisfied a customer was with the service they were provided. Customer satisfaction is of the highest priority in the travel and hospitality industry, so keeping a close eye on this KPI is critical. It’s a quick and simple way to measure the customer experience in travel and hospitality.

How to measure customer satisfaction

To measure customer satisfaction, use surveys that are easy to complete. Regularly surveying your customers will help your business find what is going well and what are the pain points that need attention.

Using an NPS survey is a quick and easy way to get customer feedback.  The NPS is a one-question survey that asks customers the likelihood of them recommending your business to friends or colleagues on a 0-10 scale. Respondents are placed into three categories: Promoters (9 and 10), Passives (7 and 8) and Detractors (0 to 6). 

You can calculate your NPS score by subtracting the percentage of Detractors from the percentage of Promoters:

NPS

How to improve customer satisfaction

The average NPS score for the airline industry is 44, and 40 for the hotel industry. Here are a few ways to boost customer satisfaction:

  • Offer personalized customer experiences. Provide multiple communication channels for them to get in touch with you. This could be over the phone, via live chat service or email.
  • Offer customers value for their money. With so many airlines, hotels, and resorts for customers to choose from, customers will look for bargains. Additionally, customers are not just looking for price, but also the quality of services.
  • Save time and provide convenience. Travel agencies, for example, must always be at the ready to notify their customers of any schedule changes. Taking advantage of real-time communications that allow customers to be notified about events as they occur is essential. You must always offer customers the best alternate options when such inconveniences happen.
  • Provide top-tier and accessible phone communications. Utilizing phone system features like queue callback, using local numbers for support where calls are expensive, and using toll free numbers for countries with high mobile call costs are all ways to make contacting your business customer-friendly.

Return on Advertising Spend

What it is and why you should measure it

Return on ad spend (ROAS) is a marketing metric that measures the efficacy of an advertising campaign. ROAS helps businesses see which advertising methods are working best and how they can improve future advertising campaigns.

How to calculate return on advertising spend

Return on advertising spend (ROAS) is measured by the total revenue divided by advertising spend:

ROAS

Return on Advertising Spend

If it costs a hotel $20 in ad spend to sell one unit of a $100 product (a room), the ROAS is 5—for each dollar spent on advertising, $5 is earned back.

How to decrease advertising spend

A widely-held benchmark for Return on Ad Spend is a ratio of 4:1. To decrease advertising spend:

  • Tighten your advertising's focus. Make a list of the top ways that leads were acquired, which methods resulted in conversions, and the best referral sources. Instead of casting a wide net, focus on the top 2-3 sources and build on them.
  • Improve your impression share. This can be done by adjusting your geo-targeting settings and though improving the quality of your ads.
  • Improve your website's quality score: Quality score refers to "Google’s rating for quality and relevance of both your keywords and PPC ads, and is used to determine your cost per click and multiplied by your maximum bid to determine your ad rank in the ad auction process." Your website's quality score can be boosted simply by improving landing page load time, offering more relevant and useful content, and much more.
  • Use local phone numbers. Use local numbers when making calls to potential customers or for geographically targeted ads— people are almost four times more likely to answer calls from local numbers. 

Gross Operating Profit

What it is and why you should measure it

Gross Operating Profit (GOP) is a KPI that measures a company’s profits after all operating expenses have been subtracted. Gross operating profit assesses a company's efficiency at using its labor and supplies in producing goods or services.

How to calculate gross operating profit

The calculation for Gross Operating Profit is:

Gross Operating Profit

As an example, if a restaurant chain has a revenue of $10,000,000, cost of goods sold of $4,000,000, general and administrative expenses of $3,000,000, interest expense of $400,000, and income taxes of $900,000, then the gross operating profit would be $3,000,000, which includes the revenue, cost of goods sold, and general and administrative expenses.

How to boost gross operating profit

  • Don’t compete on price. Instead of lowering your prices to beat a competitor, try to differentiate your business in other ways, such as providing a superior value, the best customer service, the most transparent business practices, and so on.
  • Review current prices. While it is important to not compete on price, still keep on top of current industry pricing and know your value to ensure your pricing is accurate.
  • Cut inefficient spending. According to TechTarget, its estimated that 90 percent of companies are overpaying by roughly 30 percent for telecom services. Reduce your rates with basically zero effort by porting your phone numbers to AVOXI--for a limited time, porting business phone numbers to AVOXI will earn you a full month of free calling, no matter how many calls you take. You can also reduce cost per user by using integrations and increasing productivity in your tools, including your phone system. 
  • Remove Unprofitable Products and Services. Your offerings with the highest gross profit margin are most important and should be focused on. Once these offerings are determined, review unprofitable offers to identify if they should be improved or removed.