Benchmarking
- Revenue Management
- Commercial
- Operations
- Finance
Benchmarking — Is the systematic comparison of a hotel's key performance indicators, occupancy rate, ADR (Average Daily Rate) and RevPAR (Revenue per Available Room), against a defined competitive set or broader market averages. Using standardised data from providers such as STR (now part of CoStar Group), benchmarking reveals whether a hotel is gaining or losing market share. It transforms internal metrics into competitive intelligence, turning absolute numbers into relative performance indicators that drive strategic decision-making.
Benchmarking Explained
A hotel’s internal KPIs in isolation tell only half the story. An occupancy rate of 78% looks strong, until benchmarking reveals the competitive set averages 84%. An ADR of £165 seems respectable, until a comp set comparison shows competitors averaging £178. Benchmarking provides this essential context. It answers the question revenue managers, general managers and asset managers care about most: Are we winning or losing against the hotels our guests are choosing between?
The hospitality industry has a unique advantage when it comes to benchmarking: STR, the dominant data provider, collects actual performance data (not estimates) from participating hotels and delivers aggregated competitive set reports. This makes hotel benchmarking unusually precise compared to most industries where competitive data is scarce or unreliable. The standard STR reports, the STAR report family, have become the lingua franca of hotel performance evaluation, understood by operators, owners, investors and lenders worldwide.
Effective benchmarking is not a one-off exercise. It is a continuous process embedded in weekly revenue meetings, monthly ownership reports and annual budget reviews. The discipline lies in selecting the right competitive set, interpreting index movements correctly and translating benchmarking insights into actionable changes to pricing, distribution and commercial strategy. Hotels that benchmark rigorously and act on the findings consistently outperform those that manage by internal metrics alone.
How Benchmarking Works
Example: Hotel occupancy 82%, comp set 80% → MPI = 102.5. Hotel ADR £172, comp set £168 → ARI = 102.4. Hotel RevPAR £141.04, comp set £134.40 → RGI = 104.9. The hotel outperforms its competitive set on all three dimensions.
Selecting the Competitive Set
The quality of benchmarking depends entirely on the quality of the competitive set. A comp set should include five to seven hotels that genuinely compete for the same demand, properties a guest would realistically consider as alternatives. Key selection criteria include geographic proximity (ideally within the same micro-market), similar star classification, comparable room count, aligned positioning (business vs. leisure, full-service vs. select-service) and overlapping price range.
Comp set selection is both an art and a science. Including a significantly higher-rated property inflates the comp set ADR and makes your ARI look artificially low. Including a budget property deflates the average and flatters your indices without providing genuine competitive insight. The best practice is to select properties that, if they lower their rates by £20, would directly impact your booking pace, that is the true test of competition.
Understanding Index Movements
Benchmarking indices are relative metrics, which means they can improve even when absolute performance declines, and vice versa. If the market drops and your hotel drops less, your indices rise. This is important context: an RGI of 105 during a market downturn might represent strong management, while an RGI of 105 during a boom might mask missed opportunities if the comp set is underperforming for structural reasons.
Revenue managers should analyse index movements alongside absolute metrics. The most instructive analysis combines four views: (1) your hotel’s absolute KPIs vs. prior year, (2) your hotel vs. budget/forecast, (3) your indices vs. comp set, and (4) comp set performance vs. broader market. This layered approach reveals whether changes in performance are hotel-specific, comp-set-specific or market-wide.
Beyond the Big Three: Expanded Benchmarking
While occupancy, ADR and RevPAR remain the foundation, progressive hotels benchmark additional dimensions. Total Revenue per Available Room (TRevPAR) captures ancillary revenue. Gross Operating Profit per Available Room (GOPPAR) introduces profitability into the comparison. Labour cost per occupied room benchmarks operational efficiency. Digital metrics, website conversion rate, cost per acquisition, direct booking share, are increasingly benchmarked using tools like Lighthouse (formerly OTA Insight), Siteminder or agency-provided data sets.
Guest satisfaction scores (via ReviewPro, TrustYou or Medallia) offer another benchmarking dimension. A hotel with an RGI of 98 but a reputation score 8% above the comp set has a clear path to improvement: it can likely increase rates without losing demand. Conversely, a hotel with strong indices but deteriorating guest scores is vulnerable to future share loss.
Practical Example
In practice, this concept only creates measurable value when your hotel links it to clear operating routines, owner-level KPIs and a realistic implementation roadmap. Define one concrete use case, measure baseline performance, roll out in short cycles, and review results monthly with Revenue, Commercial, Operations and Tech in one steering rhythm.
In practice
A 200-room upscale hotel in Birmingham receives its monthly STR report showing an MPI of 104, ARI of 96 and RGI of 100. At first glance, the RGI of 100 suggests the hotel is performing in line with competitors. However, the revenue manager identifies a problem: the hotel is winning on volume (MPI 104) but losing on rate (ARI 96), meaning it is filling rooms by undercutting the market.
Your team conducts a deep-dive analysis by day of week and discovers that Tuesday and Wednesday nights, peak corporate demand, show an ARI of only 88. Your hotel's BAR on those nights is £15–£20 below the comp set. The revenue manager adjusts midweek BAR levels upward by two levels, tightens the advance purchase discount from 20% to 12%, and closes the lowest BAR level on Tuesdays and Wednesdays when corporate demand is strong. Weekend pricing, where MPI is only 97, remains unchanged to protect leisure occupancy.
Over the subsequent quarter, midweek ARI rises from 88 to 99. Overall ARI improves from 96 to 101. MPI decreases slightly from 104 to 101 as the repricing redirects some price-sensitive demand to competitors. However, the net effect is a RevPAR increase of 3.2%, and the RGI improves from 100 to 102, a meaningful gain in competitive positioning that flows directly to the bottom line.
Relevance for hotel operations
Revenue Management
Benchmarking is the primary tool for evaluating pricing effectiveness. MPI, ARI and RGI guide daily rate decisions, comp set positioning and strategic pricing shifts. STR data is reviewed weekly or monthly.
General Management
GMs use benchmarking to assess competitive positioning, report to owners/asset managers and set annual budget targets. An RGI trend line is often the single most scrutinised metric in owner meetings.
Sales & Marketing
Market share analysis informs commercial strategy. If MPI is below 100, the hotel may need more volume-driving activity; if ARI is low, the focus shifts to rate improvement and higher-value segments.
Finance & Asset Management
Investors and asset managers rely on benchmarking to evaluate operator performance. A consistently below-par RGI may trigger management discussions or strategic repositioning. Lenders use STR data to assess loan covenants.
Operations
Operational benchmarking, labour cost per occupied room, housekeeping minutes per room, energy cost per available room, complements revenue benchmarking and reveals efficiency gaps that affect profitability.
Common mistakes & best practices
Common mistakes
- Wrong comp set: Selecting aspirational competitors (hotels you want to compete with) rather than actual competitors (hotels your guests choose between). This distorts all three indices and leads to misguided pricing decisions.
- Obsessing over RGI in isolation: An RGI of 105 is meaningless if the entire market is declining and the hotel's absolute RevPAR is falling. Relative performance is important, but absolute results pay the bills.
- Infrequent comp set reviews: Markets change, new hotels open, properties reposition, competitors undergo renovation closures. A comp set that was accurate two years ago may be misleading today. Annual review is essential.
Best practices
- Review STR data weekly in revenue meetings: Make benchmarking a standing agenda item. Analyse index movements alongside booking pace, displacement analysis and rate shopping data for a complete picture.
- Separate index analysis by day of week and segment: Aggregate monthly indices mask important patterns. A hotel might outperform on weekends but significantly underperform midweek, requiring different strategies for each period.
- Benchmark beyond revenue: Incorporate TRevPAR, GOPPAR, guest satisfaction and digital performance metrics to build a complete competitive profile. Revenue indices without profit context can encourage volume-chasing behaviour.
Next step
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What you should know about this term.
Hotel benchmarking is the systematic comparison of a property's key performance metrics, primarily occupancy, ADR and RevPAR, against a defined competitive set or market average. It uses standardised data (typically from STR/CoStar) to evaluate whether a hotel is gaining or losing market share relative to its competitors. The three core indices are MPI (occupancy share), ARI (rate positioning) and RGI (revenue share).
A competitive set should include five to seven hotels that genuinely compete for the same guests. Selection criteria include geographic proximity, star classification, room count, market positioning (business vs. leisure) and price range. The critical test is substitutability: if a competitor changes its pricing, does it directly affect your booking pace? If yes, that property belongs in your comp set. Review the comp set annually to account for new openings, closures and repositionings.
An RGI above 100 means the hotel is capturing more than its fair share of RevPAR compared to the competitive set. An RGI of 110 indicates that the hotel's RevPAR is 10% above the comp set average. Sustaining an RGI above 100 is the primary target. However, the trend matters as much as the absolute number, a declining RGI from 115 to 103 signals erosion even though performance remains above average. Context matters: a market-wide decline that affects competitors more than your property will improve RGI without any action on your part.