Over the past ten years, I've worked to expand my company's real estate portfolio to include ten hotels. In this time, I've seen some major pitfalls that can prevent other entrepreneurs from scaling up their businesses in a similar way.
The biggest blunder we can make is what I call deafening the data. As a property investor, you'd much rather fill your days with what you do best — closing deals that will torpedo your business to the land of milk and honey. The problem with that mindset is that it gets harder to sit down and do more systematic activities, such as trend analysis. Yet managing your company's data is one of the key elements that will allow you to properly delegate the activities, which, eventually, help your business arrive in Shangri-La. Based on the need for data, here are some metrics to watch.
1. Operational Productivity
Look for patterns and variances in your labor costs versus revenues. High operational productivity means revenue should increase with labor — not the other way around. A negative variance means labor costs are increasing while revenue is going down. This often happens because the staff doesn't have the same level of motivation to conserve capital as the business owner does. When you see this happening, you should take corrective action immediately, even if it means micro-managing. A negative variance might also result from having too few staff, which means more overtime is being paid out than necessary. Overtime costs add up fast — but it's a quick fix. Taking corrective action can save your business from entering a black hole that you would've never seen had you not been tracking this metric.
2. Property Performance Rating (PPR)
Based on my following of operational productivity trends over the past few years with great attention to detail, I've formulated two more metrics to help read into operational productivity. Property Performance Rating (PPR) is one and it acts as a weekly scorecard that is grading each hotel manager on a number of different data points, including front desk administration, room cleanliness, security measures, curb appeal and cash audit variances. It provides an excellent high-level view of how that manager is truly managing the asset.
3. Efficiency Score
The efficiency score is the other metric I've added to help better understand operational productivity. Like PPR, it is used to grade each manager; however, it offers more of a full spectrum view. The efficiency score takes into account some key motivational factors, such as active participation in meetings and turnover on task completion. This really highlights who is pulling their weight as a leader. At my company, if a manager has a good PPR score, high motivation and revenues at their property are on target, they would receive a good efficiency score and a quarterly bonus.
4. Occupancy Rate
Ensuring your rooms are full is only half the battle. You may have zero vacancies but if, for example, the average daily rate (ADR) has gone down to $20/night, your business won't be profitable for very long. Fluctuating ADRs are unavoidable and are tied to fluctuating market demands, which are, in turn, influenced by environmental and political factors. However, including them in your occupancy rate calculations will give you a better idea of where things stand.
5. Sales Revenue
At the beginning of each year, targets need to be set for yearly and monthly sales, based on previous years' earnings. These targets need to be monitored and, if necessary, re-baselined each quarter. Ensure your targets are set on an upwards path and hire a team that is motivated to steer toward your aims, at rocket pace.
6. Room Turnover
It's essential to have a weekly, if not daily, pulse on how many rooms are going in and out of service. As a multi-residential property owner, your main product offering is rooms. More rooms in maintenance mean less product and, in effect, less revenue. With older properties, it's especially easy to have 10% or more of your inventory knocked out overnight when there's a major plumbing or electrical issue. You may not even be aware of those issues if you have delegated all the data reporting to your staff. Avoid that pitfall. Remember, no one will be more motivated than yourself to ensure such issues get resolved quickly.
It's important to remember that keeping a pulse on your data can only be effective if it's done consistently and frequently. I recommend running the numbers every week — not every quarter. Lastly, any major issues you come across while doing your analysis need to be managed immediately to prevent your business from entering a black hole. Remember to hire a team you can trust with delivering the resolution as fast and efficiently as you would.