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A Three-Course Recipe for Success: The KPIs of Event Space Revenue Management

By Dan Skodol - Vice President, Data Science and Analytics

The rapidly evolving and expanding discipline of commercial strategy in the hospitality industry is rife with opportunities to extend to areas beyond simply hotel rooms.  Event and meeting space presents one such opportunity.  As commercial teams take on this effort, it is crucial that they equip themselves with the means to effectively measure and benchmark performance in order to diagnose issues and opportunities, investigate root causes, and further develop and refine strategies.  In this article, I will:

  • Highlight a series of key performance indicators (KPIs) related to event space.

  • Explain how they support a cohesive commercial strategy that is supported by data and analytics.

  • Illustrate how these KPIs can be further developed into a basis for predictive and prescriptive analytics that can inform proactive and optimal decision-making.

My last post, Event Space Revenue Analytics:  The “Marriage” of Revenue Management and CRM introduced some core concepts behind applying commercial strategy and analytics to event and function space.  The dynamics of event space share much in common with hotels, airlines, and other environments where the evolution of commercial strategy is more developed, while several nuances and differences pose some interesting challenges that call for a different and innovative approach.  Factors like limited transaction volume and unique, highly constrained inventory call for analytics that shift commercial teams’ focus upward in the demand funnel, assessing anticipated lead volume, conversion rates, and booking windows in order to better anticipate demand and formulate strategies that maximize the performance of the space.

An important first step in such analytical efforts is to assemble the right data and formulate metrics that will help to set goals and measure the performance of commercial strategies against those goals.  Here I offer some suggestions to get started with event space KPIs, and what the evolution might look like once commercial teams are further along in their analytical journey.

Cocktail Hour:  The Basics

The ability to diagnose and understand the impacts of volume and rate on the resulting revenue performance is of utmost importance in any revenue management effort.  Some basic but essential metrics include:

•              Utilization

•              Conversion

•              Revenue per Event

Utilization is the hotel occupancy equivalent of space.  It is calculated by dividing booked event time blocks by available time blocks, with the understanding that there may be more than one each day.  While only providing insight into part of the overall revenue puzzle, it is an important barometer to understand the volume of your event business relative to your available capacity and to ensure that you are adequately selling into your perishable inventory, ideally minimizing spoilage.

Given the process for selling space and the associated prospecting, nurturing, and closing of leads, conversion rate becomes an important metric to gauge the performance of your commercial efforts.  At its most basic level, it simply equals the number of converted leads divided by the total number of leads, but take some care as to how both the numerator and denominator are assessed.  Should a non-qualified lead count against conversion, given the low likelihood they can be accommodated in the first place?  If a lead shows interest in more than one of your spaces or venues, should that lead be counted more than once, insofar as you might measure conversion as a KPI for different sales teams that are assigned to different spaces?  And how might you segment your incoming demand to understand conversion performance at a more granular level?  These are all important considerations, and there is not necessarily a one-size-fits-all approach.

Revenue per Event measures the average total spend across your booked events.  The calculation is total revenue divided by the event count.  To understand this metric at a slightly deeper level, revenue per event can be broken down further into average check (or revenue per attendee) and average attendees per event – essentially average event size.  These rate-related metrics tend to be impacted by different factors, such as F&B per person prices, promotions, venue minimums, room capacity and layout, and the type of event.  Understanding these relationships can help teams analyze root causes should overall performance either miss or exceed expectations.

The Main Course:  Next Steps

For those organizations that are ready to elevate their analytics practice to the next level, refining, adopting, and benchmarking the following metrics will help better inform commercial strategy:

Revenue per square foot or meter – usually also per daypart, hour, or some other defined unit of time – helps assess performance relative to the size of the available space and upon a dimension of time more granular than a day.  Venues with spaces of different sizes, that might be available at different times and for different durations, can use this unit metric to help level the playing field and accurately understand relative strengths and weaknesses.  Take for example a large ballroom that breaks down into four salons for smaller events.  It is expected that a large event that utilizes the entire ballroom will drive higher revenue than smaller events that might use each separate salon; it is important to understand if the larger event also performs better on a per-square-foot basis, given the amount of space required to hold the event.  Likewise, the larger event might span multiple days and require a longer setup and take-down

time, which should be accounted for in the duration and weighed against a potentially higher number of smaller, simpler events.  Finally, changes to your available event space, say from one year to the next, can be captured and normalized by using this KPI.

Guest or attendee density is a related concept and can help event space managers gauge whether they are efficiently using their available space.  This metric is calculated by dividing the total number of guests at an event by the maximum allowable occupancy of the room.  This is especially useful when sales teams have a variety of different spaces at their venue.  An event with a low attendee count held in a large space – even if they pay top dollar – could displace a larger event that could only have been accommodated in that larger space.  This is akin to the popular restaurant with mostly 4-top tables on Valentine’s Day;  their tables will sell out for the night, but they will leave a large number of seats unoccupied when mainly couples show up to dine.  Keeping a close eye on space utilization in this respect will ensure that you are maximizing your revenue opportunities.  This metric can also help managers gauge the impact of different room configurations, especially given the varying costs for the associated labor.

Speaking of costs, all mentions of revenue so far can be swapped out for profit, which could involve incorporating your event expenses into your metrics, and/or making some assumptions on margin for different revenue streams.  An organization’s goals ultimately center around profitability, and in the world of event management, certainly not all revenue is created equal.  While it is not necessary to incorporate fixed costs of operating the venue, understanding the contribution of each group or event will ultimately force better strategy and decision-making.

The Icing on the Cake:  Advanced Concepts

We’ll conclude with some examples of how to advance your thinking even further, which can certainly be leveraged once you have mastered the rest of the KPIs covered here and have the right analytical capabilities at your disposal.

First, let’s revisit conversion.  Once you are comfortable with the nuances and have adapted this metric to your specific needs, opportunities exist to look to the future and understand some factors that influence conversion such that you might be able to predict conversion in addition to simply measuring it.

Take for example the age of your leads – not how old the person is, but how long they have been on your radar as a potential sale.  Intuitively, the longer it has been since you first made contact, held a tour or consultation, or otherwise engaged with the prospect, the less likely it is that the lead will convert to a sale.  By that time, the prospect has possibly considered other options or has just decided not to move forward at all.  With the right data, this relationship – often a non-linear one – can be modeled, and a prediction of conversion rate based on days (or weeks, etc.) since first contact can be made.  On top of the ability to forecast your converted events more precisely, think about the motivation you can provide to your sales team to ensure a quick follow-up if they understand that, for instance, conversion drops from 25% to 5% after two weeks have passed since obtaining the lead.  Looking at conversion rates by age in combination with the ages of your active leads can also help ensure that you are bringing resolution to your pipeline promptly, positively influencing your actual conversion rates.

Finally, applying analytics to how your leads are segmented and “scored” enables truly data-driven commercial decision-making and maximizes confidence in the right targeting and lead nurturing activities.  Put simply, commercial organizations can strive towards true personalization, powered by analytics.  For instance, in our AI-enabled world, knowledge of an engaged couple’s “love story,” desired wedding date range, wedding size, geographic origin of guests, potential dinner menu, alternate venues, and other specific event needs could potentially translate into a precise percent likelihood that they will book.  Even if these details are not all available, analytics can be used to mine the available data for common threads across your prospects, predict the most likely shared attributes, and then score the lead accordingly.  In turn, attributes of the offer, product, or sale that are under the control of commercial teams can be manipulated to optimize the revenue outcome for the organization.

In summary, a sound, data- and analytics-driven commercial strategy for event space begins with adopting and tracking the right KPIs that enable organizations to measure their business in the right manner.  Commercial teams can then further refine these metrics to understand drivers of performance more deeply.  When ready, organizations can turn to more advanced analytics that goes beyond simply measuring outcomes to in fact predicting them.

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