Revenue Management Series Part 5: Key Performance Indicators

“It is a capital mistake to theorize before one has data.” — Sherlock Holmes

Tour and attraction operators enter their industry for a host of different reasons, be it a passion for a particular niche (like animals, boats, or vehicles), a family tradition or simply finding a job that matches their unique skills and interests.

At a certain point, as a business grows, a leader must shift from working in the business to working on the business. This can be a challenge for mature tours and attractions – because, as we all know, there are five businesses in one to measure and manage.

We’ve created this brief primer on Key Performance Indicators (KPIs) for tour and attraction operators to maintain a quick view of their sprawling and varied operations and priorities with a few comprehensive numbers.

When thinking about what Key Performance Indicators to track to bolster your capabilities in revenue management, focus is key.

Always look to consolidate and simplify the many moving parts. Think about the changes that have been brought about by technology – and how they can enable you to take a more holistic view of your operation.

Gone are the days of simplistic metrics that do not account for costs, or profit, or separate your many products to measure all sources of revenue. To get true insight that can help you reliably plan and forecast for your business, you need best-in-class data accuracy and presentation.

The culture of your organization must emphasize tracking revenue management across tickets, retail, food & beverage and commerce, across multiple channels, and rewarding holistic success.

Our goal with this piece is to help you improve revenue management across your products and inventory, help with channel optimization, suggest tools to forecast and budget effectively and earn a strong ROI on marketing efforts.

Channel Management KPIs

To combat OTA market share growth and remain in control of your margins and distribution, understand in detail which channels are working for (or against) your revenue and profit goals.

Begin with a list of Total Revenue by Channel, then subtract all associated costs to get:

Channel Profitability = Total Revenue Per Channel - All Costs & Commissions

Take all your sales channels through the process separately, including but not limited to:

• All Online Travel Agencies
• All Resellers
• All Deal Sites
• All Affiliates

Measure each channel’s profitability against your profit made by selling directly on your website and look to develop your stronger channels for use during periods of low demand.

Common additional Channel Management reports:

• Tickets sold
• Today
• By OTA channel
• By time of day
• By contact group
• By user
• By site
• By sales office
• By rate type (Adult, Senior, Child, Youth, Infant)
• Total number by ticket type (Group vs Individual, Members, Prepaid pass, etc.)
• Purchased vs Checked In

Inventory Management KPIs

Effective inventory management can help you reduce costs, optimize profit, provide better customer service and prevent loss from theft, spoilage, and returns.

There are three key KPIs to track to quickly “health check” your inventory operations at any time.

Inventory Turnover Rate

Holding inventory has several associated costs. All else equal, the faster your inventory is sold, the lower the associated holding costs. The number of times a company sells and replaces its stock over a given time frame is measured by:

Inventory Turnover Rate = Cost of Goods Sold / Average Inventory

Reducing holding costs reduces your CoGS, allowing you to capture additional profit. As a rule of thumb, average inventory is not too high if your ITR multiplied by your gross profit percentage is less than 100%.

Make sure to monitor this ratio to ensure you are not over, or under, stocking your inventory.

Accuracy of Forecast Demand

Another quick calculation that is helpful in more robust retail organizations is the accuracy of forecast demand. This compares how close your actual goods sold were to your forecasted demand in the previous period. It is calculated as:

Accuracy of Forecast Demand = [(actual – forecast) / actual] x 100

In the highly seasonal tours and attractions space, it’s imperative to forecast effectively through peak and trough seasons. Ensure your estimations are in line with reality using this simple accuracy metric.

Gross Margin

Finally, the end goal ties together your pricing strategies to determine how profitable your retail operations are, subtracting all costs associated with sales.

Gross Margin = [(net sales – cost of goods sold) / net sales] x 100

A very quick retail rule of thumb:

• 5% margins are considered low
• 10% would be average
• 20% and over would be considered high

If you find yourself in a position where your margin is low, you may be using too low a price point – or need to negotiate with your suppliers for a better wholesale rate.

Common additional inventory management reports:

• Cash Out Report
• Deposits Report
• General Ledger Entry
• Accounts Receivable
• Deferred Revenue
• Retail Catalog Tool

Yield Management / Revenue Management KPIs

The most common tour and attraction metric we hear about from operators is “Per-caps” which is an abbreviation of ‘per capita’ meaning revenue per capita, or revenue per customer.

Per-caps = Total Revenue / Total Customers

While this is a term used in the attractions space, it applies to basically any type of business - how much do your customers spend when they visit?

It is a simple metric that can be pulled and measured over any time frame you choose - allowing you to analyze peak and trough months, averages across customer cohorts, observability into any unusually high or low sales periods, and track the effectiveness of your campaigns.

Looking at the components of the equation, Total Revenue includes, and can be broken down into, revenue from all your different product lines.

These may differ between specific business verticals, but often include the following:

• Tickets
• Retail
• Food and Beverage
• eCommerce
• Photos

From there, include your revenue through combinations of the above products you sell:

• Bundles
• Packages
• Upsells
• Options
• Retail Add-Ons

Next, it’s time to get granular about how the market reacts to different price points by measuring total revenue generated at your:

• Discount Prices
• Baseline Price
• Markup Prices
• Premium Prices

These can be implemented in your peak, trough and shoulder seasons and will inform you about which pricing levels result in increases in sales.

However, we are not solely concerned with top-line revenue. We are aiming to drive incremental profitability for a mature organization that bundles across different products – the associated costs from all these channels must come into account!

We recommend using the above information, and measuring the following metric:

Net Per-caps = Total Revenue - Costs / Total Customers

Costs considered should be comprehensive across your whole organization, including:

• Selling, General and Administrative
• Cost of Goods Sold
• Marketing spends
• OTA, Reseller and Affiliate Commissions
• Website - payment processing and transactional costs

With more accurate data across the whole organization, you have more tools at your disposal to test the waters of supply and demand and drive additional profit for your organization.

Common additional Yield Management reports:

• Revenue
• Total booked today
• Total earned today
• Year to Date
• Average order value
• Average ticket price
• Total value of refunds processed today
• Sales by Event Date

Effective revenue management requires buy-in from everyone in your organization to focus on setting a process, measuring its effectiveness and optimizing it over time until it becomes woven into the DNA of your organization for years to come.

Let these KPIs guide you as you look to begin, or revamp, your approach to world-class revenue management.