Key performance indicators in the Coronavirus era and beyond

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I was impressed with the coming together of the attendees of Arival when it was postponed last weekend due to the Coronavirus. Many people were stranded or in Berlin anyway but one thing I've learned about the travel industry is people help each other in times of crisis.

You had GetYourGuide providing office space so people could work, impromptu workshops organised by Christian from Magpie Travel, articles from Arival's Douglas Quinby, TMA's Chris Torres and great advice from Peter Syme about how to turn disaster into opportunity.

Tourpreneur Facebook members also offered support to each other in the Facebook forum, helping each other out with advice, support and tactics to help themselves and each other.

One of the the points raised there was about KPIs and there were some great comments. In my previous working role I was CEO of an Analytics company and KPIs we're part of my bread and butter. I even devoted a chapter of my book "Cult of Analytics" to KPIs because they can be the difference between success and failure of any business, but especially now they are useful.

So, what is a KPI?

You have numbers (counts) and ratio's (numbers divided into each other where it makes sense). Visits to your website is a number. Orders per visit is a ratio. While a KPI can be either a count or a ratio, it is often a ratio. A KPI is infused with business strategy - hence the term, "Key".

Take a Travel example - Travelling 100KM in a coach

Coach drivers calculate this every time they start up a new route. It's so easy they probably do it in their head. Let's say you have an objective (travelling from destination 'a' to 'b'), you have a distance - its 100KM away, then time you want to get there (1 hours & 40 minutes) and then you have the average speed you need to get there on time. The KPI is average speed because it's what you adjust to reach your objective.

Distance (km) /Speed in kph = Time (h)

So 100KM/50 KPH = 2 hours (not fast enough). 100/60 = 1.666 (and .666 of an hour = 40 minutes), so in order to achieve your objective of doing the journey in 1 hour 40 minutes you need to hit an average speed of 60KPH.

A KPI is defined by having 3 attributes.

Its actionable. If you're running late you can increase your speed, or if you're going to get there too early you can lower your speed.

There is always an objective. In the above example it was arriving in under 1 hour 40 minutes.

You have a performance benchmark. In the case above it was the speed per hour where 60 kph was good enough and 50 kph wasn't. The point is you have a choice and can make actionable adjustments.

These 3 things make the difference between a KPI and a metric.

Picking KPIs for tours and attractions in the digital era

If I had to pick 3 KPIs for tours and activity operators they would be these 3 because pretty much everyone of them can be measured relatively easily. All you need to do is compare past customer data to your current situation. You can use Excel to combine data from your channels and come up with the past 12 months for instance to give you a rolling KPI benchmark.

If the objective is to stay profitable in the midst of this coronavirus problem then read on as these 3 KPIs will give you some ways to modify your actions to help.

KPI #1 Cost per acquisition (CPA) or Cost to acquire a customer (per channel)

Understanding the costs to get your customer across your different channels is key to making adjustments to your marketing tactics. CPA also allows you to set benchmarks.

So let's throw some numbers out there. Your average sale value is €120 (for the sake of argument). Your average CPA per channel looks like this;

 

Screenshot 2020-03-10 at 11.33.13

 

Viator €32, Tripadvisor €32, GetYourGuide €32, Google PPC €20, SEO €15, Email €10, Social/FB €5, Direct Traffic to your website €3.

That means your Average CPA is all of those numbers added up divided by the number of channels (8) which works out at €18.63.

So your benchmark is €18.63 (anything above that is on the pricey side, anything below that is better than average). This is very simplistic of course, as I said go back at least a year to get your benchmark so you take seasons etc into account.

Actionable?

Now that you have a benchmark you can modify your actions based on the benchmark.

  • Drop or optimise Google PPC campaigns/ads that perform worse than €18.63 CPA. Not all of them will be underperforming, which ones are good? re-direct the spend from the bad ones to the good ones.
  • OTAs. Typically they cost a bit more because they're doing the marketing for you. they spending money to drive traffic to your activities. However you should determine whether or not they are bringing you enough in sales (see the next KPI) to justify their expenses.
  • Focus on SEO/FB, email and any other way to get more direct traffic.
  • Find new partners (especially local ones) that do a CPA cheaper than €18.63.
  • Segment out which countries your customers are coming from. If the CPA per customer from abroad is no longer profitable, then stop marketing to them full stop and focus your energy on the countries that still make sense. Right now China & Italy are going to be in the expensive CPA bucket. This is key in the midst of the coronavirus problem.

KPI #2 Profit per channel

Once you've worked out CPA you can easily work out profit per channel. This takes into account all your costs before your marketing. Lets say your profit margin on your product is 15% with marketing costs included as 25%. So from €120*25%= €30).

So from €120, you make €18. €30 is allocated for marketing, €72 is allocated across all other fixed and variable costs like salaries, vehicles etc.

Profit per channel Benchmark

OTAs (Viator, Trip, GYG) = -€2. Google PPC = €10. SEO = €15. Email = €20. Social & FB = €25 and direct = €27.

So from this you can see that you'll only make €16 from the OTAs as they cost a bit more than 25% you had allocated, but the others you're doing well with. Now this doesn't mean drop the OTAs, because you combine this with the next KPI, but generally this is still very actionable information.

Actionable how?

As in the previous example you make decisions per channel.

  • If you optimise google via CPA campaigns under your benchmark does this drive up the PPC profit from €28 per sale?
  • Are volumes from SEO, Email, Social and direct high enough to justify making new marketing efforts in these areas? IE: Direct strategy would net you €45 per sale (a superb 37.5% margin). Is it therefore worth figuring out how to get more direct sales?
  • Finally, are the OTAs driving enough volumes to help with the next KPI? If not maybe raising your prices marginally on their sites might be something you want to consider.

#KPI 3 PAX fill per channel & country

This means how many people per channel fill your trips. Let's say a tour has a capacity of 50 people and it costs you €2400 to run the full day tour (including salaries, vehicle rentals etc). It means you need to have a minimum of 20 people to break even on that trip (2400/120). In order to get your desired 15% profit you'd need 23 people (earnings of €360). However anything above 23 people is higher profits.

Now you might see the value of OTAs in your overall strategy. If they are driving 20 people to your trip versus direct which is only driving 5 (but is very low cost) you take a small loss on the marketing to fill up your trips and then fill up to 50 people with the rest of your marketing channels.

Actionable?

  • If the OTAs are driving steady volumes that fill your trips its probably worth keeping them to bring your profit through other channels. If they aren't bringing you the volumes you need or the Coronavirus has a negative effect then the costs of keeping them going might require re-thinking. Can you find local in-destination providers you haven't thought of to replace them?
  • Are pax fill from countries dropping? If so re-design your marketing so that you focus on the countries where the visitors still buy (or go local).

Summary

There are many KPIs you could use that I've not mentioned, think about what's important to your business and apply the 3 attributes mentioned above. In all cases I think the you need to look at domestic versus overseas booking ratios and compare your KPIs to them.

These 3 KPIs fit together nicely to help you measure the impact of not only the virus, but also measure the impact of your marketing channels, how to measure OTA effectiveness, how to set your pricing so you're profitable and guides you on how to manage your costs. Once the virus has passed and remember this too will pass, you will be in a much stronger position to manage your business going forward.

 

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