As a hotelier it’s fundamental to understand the TRevPAR calculation in order to measure the overall health of your property or the market in general. This calculation is beneficial to your hotel because it considers revenue across all departments, which can be traditionally neglected in a standard performance equation such as RevPAR. It can also help measure your performance and revenues against the competition.
Hotels should work to increase TRevPAR, because it implies that either average revenue or occupancy has increased, or in best case scenarios, both have increased, which is an ideal scenario for any hotel.
In this article we will take a closer look at how to calculate TRevPAR, its benefits to the hospitality industry, and the difference between TRevPAR and RevPAR. So let’s get started.
What is TRevPAR in hotels?
Total revenue per available room, also known as TRevPAR, is an important key performance indicator, or hotel KPI, used in the hospitality industry to understand a hotel’s performance results. It demonstrates how effectively your property is generating revenue.
Fully grasping this metric can have a positive impact on your hotel’s revenue management strategy because it provides a full picture across departments of your hotel’s performance. Unlike RevPAR, this metric measures the total revenue generated per room, not only revenue from room bookings.
How to calculate the TRevPAR metric
The TRevPAR calculation is made by dividing the total net revenue by the total available rooms. That is:
TRevPAR = Total Revenue / Rooms Available
In this equation, TRevPAR is equivalent to the total net revenue per available room. This means that “total revenue” is the net revenue generated by the hotel (including amenities and add-ons, for instance) and “rooms available” is the number of available rooms for a given time period.
What’s the difference between TRevPAR and RevPAR?
The difference between RevPAR and TRevPAR is that RevPAR calculates only the revenue generated from selling rooms whereas TRevPAR takes into consideration all revenue. While they are both similar, TRevPAR gives a more global picture of overall hotel performance by factoring in all revenue, as well as that generated from rooms, instead of just room rate.
This isn’t to say that you should forget about RevPAR altogether; this metric is what tracks revenue from rooms, which is of course the largest revenue stream for a hotel, and for now remains the most common comparison point for hoteliers.
What are the benefits of TRevPAR for hospitality?
We’ve briefly mentioned the benefits of this calculation to the hospitality sector, but now we’ll look at them in more detail.
Take revenue into consideration across all departments
As any hotelier knows, food and beverage sales, parking, events, meetings, spa, amenities and other miscellaneous income can have a big impact on a hotel’s bottom line. This is why the TRevPar equation is so useful: it considers revenue across all departments, which might otherwise be omitted. Because cross-department revenue has such an impact on a hotel’s overall performance, this equation is specifically useful because it includes all these assorted revenue streams.
Show the big picture
We all want to have an idea of what the big picture is in terms of our hotel’s profitability, and the TRevPar equation does just this. By providing insights into the big picture of revenue, revenue managers can design their strategy accordingly.
For example, they can compare revenue sources between departments against TRevPAR together with operational metrics to better understand where to invest resources. This metric can be used to compare, for example, spa revenue as a percentage of this metric, and then decide if it’s worth investing more resources in this department.
Find opportunities to beat out the competition
An important part of any revenue management strategy is to measure your hotel’s revenue streams against the competition. You can compare your hotel’s fees across departments to the competition and identify holes to beat out the competition while at the same time increasing your TRevPAR. That could mean if you identify that the competition charges more for spa fees, for example, you could raise your spa fees and generate more revenue from that department.
Pinpoint fluctuations over different periods
Using the equation to pinpoint fluctuations over different periods allows you to carefully monitor and adjust your revenue strategy to compensate for those fluctuations. Together with closely analyzing your hotel data analytics, you can make decisions to target certain departments within your hotel that are positively impacting your hotel’s revenue.
For example, if you discover that during the winter months your spa services are skyrocketing in terms of revenue, you can put more emphasis on the spa services for marketing purposes.
Get insights into consumer behavior
Understanding consumer behavior is among some of the most important learnings for a hotel. Only by understanding what the customer wants can you tailor your services to fit their needs. By tracking data across departments you are able to understand how your decisions as a hotel affect consumer behavior, as well pricing and demographics. This of course can be used to tailor messages through sales and marketing channels.
Also, by tracking the revenue across departments you can get a better understanding of how each department is contributing to overall revenue and design a more focused strategy to boost this KPI.
Revenue managers, in essence, should maximize all revenue-generating departments, otherwise there would be no point in building add-on services such as restaurants, spas or other amenities. By understanding which add-on services consumers respond well to, hotels can find ways to maximize these alternative sources of revenue so that they don’t only rely on rooms. This brings us to the last benefit.
Expand ancillary revenue sources
Ancillary revenue is revenue generated by products, services and extras, that are booked on a daily basis. Expanding ancillary revenue sources allows hotels to rely on alternative sources of revenue rather than just rooms alone so that in times where the market suffers from low demand, hotels have other ways of generating profits. During these times hotels can then shift resources to making these non-room revenue streams profitable.
While TRevPAR is not the be all and end all way to monitor your hotel’s performance, it certainly is useful to get a global picture of how well your hotel is doing. You should keep in mind that since it doesn’t take into account all expenses, nor does it consider the actual level of occupancy, and for this reason it should not be used as the only means of determining a hotel’s profitability – but it certainly is a great place to start.
As the hotel industry’s market is constantly changing, it’s important to have a mix of revenue streams. By closely monitoring this metric, hoteliers can identify underperforming revenue sources and identify opportunities to help generate profit, especially during times where room revenue is lower.
Making sure rooms are filled is really just half of the equation. The other half is finding other outlets to maximize revenue such as amenities, add-on services, upgrades, food and beverage and more. Only after you’ve been able to get the full picture by calculating this metric will you be able to make a revenue strategy that will optimize profitability and allow you to beat out the competition.
KPIs for the modern hotelier
The metrics we've just explored are among the most common in hospitality, but that doesn't mean they're the best. We've put together a report, Metrics that Matter, that will help you to maximize revenue and boost the guest experience, all by tracking the right data. Click the button below to find out how you can be more efficient across operations, revenue and marketing:
5 May 2021
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