What is Revenue Per Available Room (RevPar)?
Your RevPAR informs you about your most profitable periods and the most in-demand rooms . It helps clarify the inventory you can expect from month to month and guides your booking numbers. It also serves as a basis for other revenue formulas. There are some things TripAdvisor can't achieve, and a balanced RevPAR is one of them.
In contrast, your RevPAR Index measures your revenue per available room in comparison to other hotels . It can serve as the core of your competitive analysis or simply as a market trend indicator.
The calculation works alongside your average occupancy rate, which measures your sales performance. Add your market penetration index, and you'll have a comprehensive understanding of your hotel turnover. These metrics work together to create a three-dimensional view of your business. Knowledge and success are inextricably linked, so start crunching those numbers.
Why is Revenue Per Available Room important in the hotel industry?
With your revenue and seasonal performance data in hand, you can plan marketing drives for your quiet periods and improve your inventory management during busy seasons . This metric assesses how well you can fill vacant rooms every week of the year, allowing you to price them accurately. When your RevPAR rises, your room prices should also increase.
Pricing isn't RevPAR's only superpower. It's essentially a measure of supply and demand, and prices don't always need to drop to balance it out. If you can push your demand high enough, you won't need to decrease your rates. When you hit a low-demand season, it's time to start working on your social media outreach, special offers and other sales strategies.
If you run a property group, your revenue and seasonal performance figures will also inform your expansion decisions, locations, and room choices. While the metric can't provide flawless insight into new territories, it's a good general indicator of what you can expect and what to do to maximize your hotel revenue based on the market conditions.
How to calculate RevPAR?
To calculate RevPAR, simply multiply your average daily rate (ADR) by your occupancy rate. The RevPAR formula is the following:
RevPAR = ADR x Occupancy Rate
In this equation, ADR = Average Daily Rate. It can be calculated by dividing the total room revenue by the number of rooms sold. Occupancy rate, on the other hand, is the number of rooms that are occupied during a certain period, expressed as a percentage.
Say you have an occupancy of 80%, and an ADR of €100 - your RevPAR will be €80.
Alternatively, you can divide the number of available rooms in your property by total revenue from that night (or specified time), and you will get the same number.
RevPAR = Total Room Revenue / Total Number of Available Rooms
In this example, if you have 100 rooms, 80% occupancy means 80 rooms are occupied. Multiply that by 100 (€100 per room) and that's €8,000 total room revenue. Divide that by the number of rooms available (100) and there's your RevPAR: €80.
4 RevPAR examples
Example 1
Imagine your hotel is occupied at 80% with an ADR of $100, this means your RevPAR will be $80.
Another example is to calculate by dividing total revenue from the night by the total number of rooms available in your hotel (this way is a little more complicated).
Example 2
Your hotel has 150 rooms and 70% occupancy, which means 105 rooms are occupied. If you multiply by 100, you get a total room revenue of $10,500. Then divide by total amount of rooms available, and you'll get $70 RevPAR.
Example 3
You have a luxury hotel and you want to find viable ways of increasing RevPAR. Your hotel has a 90% occupancy rate, with an average daily rate of $300, your RevPAR would be $270, and that would be an above average occupancy rate.
Example 4
Your hotel has 50 rooms and 80% occupancy rate, meaning that 40 rooms are occupied. Your total room revenue would be $4000; your RevPAR would be $80.
How to read RevPAR results?
Reading RevPAR results is about understanding revenue streams and ensuring that your RevPAR calculation is yielding a high result. You should also consider your RevPAR in comparison to your hotel's market segment. It's not the same to compare a mid-range property to a luxury property that has higher costs and rates, which would yield a higher RevPAR. Comparing your results to your competitive set is key to get an idea of your hotel's financial performance and overall performance.
Why RevPAR matters for your bottom line
RevPAR is a KPI that helps demonstrate a hotel's revenue generating capabilities from available rooms, and is one of the most important metrics impacting profitability. If you are able to generate more revenue per available room, this can potentially lead to profit growth. You can also use this metric to understand what you need to do to increase profitability by looking at how much revenue each room generates.
This key performance indicator can also show how well your hotel is performing in comparison to your comp set helping your hotel to improve it's bottom line by demonstrating how to improve pricing and occupancy strategies. The same goes for helping to gain a better understanding of revenue generation by seeing how occupancy rate and average daily rate impact revenue, and allowing your hotel to make strategic decisions based on this. Together with GOPPAR (Gross Operating Profit per Available Room) you can get a better picture of your hotel's performance and boost your bottom line.
Tips when calculating the RevPAR in hotels
There are several tips to keep in mind when calculating RevPAR.
Choose a consistent time frame
Ensure that the time frame you choose is consistent - daily, weekly, monthly, quarterly or annually. Once you choose a time frame, stick with it, otherwise you will have inconsistent results.
Calculate revenue accurately
Include all revenue obtained from room sales - room rates, additional charges and fees. However, you should exclude revenue from other sources, like food and beverage and amenities, as it's not applicable to this calculation.
Monitor regularly
When you regularly monitor RevPAR performance, you can proactively identify trends, patterns and areas for improvement.
Include no-shows
Include revenue from no-shows to ensure an accurate reflection of potential revenue.
Availability
Be sure to include the total number of rooms available during a specific time frame, excluding rooms that are out of service.
What is the RevPAR index?
RevPAR index is a key performance metric used to understand how well a hotel is performing relative to its peers. This metric is compared against a benchmark or a hotel's comp set .
Why is the RevPAR index important?
The RevPAR index provides a clear benchmark for comparing a hotel's performance with competitors or a specific market segment. It helps assess how well a hotel is maximizing its RevPAR compared to its competitors, providing insights into its market position.
By tracking RevPAR index trends over time, hoteliers can pinpoint opportunities or identify areas where they may be losing market share . Understanding this metric allows you to devise strategies that drive growth and profitability more effectively.
How to calculate the RevPAR index?
RevPAR Index = (Hotel's RevPAR/ Market RevPAR) x 100
In this calculation, a hotel's RevPAR represents the Revenue per Available Room generated during a specific period. The Market RevPAR, on the other hand, refers to the average RevPAR for a particular market segment or comp set over the same period, expressed as a percentage.
To calculate the RevPAR index (also known as revenue generating index or RGI), divide your hotel's RevPAR by the RevPAR of your comparator set, then multiply the result by 100 .
A result exceeding 100 indicates that you are outperforming the expected market share, whereas a result below 100 suggests that your competitors are performing better.
For example, suppose you have selected 20 similar hotels for benchmarking, and their average RevPAR is €60. If your hotel's RevPAR is €80, the RevPAR index calculation would be (80 / 60) * 100 = 133, indicating a strong performance.
What is a good and a bad RevPAR?
When we look at "good" RevPAR and "bad" RevPAR, a "good" RevPAR means that your hotel outperforms the average for those hotels in your comp set, and that your hotel is in high demand. If your hotel has a "bad" RevPAR, it could indicate that your hotel needs to make significant changes to pricing strategies, operations or marketing efforts to drive more sales.
Typically, a "good" RevPAR should be above 100, meaning that your hotel is generating more revenue per available room on average than its competitors. If the RevPAR is below 100 this could indicate that your hotel needs to revise its strategies to better compete. Being on top of your property's RevPAR is a crucial role of the revenue manager.
How to increase and improve your revenue per available room score
Your revenue per available room index is more than just a measure of your occupancy rates and profits. Like a thermometer, it also gauges your marketing successes, booking strategies, pricing efficacy, and direct sales efforts. Low results could indicate poor planning, subpar business performance, or ineffective revenue management. To boost your statistics, you have a few options available.
1. Differentiate
If you're operating alongside a direct competitor who shares your brand position, your score is unlikely to reflect your goals. It might be time to establish a more unique and compelling identity. However, don't neglect service excellence. A smile can be a powerful differentiator.
2. Choose different pricing strategies for high and low periods
Channel managers and AI tools can help you set the right prices for every client and season . Don't assume you must decrease your prices to drive demand. In some cases, you might need to charge more during the low season.
3. Do competitive analysis
Assess your rivals' pricing and demand to raise your ADR and determine the market's optimal rates. If your ADR is poor, improving your revenue per room will be challenging. You need a holistic approach that addresses more than just demand.
4. Rebalance your pricing
If you adjust your rates based on your occupancy percentage as each day progresses, every payment you receive will be strategically calculated. Prices can be automatically decreased as the evening draws nearer. When the low season approaches, it's time to dedicate more hours to your direct sales. This can be done manually or via automated booking engines.
5. Work harder at decreasing your cancellation rates
A non-refundable reservation policy can extend those ratings farther than they typically go. You could also structure your room rates based on the length of stay to encourage visitors to plan longer visits.
6. Reduce your expenses
The less you earn, the less you can afford, so reduce your expenses in accordance with low-demand periods. You can adjust your in-house team size, streamline or outsource housekeeping during low season, and relying on smart technology to reduce energy costs.
7. Establish minimum length stays
Charging less for longer stays or implementing a minimum stay policy can have a drastic effect on your RevPAR . Alternatively, motivate your guests to stay longer by offering special tourism-related packages. Hotels aren't the only businesses to suffer during low-demand periods, so this is an excellent opportunity to form partnerships with other companies that operate in your niche.
8. Use indirect strategies
Indirect drivers are significant. Simply improving your responsiveness to reviews and social media queries can boost your booking rates. Additionally, creating a loyalty program can help fill rooms during low-demand periods.
What are the alternatives to RevPAR
There are also several metrics that can provide complementary insights to RevPAR to better understand performance, identify areas needing improvement and make more strategic decisions. While this is not a comprehensive list, these metrics can help inform your revenue management strategies.
TRevPAR
TRevPAR or Total Revenue per Available Room includes room revenue as well as revenue from other departments, providing a more comprehensive overview of revenue generation.
NRevPAR
Net Revenue per Available Room (NRevPAR) excludes distribution costs such as fees associated with OTAs, channel managers, or other distribution expenses . It provides a clearer picture of the actual revenue generated after accounting for distribution-related expenses.
Average Daily Rate
While ADR is a significant component in calculating RevPAR, it independently offers valuable insight into the average rate at which rooms were sold during a specific period. This metric helps assess the effectiveness of pricing strategies deployed by the hotel.
RevPOR
RevPOR (Revenue per Occupied Room) helps hoteliers understand the revenue generated from occupied rooms, excluding revenue from unoccupied ones. This metric provides a clearer idea of the potential revenue that can be generated per occupied room, focusing on the rooms that are contributing directly to revenue generation.
Conclusion
Getting through low-demand periods can feel like trying to run through mud. Analytics to the rescue: Data can highlight aspects you may have overlooked before. It's possible to take full control of your supply curve - all you need are a few good strategies to complement your metrics.
If you use the RevPAR metric in conjunction with others, your hotel can become nimble enough to leap over those tough seasonal slumps.
Download our guide The new generation of hotel metrics
RevPAR, while important and widely used in the industry, is not the only measure of performance and can be somewhat narrow in scope. The Metrics that Matter is our guide to the new generation of hotel metrics. It explores how measures like RevPAG, TRevPAR, and true occupancy can provide more insightful performance indicators and ultimately encourage greater growth.
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