What Is RevPar? Everything hoteliers need to know

As a hotelier, gaining a comprehensive understanding of every facet of your business is pivotal for making strategic decisions that positively impact your bottom line. Amid the array of metrics to consider, RevPAR stands out as a crucial performance indicator worth your attention.

RevPAR, an acronym for Revenue per Available Room, serves as a vital metric within the hospitality industry, providing insight into a hotel's average room revenue generated daily. 

Hoteliers keenly focus on RevPAR due to its significance as an indicator of a property's overall financial well-being. A heightened RevPAR signifies that a hotel is generating increased revenue per room, translating into potential profit growth. 

Beyond this, RevPAR proves invaluable for comparative analysis among different hotels and for assessing a hotel's performance evolution. By consistently applying the RevPAR formula in hotel analytics, hoteliers gain the ability to discern trends and implement strategic changes, contributing to the enhancement of their property's financial performance.

Continue reading to delve into the depths of RevPAR, gaining insights into its meaning and significance.

Why is calculating RevPAR important?

RevPAR, or Revenue Per Available Room, emerges as a pivotal metric for hotel owners, offering them a nuanced lens through which to scrutinize and benchmark their property's performance against industry competitors. Delving into the intricacies of the Revpar formula in front-office operations allows hotel owners to gauge the effectiveness of their revenue generation and pinpoint areas ripe for improvement.

A significant aspect of RevPAR's utility lies in its capacity to reveal insights when faced with a notably low figure. A diminished RevPAR may hint at room rates being set too conservatively or a potential shortfall in effectively marketing the property's amenities. Armed with this intelligence, hotel owners can strategically initiate changes, optimizing their property's profitability.

It is crucial to recognize that while RevPAR provides a snapshot of performance at a specific moment, a comprehensive assessment necessitates consideration of additional metrics such as occupancy rate and average daily rate (ADR in the hotel industry). This holistic approach ensures a well-rounded analysis of the property's overall performance, empowering hotel owners to make informed decisions and fine-tune their business strategies.

RevPAR distinguishes itself from other key performance indicators by factoring in both occupancy rate and ADR. This dual consideration furnishes an accurate and insightful Revpar meaning that serves as a catalyst for growth and productivity.

Failing to grasp your RevPAR means leaving significant financial decisions to guesswork. A consistent increase in RevPAR over time, as determined by the Revpar formula in hotel analytics, serves as an invaluable gauge of the success of your marketing and pricing strategies. A higher RevPAR figure from the previous year indicates an augmented average revenue per room or an uptick in occupancy rates, offering a tangible measure of the efficacy of your business practices.

While RevPAR is a valuable metric, it shouldn't be the sole focus of pricing strategies. Hoteliers need to consider guest segmentation, competitive landscape, and brand positioning when setting room rates - Robert A. Meyer Professor of Finance at Cornell University

What is the RevPAR formula?

The RevPAR formula is a simple yet effective calculation that offers a concise evaluation of a hotel's performance. It can be expressed as:

To illustrate, let's imagine a situation where a hotel has 100 rooms and generates $10,000 in room revenue within a specific timeframe. The RevPAR for this period would amount to $100, calculated as follows: $10,000 / 100 = $100.

Now, let's explore three practical examples that demonstrate how the RevPAR formula can be applied to hotels of different sizes. In each scenario, we will use two calculation methods to highlight their reliability.

Example 1: Small Boutique Hotel

Consider a boutique hotel with 20 rooms, where 15 rooms are sold at an Average Daily Rate (ADR) of $150 on a particular day.

Method 1: 

RevPAR = Total room revenue / Total available rooms

($150 * 15) / 20

$112.5

Method 2: 

RevPAR can be calculated by multiplying the Average Daily Rate (ADR) by the Occupancy rate. In this case, the ADR hotel is $150 and the Occupancy rate is 15/20.

RevPAR = $150 * (15/20) = $112.5

Therefore, the boutique hotel's RevPAR stands at $112.5.

Example 2: Medium-Sized Hotel

Let's consider a medium-sized hotel with 100 rooms. On a particular day, they sold 70 rooms at an Average Daily Rate (ADR) of $120.

Method 1:

To calculate the RevPAR, we divide the total room revenue by the total available rooms. The total room revenue is obtained by multiplying the ADR hotel by the number of rooms sold, which is $120 * 70. The total available rooms are 100.

RevPAR = ($120 * 70) / 100 = $84

Method 2:

Alternatively, we can calculate the RevPAR by multiplying the ADR hotel by the Occupancy rate. The Occupancy rate is the ratio of rooms sold to the total available rooms, which is 70/100.

RevPAR = $120 * (70/100) = $84

In this case, the medium-sized hotel's RevPAR is $84, showcasing the formula's consistent application across hotels of diverse sizes.

How to calculate RevPAR in hotels?

Calculating RevPAR in hotels is a straightforward process that involves multiplying your Average Daily Rate (ADR) by your occupancy rate. Let's break it down with an example:

If your hotel achieves an occupancy rate of 70% with an ADR of $100, your RevPAR can be determined by multiplying the ADR hotel by the occupancy rate, resulting in $70.

Alternatively, you can calculate RevPAR by dividing the total revenue from the night by the total number of rooms available in your hotel. Consider a 300-room hotel with 70% occupancy, translating to 210 rooms occupied.

Multiply the occupied rooms (210) by 100 to get $21,000 as your total room revenue. Then, divide $21,000 by the total number of rooms available (300), yielding your RevPAR of $70.

To determine your property’s annual RevPAR, multiply your rooms available by 365 days in a year. For the 300-room property mentioned earlier, the annual room nights available amount to 109,500. This presents a substantial number of room nights to optimize and yield revenue.

By incorporating these front-office formulas into your analytical toolkit, you gain a comprehensive understanding of your hotel's performance and can strategically enhance your revenue management strategies throughout the year.

What is RevPAR Index?

The RevPAR Index is a vital metric that provides valuable insights into how your hotel's RevPAR compares to a specific group of other hotels, commonly known as a competitive set, market, or sub-market. 

It is important to understand that while RevPAR directly measures your hotel's sales and profitability from room bookings, the RevPAR Index offers a more nuanced perspective by evaluating your performance in relation to your peers.

Ideally, the RevPAR Index or Revenue Generating Index (RGI) should be 100, indicating that your hotel is performing at par with its competitors. An RGI exceeding 100 signifies a market share surpassing expectations, while a value below 100 suggests a shortfall in acquiring the expected share.

Calculating the RevPAR Index involves dividing your hotel's RevPAR by the aggregated group of hotels’ RevPAR and then multiplying the result by 100. For instance, if your hotel's RevPAR is $70 and the group's is $50, your RevPAR Index would be 140, indicating that you are comfortably surpassing your expected market share.

There are compelling reasons to calculate your RevPAR Index:

It provides a comparative analysis of your strategy's effectiveness relative to competitors.

• Reveals variances between your performance and that of competitors, prompting considerations for strategic investments, such as in technology, to close the gap.
• Keeps you continually aware of your hotel's position in the market.
• Choosing the right competitive set for measurement is crucial, especially in bustling cities where a diverse selection of hotels exists. Opt for hotels with a similar product offering to ensure a meaningful benchmark. Once established, refrain from frequent changes unless there's a compelling reason to do so, ensuring consistency in your performance evaluations.

RevPAR calculation mistakes to avoid

Avoiding mistakes in RevPAR calculation is crucial to ensure the accuracy and meaningfulness of this valuable metric. Here's a look at common pitfalls to steer clear of:

1. Not including additional revenue: 

While room revenue is the primary component of RevPAR, neglecting additional revenue sources, such as fees from amenities, in-room services, or minibar sales, can lead to an underestimation of the actual revenue generated per available room.

2. Not considering room types: 

Recognize that all rooms in a hotel aren't equal. Suites typically generate more revenue than standard rooms. When calculating RevPAR, it's essential to account for different room types and their respective revenues. Averaging out all rooms without considering their types can result in inaccurate results.

3. Not considering time period: 

RevPAR can vary significantly based on the time of year, week, or day. It's crucial to consider the specific time period under analysis. Comparing RevPAR across different periods without this consideration can lead to misleading conclusions.

4. Taxes and fees:

 Resist the temptation to include all revenue, including taxes and fees, in your RevPAR calculation, as this can inflate figures. Focus on net revenue by subtracting mandatory taxes and fees from the total revenue to get a true picture of your RevPAR.

5. Mixing multiple properties:

 If you manage multiple properties, calculate RevPAR for each property individually. Different properties may have varying occupancy rates, room types, and additional revenue streams. Combining them can result in a skewed understanding of each property’s performance.

Various factors play a significant role in influencing a hotel's RevPAR. Among the most prevalent are:

1. Room rate:

Think of it as the price tag on your room, directly affecting your income per stay.

2. Occupancy rate:

 Picture a room filled with happy guests (and your pockets with cash). More occupied rooms generally mean a merrier RevPAR.

3. Average daily rate (ADR)

Imagine an average price for all your rooms, a key indicator of your overall revenue and, of course, RevPAR.

4. Length of stay:

How long do guests like to linger? The longer they stay, the more revenue you earn per room, impacting your RevPAR positively.

5. Seasonality:

Think summer rush or holiday cheer. Understanding these peak and off-peak periods is crucial, as they can make or break your RevPAR.

By comprehending the dynamics of these factors and their interconnectedness with RevPAR, hoteliers can strategically implement changes to enhance their property's overall performance and can get higher revenue outcomes.

How to increase RevPAR at your hotel?

Boosting your hotel's RevPAR means making more money from each booking. One smart way to do this is by offering extra stuff to guests, like shuttle services, welcome packs with treats, tickets to local attractions, or packages with massages or spa services. Sending emails before a guest arrives to suggest upgrades or VIP services can also help in enhancing customer service.

To do this well, it's important to get guests to book hotels and check in through a simpler and more convenient process. Discover how guest journey automation can enhance your overall performance. Additionally, boosting your RevPAR can be achieved by refining your marketing campaigns and booking strategies. Here are some ideas:

• Get more direct bookings: These often make more money, so focus on them.
• Look at cancellation rates: See which online travel agency (OTA) channels have high or low cancellation rates to make better decisions.
• Ask for reviews: Get guests to leave reviews, and use the good ones in your marketing.
• Have a minimum stay policy: This can help you manage your rooms better and increase your RevPAR.
• Use loyalty programs: These can bring guests back, boosting your revenue.
• Make booking easy: Have a simple and fast booking process with a good booking engine.

Handling all of these might seem overwhelming, but using an all-in-one hotel software platforms makes it easier to manage everything from one place.

Other important hotel metrics

In addition to RevPAR, there are other important metrics that you should be monitoring as part of your hotel's revenue management strategy. Some of them are -

•  ADR – Average daily rate
• TrevPAR – Total revenue per available room
• RevPAM– Revenue per available meter
• Occupancy rate
• RevPASH – Revenue per available seat hour
• GOPPAR – Gross operating profit per available room
• RevPOR – Revenue per occupied room
• EBITDAR – Earnings before interest, taxes, depreciation, amortization, and restructuring
• LOS + ALOS – Length of stay + Average length of stay

Conclusion

In conclusion, understanding and optimizing your RevPAR is essential for enhancing your hotel's financial performance. Utilizing the RevPAR formula, considering factors like room rate, occupancy rate, ADR, length of stay, and seasonality, provide valuable insights into your property's revenue generation.

To increase RevPAR, embracing hotel upselling and cross-selling strategies, capturing direct bookings, room sales, and leveraging comprehensive hotel software platforms can be instrumental. The significance of marketing, distribution, and hotel revenue management strategies should not be understated, as focusing on direct bookings, analyzing cancellation rates, seeking guest reviews, implementing minimum stay policies, employing loyalty programs, hotel management, and ensuring a streamlined booking process all contribute to boosting your RevPAR.