When it comes to measuring success in the hospitality business numbers play a huge role. Data can help hoteliers make accurate and smart decisions based on tracking, managing and understanding property performance metrics.
In this article you will learn everything you need to know about RevPAR and how to calculate RevPAR (the most popular hotel performance metric). Understand where your hotel business is most successful and where your hotel business falls short so that you can start making the most strategic decisions to ensure your properties’ success.
What is RevPAR?
RevPAR (revenue per available room) is a metric used in the hospitality industry to measure hotel performance. RevPAR is a key performance indicator (KPI) that many hoteliers consider the most important measure of data.
Basically RevPAR shows you how many rooms are being sold at the hotel and how much revenue is being generated from those rooms. Using RevPAR you can understand how to maximize revenue from each booking. If your RevPAR goes up, then either your average room rate has gone up or your occupancy rate has gone up (or both).
It also gives you a glimpse of when your rooms are most in demand, and how to plan for these periods of time accordingly. If you know your hotel books up certain months you can increase price and therefore increase overall revenue. Whereas if you know there are months that are in low demand you can plan for discounts, or contracts with recurring business travelers to fill up occupancy.
In addition you can also build a competitive analysis based on measuring your revenue per available room in comparison to other hotels in your area.
How do you calculate RevPAR?
You can calculate RevPAR in two different ways:
- Rooms Revenue / Rooms Available
- Average Daily Rate x Occupancy Rate
Example #1: If you have a 200 room hotel, and 80% is occupied then 160 rooms are occupied of the total, multiply that by the price per room ($100) and your total room revenue equals $16,000. You then divide that by the total number of rooms available (200) = $80 RevPAR. ($16,000 room revenue / 200 total rooms available= $80)
Example #2: If your hotel is occupied at 80% with an ADR (Average Daily Rate) of $100, your RevPAR will be $80. ($100 per night x 80% occupancy rate= $80)
To calculate the monthly, quarterly or yearly RevPAR just multiply the daily RevPAR by the number of days in each period. (This calculation works assuming the room price stays the same).
Your hotel can understand how to make smarter decisions based on RevPAR. For example if the average price per room is $100, but the RevPAR is at $80 that means you can reduce the average rate to $80 to increase full capacity.
RevPAR vs. ADR
RevPAR is very different from average daily rate (ADR). They both are important to calculate and you need to first calculate ADR in order to calculate your RevPAR.
ADR (Average Daily Rate) is the average of how much each room sells for. If you have 200 rooms in your hotel and each room is selling between $80-$150 you would add up the total amount and divide by the number of rooms to calculate the average price per room (ADR).
RevPAR (revenue per available room) takes ADR one step further. It tells you how much revenue you are generating for all your rooms. You might have 200 rooms that are sold for an average daily rate of $100, but if only 30% of those rooms are being filled then you might not be reaching any of your goals if you are only calculating the ADR.
Therefore it is extremely important to calculate RevPAR and not only ADR. RevPAR will tell you how to adjust room rates accordingly, and if you need to increase your occupancy to reach your goals.
What is RevPAR Index?
The RevPAR Index, also known as revenue generating index (RGI), measures the performance of your RevPAR compared to other similar groups and competitors in the market. If you want to see where your hotel falls relative to other hotels, markets, or sub-markets then you would calculate the RevPAR index.
You always want your RevPAR Index, or revenue generating index (RGI) to be at 100 or more. If your hotel falls below 100, this indicates your hotel falls below the market share compared to other similar groups of hotels. Whereas an RGI that is more than 100 means that your hotel is outperforming and getting more than the expected market share.
How to Calculate RevPAR Index
To calculate RevPAR index simply divide your RevPAR with the hotel grouping cluster you want to measure against, then multiply your result by 100. A result of more than 100 means that you’re outperforming the expected market share, and a result of less than 100 represents that your competitors are outperforming you.
For example if your hotel’s RevPAR is $80 and the group of similar hotels you’ve chosen to track have an average RevPAR of $70 then your RevPar index is your RevPAR $80/ Your competitors RevPAR $70 multiplied by 100 which equals 114. This result means you are doing better than your competitors, or the group of similar hotels you chose to measure against.
RevPAR index helps you understand where your hotel needs to improve, and where your hotel is doing well in comparison to similar hotels in the market.
Alternative options to RevPAR
RevPAR is certainly one of the more popular hotel metrics, but it is not the only one. One thing RevPAR misses is profit. Therefore other performance metrics have come into play to help hotels measure growth and profit.
Here are some other useful metrics to help you better track and manage overall success at your hotel:
TrevPAR (total revenue per available room): This metric shows you the total revenue generated by the hotel, including revenue coming from other places in the hotel, such as restaurants, bars, spa, stores etc.
How to Calculate TrevPAR: Total Revenue / Total Number of Rooms
TrevPAR helps hotel owners measure revenue at a high-level and see an overview of profitability. Though it is important to note that it does not pinpoint specific inflow revenue and represents a general picture.
GOPPAR (gross operating profit per available room): Gives hotels an indication of performance across all revenue streams, including room variables such as internet bills.
How to Calculate GOPPAR: Gross operating profit / (per) available room
GOPPAR looks at all rooms whether they are occupied or not. GOPPAR like TrevPAR shows performance across all revenue streams, but includes things like internet bills and other hotel costs that the hotel has little control over.
GOPPAR is helpful in that it analyzes overall profits, the amount of cash flow, and the amount of expenses the hotel has. It is an important measure of profitability since it helps hotels understand how to optimize bookings in order to maintain a positive cash flow, with keeping operating costs and expenses in mind.
How to increase your hotels RevPAR
Now that you understand what RevPAR is and how to calculate it, let’s dive into some ways you can increase your hotel’s RevPAR.
Manage Revenue: Adjust the prices as per demand and supply. You can see when the demand of your rooms increases and therefore you can increase your room rates and vice versa. When your rooms are being sold at the optimum price as per the occupancy, your RevPAR and revenue will be higher.
Increase Occupancy Rate: If you know the demand is lower in some seasons, plan for promotions in order to increase occupancy rates. Work on marketing techniques and other ways to promote filling up the occupancy in the hotel. The higher the occupancy the higher the RevPAR will be.
Apply Mixed Pricing: It is important to have a mix of pricing for different rooms, guests and times. Stay strategic and increase pricing on the weekends, while reducing pricing on the weekdays (or travelers are less likely to stay in your hotel). Having deals and points (especially for business travelers) can also increase return guests and occupancy of your hotel.
These are just some ways to increase RevPAR, but it’s important to stay on top of metrics to see what they are telling you at any given time, and where you stand in comparison to your competitors. Keep in mind that things like great customer service, and comfort also play a big role when it comes to the success of any hospitality establishment.