What is Revenue per available room (RevPAR)?
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What is Revenue per available room (RevPAR)?
Revenue opportunities can be increased by taking the time to comprehend RevPAR and its importance. Hotel owners, revenue managers, and hotel marketers can use this fundamental metric to assess a hotel's success and efficiency in the constantly evolving and cutthroat hospitality industry. Achieving sustainable profitability and optimising financial performance are ongoing goals for hoteliers.
Considering occupancy and average daily rate (ADR), RevPAR is a vital metric that comprehensively assesses a hotel's financial well-being. It evaluates the revenue yielded per available room during a specific timeframe, shedding light on the establishment's capacity to optimise revenue from its room inventory.
What is revenue per available room (RevPAR)?
RevPAR, or revenue per available room, is a key metric in the hotel industry. Its calculation and components offer insight into a hotel's financial performance. To calculate RevPAR, you divide the total revenue from room sales by the number of rooms available. This metric considers occupancy (representing the percentage of rooms available) and ADR (referring to the average price at which rooms are sold).
- RevPAR = Gross Room Revenue / Total Available Rooms
The formula allows hoteliers to assess the financial performance of their properties per room, providing standardised metrics for benchmarking and performance comparison.
Alternitavely hotel management can calculate RevPAR by taking the average daily rate of revenue and multiply it by the occupancy rate. This method is more appropriate and more accurate for fully-occupied hotels with limited rooms that are unavailable as it is based on total occupancy, not total availability.
- RevPAR = Average Daily Rate × Occupancy Rate
Let’s take a look at an example. A hotel has 100 rooms, and the average occupancy rate is 80%. The average cost for a hotel room is €120 per night. If the hotel wanted to calculate its RevPAR, the calculation is as follows:
- (€120 per night x 80% occupancy rate) = €96.00
The RevPAR works out at €96.00 per day. Suppose you want to find the quarterly or monthly RevPAR. You’ll need to multiply the daily RevPAR by the number of days in the chosen period. Note that this calculation assumes all hotel rooms are the same price.
*Further reading: How to calculate Guest Acquisition Cost (GAC)
Why is RevPAR important?
RevPAR is very important to hotel owners, financial managers and hotel marketers. First, it is a key skill in the hospitality and banking industries. By comparing RevPAR to industry standards and competitors, hoteliers can understand their market's state and identify improvement opportunities. It helps them decide how to implement pricing, revenue management and marketing strategies.
Additionally, RevPAR provides valuable information related to market growth and performance. By analysing RevPAR data over time, hoteliers can identify patterns, anticipate market fluctuations and adjust strategies. RevPAR helps them make cost-effective decisions, optimise revenue management, and tailor products to their customers' needs. By monitoring RevPAR, hotels can find the balance between maximising occupancy and achieving optimal ADR, thereby increasing profitability.
RevPAR is also important for hospitality industry investors, lenders and stakeholders. It can serve as an indicator of a hotel's financial health and possible financing costs. RevPAR is important in assessing a hotel's value and potential profitability when considering a purchase, development or potential business.
RevPAR is an important metric that provides hotel owners with important information about their financial performance and profitability. By analysing RevPAR data, hotel owners, financial managers and hotel suppliers can make informed decisions, improve cost and revenue management strategies, and increase profits. With its ability to analyse market demand and performance and improve revenue generation, RevPAR has become an important global competitive tool for the hotel industry.
Does it always work?
Although it is a popular way to examine room sales and pricing strategies, it doesn’t highlight better hotel performance. If RevPAR results are misinterpreted, they could lead to declines in revenue.
The RevPAR formula also fails to consider property size and the total number of rooms. Various hotels might have a low RevPAR, but their hotel rooms may earn higher revenues. Remember, it doesn’t use any profit data.
Consider your hotel’s additional revenue streams if you want overall revenue data. RevPAR is a key metric but does not help manage your annual revenue.
The bottom line is that hoteliers need to ensure they don’t only use RevPAR as a metric for overall hotel performance. Use this metric to develop room pricing strategies and to set competitive prices.
Factors that impact RevPAR
RevPAR can be affected by several different factors. These factors include occupancy, average daily rate (ADR), competition, and seasonality. If the occupancy rate is high, it suggests that hotel rooms are being used more frequently, resulting in a higher RevPAR. Conversely, if hotels effectively manage the ADR, it can positively impact RevPAR.
Seasonal variations and special events can significantly impact demand and RevPAR. For example, during peak seasons or when a major event takes place in the city, hotels can experience higher demand, leading to increased RevPAR. Conversely, hotels may witness lower occupancy and ADR during off-peak seasons or in the absence of significant events, resulting in decreased RevPAR.
Competition within the market also influences RevPAR. Hotels must analyse their competitors' offerings and pricing strategies to remain competitive. By understanding the market landscape and adjusting pricing and marketing strategies accordingly, hotels can strive to achieve higher RevPAR and gain a competitive edge.
How to improve RevPAR
Improving RevPAR requires a strategic and multifaceted approach that maximises both occupancy and average daily rates (ADR). Here is some advice to boost your RevPar:
- Revenue management: Implementing revenue management procedures can assist in maximising sales by optimising price and inventory. Identifying the most lucrative price methods entails examining market demand, booking trends, and rival pricing. Hotels can increase ADR and RevPAR by dynamically altering room rates depending on changes in demand.
- Demand generation: Tailored marketing campaigns should be developed and distributed through various channels to create demand and raise occupancy rates. The exposure of a hotel can be improved, and prospective customers can be drawn in by spending money on search engine optimisation (SEO), internet advertising, and social media marketing. Collaboration with online travel agencies (OTAs) and other partners in the travel industry can further increase bookings and reach for the hotel.
- Upselling and cross-selling: Encourage visitors to upgrade their room category or buy additional services and facilities to influence ADR and RevPAR greatly. Hotels may raise the value per guest and boost revenue by providing enticing package packages, tailored extras, and exclusive experiences.
- Yield management: Implementing yield management strategies entails carefully controlling room availability and rates in accordance with demand trends. Hotels can maximise income by dynamically altering pricing, distributing inventory to the most lucrative segments, and enforcing length-of-stay restrictions during periods of high demand by utilising data and analytics.
- Operational efficiency: Improving operational efficiency and lowering expenses can have a beneficial effect on RevPAR. Increasing operational effectiveness through technological investments, optimising staffing, and reducing waste can improve the bottom line. Hotels may maximise profitability and ultimately raise RevPAR by keeping costs under control while maintaining a high standard of service.
RevPAR alternatives
While it is a helpful formula, its drawbacks have led to additional hotel metrics. These options assist hoteliers in seeing other revenue streams and a larger picture of hotel success.
- TrevPAR - TrevPAR, or total revenue per available room, provides data on all revenue generated by the property. For example, this figure includes revenue streams from food and beverage departments. TrevPAR is helpful when looking into total hotel revenue management.
- ARPAR - Known as adjusted revenue per available room, ARPAR accounts for costs and revenue per occupied room - not by available room.
- GOPPAR - GOPPAR (gross operating profit per available room) indicates performance from all revenue streams. GOPPAR includes additional room variables, including internet bills.
Conclusion
Revenue per available room (RevPAR) is an important indicator of a hotel's financial performance and efficiency. Understanding RevPAR and how it is calculated is critical for hotel owners, revenue managers and hotel marketers to optimise revenue generation and profitability. By considering both occupancy and average daily rate (ADR), RevPAR provides a complete picture of a hotel's ability to generate revenue.
RevPAR is the benchmark for evaluating a hotel's performance against industry standards and competitors. It helps to identify strengths, weaknesses and areas for improvement. Tracking RevPAR allows hoteliers to gain insight into market demand, make informed pricing decisions, and align revenue management strategies with demand patterns.
Factors such as occupancy, ADR, seasonality, and competition can affect RevPAR. Therefore, implementing effective strategies to increase occupancy, optimise ADR, and capitalise on market dynamics is critical to improving RevPAR. Revenue management practices, demand generation efforts, upselling and cross-selling, yield management techniques, and operational efficiencies all help maximise RevPAR.
By prioritising RevPAR as a key performance indicator and implementing the right strategy, hotels can improve their financial performance, outperform competitors and achieve sustainable profitability. Continuously monitoring and analysing RevPAR, adapting to market changes and striving to innovate will help hotels thrive in the dynamic and competitive hospitality industry.
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