RevPAR

RevPAR

The core measure of the hospitality sector, known as RevPAR, or revenue per Available Room, has long been used by hotels worldwide as a crucial performance indicator. RevPAR has a long history and has given insight into hotels’ financial stability and profitability. RevPAR, a metric that measures revenue generated per available room, has been essential in assessing market trends, pricing tactics, and overall operational effectiveness. We can learn the importance of RevPAR in evaluating hotel performance and influencing revenue management practices by looking at its evolution and influence. 

What is RevPAR? 

The benchmark for gauging top-line performance in a hotel, portfolio, market sector, or geographic area is RevPAR. No matter the size or kind of property, by incorporating both the average daily rate and occupancy rate, RevPAR enables hoteliers and industry stakeholders to comprehend performance success over any given time and possible gains or losses in income. Of all the ratios employed in the hotel industry, RevPAR is likely the most significant. It briefly summarises how well a firm fills its rooms and how much it can charge. The statistic comprises room costs and occupancy. 

Understanding RevPAR 

In the hotel industry, RevPAR assesses a property’s ability to fill its available rooms at a standard rate. An increase in its RevPAR indicates an improvement in a hotel’s average room or occupancy rate. However, an increase in RevPAR only sometimes translates into better performance.  

 RevPAR does not take into account a hotel’s size. As a result, RevPAR by itself is a subpar performance gauge. Although its RevPAR is lower, a hotel may have more rooms with better revenue. Furthermore, some larger areas, like penthouses, could compensate for lesser-quality rooms that must be offered or checked. 

Hoteliers use RevPAR to gauge their establishment’s entire success, making it significant. RevPAR is important for illustrating growth, but it needs to consider profit; while expansion and revenue can often go hand in hand, it’s rarely the case. 

 However, there are substitutes to RevPAR that can aid hotels in better-measuring profitability and expansion by considering several other aspects, including expenses and occupancy rates. 

How to calculate RevPAR? 

The following steps are to be followed to calculate RevPAR: 

• Choose the period (such as a day, a week, a month, or a year) for which you wish to compute RevPAR. 
• Obtain the total amount of money spent on rooms during that time. Money from room reservations is included here but not from other sources like food and drink sales. 
• Count the number of rooms that are available for the same time frame. This estimates all the public spaces that might have been rented or sold. 
• To determine RevPAR, divide the total room revenue by the available rooms. 

• The resultant number will show the typical revenue made per available room over time. 

RevPAR can be calculated using the following formula: 

RevPAR = total room revenue / number of available rooms 

How to improve RevPAR? 

To improve RevPAR, the following strategies should be followed: 

• You may raise occupancy rates by providing competitive pricing, focused marketing, and efficient distribution channels. 
• Utilise revenue management strategies to adjust hotel rates by demand and market dynamics. 
• Improve customer happiness by providing outstanding service, individualised touches, and premium amenities. 
• To raise the average income per guest, upsell and cross-sell more services like accommodation upgrades, spa services, or dining choices. 

• Enhance operational effectiveness to reduce expenses and raise overall profitability. 
• Market trends should be continuously observed and analysed to adjust price and marketing tactics. 

Alternatives to RevPAR 

While RevPAR is a commonly used metric, there are alternative performance indicators that provide additional insights. Some alternatives to RevPAR include: 

• ADR,or average daily rate  

It calculates the average room rate for a particular period, regardless of occupancy, and provides a more concentrated look at pricing tactics. 

• RevPASH or revenue per available seat hour  

It measures the revenue generated per available seat hour, primarily focusing on revenue optimisation and dining capacity utilisation in the restaurant business. 

• GOPPAR, or gross operating profit per available room 

It accounts for operating expenses and gauges the hotel’s profitability by considering room income and other operating revenues. 

• RevPAR, or revenue per available client 

It is used in the retail and service industries to determine the revenue generated per available client, providing insights into customer spending patterns and maximising revenue prospects. 

• TrevPAR, or total revenue per available room 

TrevPAR considers the property’s whole revenue from all businesses, including the spa, the swimming pool, and the restaurants. However, just like RevPAR, TrevPAR disregards cost variables and occupancy rates. While TrevPAR is a wonderful indicator for hotel owners, general managers, and accountants seeking a high-level perspective of profitability, it is less helpful for revenue managers since it doesn’t allow them to identify revenue streams. 

Frequently Asked Questions