What is RevPAR?
Revenue per available room or RevPAR is a hospitality performance metric used for hotels. RevPAR is a useful metric as it takes into account the hotel’s average daily rate(ADR) and occupancy rate making it an important metric in determining hotel performance.
How to calculate RevPAR?
There are two methods for calculating RevPAR, use the RevPAR calculator below to better understand the relationship between each variable.
RevPAR = Average Daily Rate x Occupancy RateYour hotel’s RevPAR is $90 for the period
RevPAR = Total Room Revenue / Total Rooms AvailableYour hotel’s RevPAR is $90 for the period
Example for Calculating RevPar
As an example, assuming a hotel has 150 rooms available, an average daily rate of $100, and an occupancy rate of 90%, the hotel has a total revenue of $13,500 for the period. The calculation of RevPAR in this example would look like this:
Using Method 1: $90 = $100 x 90%
Using Method 2: $90 = $13500 / 150
To Calculate RevPAR for another length of time just multiply the daily RevPAR by the number of days in the desired period (monthly, quarterly, etc.), this will assume all rooms are priced the same.
Why is RevPAR Important?
Ultimately, RevPAR helps hotel managers run their hotels in several capacities:
- RevPAR assists in providing an idea of how much a hotel could charge for a room. As an example, if a hotel has a RevPAR of $120 but an average room rate of $130, reducing the average rate may help reach full occupancy.
- It is also a powerful metric to measure your business performance overtime.
- When used in conjunction with other metrics it helps in developing a revenue management strategy for the hotel.
What are the shortcomings of RevPAR?
RevPAR alone is not a great measure of overall hotel performance as it doesn’t take into account the size of the property nor does it measure any information on profit. Given that, it is possible to increase RevPAR while decreasing the hotels profitability. This is why RevPAR should be evaluated amongst other hotel performance metrics at the same time. Combined with Occupancy Rates and Average Daily Rate will provide a clearer picture of the hotels performance.
How to Improve RevPAR
Now that we have an understanding of how to calculate RevPAR and we understand the importance of it, the next question is, how to increase RevPAR?
We will focus on a few key strategies to help improve RevPAR, these strategies will have a direct on your RevPAR immediately.
Revenue Management is a strategy designed around selling the right room to the right customer by adjusting prices based supply and demand. Increasing prices as demand increases will maximize revenue earned. Modern channel managers & booking engines will optimize pricing automatically for you. RevPAR and revenue will increase as rooms are being sold for the optimum price.
Unique Pricing Strategies for high seasons, low seasons, holidays, weekends, and weekdays will help to ensure optimal RevPAR in each of those strategies.
Increase ADR through upselling will have an immediate impact on improving RevPAR. Developing effective upselling strategies either through email marketing prior to the guests arrival or during arrival at the front desk. Each upgrade will help to boost ADR.
Increase Occupancy through targeted outreach campaigns during the slower periods, focusing on retreats, groups, corporate events, is an efficient way to fill rooms when they would otherwise be empty. Reaching out to loyal guests for preferential pricing to fill periods that will have surplus occupancy is a great way to foster these relationships while filling beds.
Increase Length of Stay will also have an immediate impact on RevPAR as is directly proportional to occupancy. Having a minimum length of stay can help optimize for occupancy during slow periods is a great way to boost RevPAR. Conversely, having a maximum length of stay during peak seasons can help to optimize for ADR as the hotel will likely be at full capacity during this period.
Cancellation Policy focusing on reducing last minute cancellations will have a major impact on RevPAR. Creating fair policies that are reasonable for you guests and the hotels bottomline is important balance to strike. Having a good understanding of your market, guest, season, and how much time is needed to fill a cancelled booking are all important factors to consider when crafting cancellation policies.
Here are a few indirect strategies that will help to improve RevPAR over a longer period of time.
- Customer Demand when a hotel manager understands their customer demand patters throughout the year, managers can be implement pricing policies that charge more and still out compete their competition.
- Customer Experience having a strong understanding of who your customer is will provide an edge over your competition, allowing you to charge that higher rate while filling the entire hotel. Customer experience means anticipating guest needs before the guest even knows, delivering high touch interactions that delight your guests, to name a few.
- Online Reputation curating a strong online reputation is very important to commanding higher rates and maintaining a higher occupancy rate. Hotel managers that respond with guest reviews quickly, sincerely, and honestly will help to build the hotels reputation in the eyes of prospective consumers. Don’t forget about other social platform such as Instagram, Twitter, and Facebook also as those are powerful tools to build your online reputation and to communicate with the hotels audience.
- Marketing campaigns targeting potential audience will help to keep your property top of mind when prospective hotel guests are planning their next trip. Here are a a few ways to drive more bookings:
- Influencer marketing
- Email campaigns
- Brand partnerships
- Online ad campaigns
- Customer Relationship Management is often found as a subset in these categories but at Pitaya we think it is important enough for its own listing as a way to improve RevPAR. This can take time to properly build your records but it opens many ways to tailor offerings to guests based on their unique preferences.
As you can see there is not one way to improve RevPAR, there are many approaches and tools that can be used to optimize for RevPAR. Depending on your hotel, some will be more effective than others and using a combination of methods may yield higher results than others.
RevPAR with other metrics
RevPAR should be used in combination with several other performance metrics to provide a clear picture of a hotels performance and profitability.
RevPAR and ADR
Average Daily Rate(ADR) was used in the calculation of RevPAR but it should also be viewed along side RevPAR. ADR alone is incomplete because it excludes unoccupied rooms, RevPAR helps complete this picture. RevPAR works as a validation on the predictions of ADR, and allows hotel managers to manage occupancy levels more effectively.
RevPAR and GOPPAR
Gross Operating Profit Per Available Room(GOPPAR) measures operating profit from rooms available, therefore GOPPAR is a measure of how efficient a hotel is being operated. This is important because RevPAR doesn’t factor in any profitability measure. It is important to note that GOPPAR may include a mix of other revenues, not just room revenue.
RevPAR & Competitors
RevPAR is often used to understand performance against competitors in a similar market. When building a comparison set it is best to use similar types of hotels (business, full service, luxury, economy, etc.), who serve similar customer sets, within a defined geographical region.
Data companies such as STR frequently produce and release their “STAR” industry reports which contain granular information on various market segments to help hotels build comparison data.
Using a RevPAR Index is helpful to represent a hotels performance relative to the competitive set of hotels. A hotels RevPAR Index is based out of 100.
As an example if your hotel has a RevPAR of $50 and the competitive set has a revPAR of $50 then the RevPAR Index is 100. An index higher than 100 indicates the hotel has captured more than its expected share, Conversely, an index below 100 would suggest it has captured less than its expected share.
RevPAR & Hotel Software
Many hotel managers are still manually calculating RevPAR and other performance metrics. This practice can be prone to error, very inefficient, and ultimately not the best use of a managers time, especially when hotel software will do this in real-time. If you are one of those managers it's time to consider updating your practices to utilize modern hotel software like Pitaya. Using hotel software is an important component to effectively managing your RevPAR on a real-time basis. Hotel software like this will assist in
- Planning your revenue management strategy by providing real-time data from your property.
- Connect to more online sales channels
- Enhance hotel managers ability to delight guests during their stay which can directly impact online reputation through positive reviews
- Advanced pricing strategies for different times of the year
- Assisting in upselling to guests at different times
EquityRoots has created a great summary video the essential metrics needed for your hotel including RevPAR, Occupancy, and ADR.