What Is Revenue Per Available Room (RevPAR)?

What Is Revenue Per Available Room (RevPAR)?

RevPAR, or Revenue Per Available Room, is a key performance indicator in the hospitality sector. You can use it to assess how well you're filling rooms at average rates, which helps in making pricing and occupancy decisions. Understanding RevPAR's nuances lets you compare against industry standards and optimize revenue.

Key Takeaways

Revenue per available room (RevPAR) is a crucial metric in the hospitality industry, reflecting a property's ability to fill its rooms at an average rate. You calculate RevPAR by multiplying a hotel's average daily room rate by its occupancy rate, or by dividing total room revenue by the total number of available rooms. Remember, an increase in RevPAR doesn't necessarily mean higher profits, as it doesn't account for expenses or hotel size. Alternatives like TRevPAR and GOPPAR incorporate additional revenue streams and expenses for a broader view. RevPAR helps compare hotel performance over time and against competitors, but pair it with other metrics for a full financial assessment. An increase in a property's RevPAR most likely indicates an improvement in occupancy rate.

In-Depth Look at RevPAR: What It Means for Hotels

RevPAR is a metric used in the hospitality industry to assess a property's ability to fill its available rooms at an average rate. If you see an increase in your property's RevPAR, it means your average room rate or occupancy rate is improving. However, that increase doesn't necessarily mean better overall performance.

RevPAR fails to consider the size of a hotel, so it's not a good measure of overall performance on its own. You might have a lower RevPAR but still more rooms earning higher revenues. Larger rooms like penthouses can overcompensate for lower-quality ones that aren't booked or are unavailable.

Like other financial metrics, RevPAR works best as a comparison tool. Track your RevPAR over time to see changes with seasons or consumer preferences. You can also compare it against other hotels in the area for a sense of relative performance. Keep in mind, this measure focuses on revenue only and ignores expenses. It may be difficult to compare RevPAR with other hotels because revenue and occupancy information isn't always available, so set internal RevPAR targets.

Calculating RevPAR: Methods and Examples

There are two ways to calculate RevPAR. First, take the total room revenue and divide it by the total rooms available, including those that were available but not occupied. The formula is RevPAR = Total Revenue / Number of Rooms Available.

Alternatively, multiply the average daily rate by the occupancy rate. This method is more accurate for fully occupied hotels with limited unavailable rooms, as it's based on occupancy, not total availability. The formula is RevPAR = Average Daily Rate × Occupancy Rate. Either way, you get a dollar amount theoretically lower than the actual daily rate, since hotels can't exceed 100% occupancy.

Strategies to Boost Your Hotel’s RevPAR

Increasing RevPAR means your hotel is earning more for every room it has. You can use several strategies to improve it. Forecast demand more accurately—demand for rooms fluctuates, so stay aware of trends to charge higher prices during peaks and lower during slows. This helps decide discounts for unoccupied rooms.

Require longer stays; it risks losing business to more flexible competitors, but it can lock in longer bookings that wouldn't happen otherwise. Offer discounts or packages to incentivize this. Excel at customer service—great experiences lead to repeat visits and recommendations, boosting long-term revenue even if RevPAR doesn't rise immediately.

Leverage technology to make booking easy with robust online systems, central reservations, and FAQ sections. Build an email list to stay in contact with past guests. Some hotels require minimum stays for third-party bookings like Expedia to offset fees and earn more by extending stays.

Exploring Alternatives: Metrics Beyond RevPAR

RevPAR is common for comparing across brands and locations, but it doesn't include profitability or expenses. Focusing only on it can lead to declines in revenue and profits since it ignores costs. Many managers prefer average daily rate as it drives occupancy—accurate pricing should increase occupancy and thus RevPAR. You might also use RevPOR, which considers only occupied rooms.

TRevPAR (Total Revenue Per Available Room) is like RevPAR but includes revenue from amenities like spas and restaurants. It gives a holistic view but still ignores expenses. Calculation: Total Revenue / Number of Available Rooms.

ARPAR (Adjusted Revenue Per Available Room) factors in variable costs and additional revenue. It subtracts expenses like cleaning and utilities from ADR, adds things like room service, then multiplies by occupancy rate. It starts addressing expenses but omits overhead. Calculation: (ADR - VCpOR + ARpOR) × OR, where ADR is average daily rate, VCpOR is variable cost per occupied room, ARpOR is additional revenue per occupied room, and OR is occupancy rate.

GOPPAR (Gross Operating Profit Per Available Room) factors in more expenses, including for unoccupied rooms. It may include uncontrollable costs. Calculation: Gross Operating Profit / Number of Available Rooms.

Practical RevPAR Example: Understanding its Impact

Imagine your hotel has 150 rooms with a 90% occupancy rate and $100 average nightly rate. To assess performance, calculate RevPAR: ($100 per night × 90% occupancy rate) = $90. So, RevPAR is $90 per day. For monthly or quarterly, multiply by the number of days, assuming uniform pricing.

With this, you can decide on pricing—if RevPAR is $90 but average rate is $100, consider reducing to $90 for full capacity.

What Does RevPAR Tell You?

RevPAR assesses a property's ability to fill rooms at an average rate. An increase means improving rates or occupancy. It helps price rooms accurately since it covers revenue per available room, occupied or not. You can use it to measure against competitors.

Where Does RevPAR Fail?

An increase doesn't mean better performance, so relying on it alone can give inaccurate results. It ignores hotel size—a lower RevPAR might come with more rooms and higher total revenues. Growth in RevPAR doesn't ensure increasing profits, as it skips profitability measures.

Should RevPAR Be High or Low?

For most hotels, higher RevPAR indicates more revenue per room. But consider that charging more doesn't account for expenses—you might avoid costs by charging less. Align RevPAR with your strategic plan; budget hotels may aim low to avoid high-price perceptions.

The Bottom Line

RevPAR is a key metric in hospitality that gauges your ability to fill rooms at competitive rates. Evaluate it to benchmark against competitors, track performance, and spot improvements. It doesn't cover profitability, so use it with GOPPAR or ARPAR for a full view. Align goals with objectives, balancing revenue, costs, and preferences.