Data is incredibly valuable to any hotel or accommodation business. Without it you can’t hope to make accurate, informed, or strategic decisions for the benefit of your property. As time goes by, more and more data is becoming available and the ways to measure and track it are also increasing. This means it’s more vital than ever to use data to analyse and perfect the performance of your business.
Hotels are a veritable beehive of activity; when you take into account the numerous channels reservations can be processed through, the amount of customer information that is collected, and the many on-site operations including amenities, room service, and staff.
Hoteliers need to be aware of the opportunities this data represents. By using common hotel performance metrics, you can paint a clear picture of what’s working within your business and what you can improve through strategic alterations.
This article will explain everything you need to know about RevPAR and many other popular hotel metrics, so you can start making positive change at your hotel straight away.
Get the RevPAR formula and more: Download the formula sheet
Table of contents
What is RevPAR?
RevPAR stands for revenue per available room, and is one of the most common and important metrics for your hotel.
It is an easy way to visualise the revenue that is being generated by specific market segments in your destination. Ultimately, this metric provides a glimpse into the number of rooms that are being sold at a hotel and how much revenue is being generated from those bookings. It allows you to evaluate one component of your overall revenue management strategy.
You should use RevPAR to understand the best way to maximise the revenue generated per room. If the RevPAR of your property is increasing, it must mean your average room rate or occupancy rate is increasing – or both!
It’s quite easy to calculate RevPAR. Simply multiply your average daily rate (ADR) by your occupancy rate. For example if your hotel is occupied at 70% with an ADR of $100, your RevPAR will be $70.
The other way to calculate it is by dividing the total number of rooms available in your hotel with the total revenue from the night. In a 300 room hotel, 70% occupancy equals 210 rooms occupied. Multiply that by 100 and you will get $21,000 as your total room revenue. Divide $21,000 by the total number of rooms available (300) and you’ll have your $70 RevPAR.
To calculate your property’s annual RevPAR, simply take your rooms available multiplied by 365 days in a year. So with the 300 room property above, the annual room nights available is 109,500. That’s a lot of room nights to yield and optimise!
Note that you’ll also need to calculate your ADR for the first example. You can see how this is done further into this article.
RevPAR is often considered one of the most important metrics in hotel revenue management and is duly used by most. If you aren’t employing RevPAR at your property to evaluate and improve performance, now is a good time to start!
RevPAR should not be the only metric you rely upon, as it doesn’t take into account other revenue generators at your hotel such as food and beverage, spas, gyms, or other amenities; or retail sales. RevPAR can also differ widely by market, segment, and timing.
It is a representation of the success your hotel is having at filling and/or maximising the value of your rooms. Always use RevPAR in combination with other key performance metrics to optimise your hotel’s performance.
It’s important to understand RevPAR and RevPAR Index are not the same thing. While RevPAR is the straightforward calculation to understand how well you are selling and profiting from your rooms, the RevPAR Index measures the performance of your RevPAR relative to a grouping of other hotels, such as a competitive set, market, or sub-market.
The RevPAR Index, or revenue generating index (RGI) should be 100. This indicates your hotel is getting the expected, or fair, market share amongst the particular group of hotels. Naturally an RGI of greater than 100 represents more than the expected market share, and less than 100 represents you are not getting as much of the share as you should.
To calculate the index you need to divide your RevPAR with the aggregated group of hotels’ RevPAR and multiply it by 100. So, if your hotel’s RevPAR is $70 and the groups is $50 your RevPAR index will be 140 and you’ll be easily getting more than your expected market share. Obviously this is the ideal scenario for your business.
There are a few reasons you might want to calculate your RevPAR index:
- It will allow you to see how well your strategy is working relative to competitors
- It can show you the variance between you and your competitors – if your index is lower can you make an investment, in technology for example, to help close the gap?
- You can be continually aware of how your hotel is positioned
The tricky part is choosing the competitive set to measure yourself against. If you’re in a busy city, it can be easier because there is a larger selection to choose from. Choose hotels that have a similar product offering to you. Once you have established your competitive set, you should try not to change it unless you have a good reason to do so.
RevPAR vs ADR
RevPAR and ADR are not to be confused. While they both relate to room revenue they’re very different metrics. In fact, you first need to calculate your ADR before you begin calculating RevPAR.
ADR will simply tell you how much revenue each sold room is selling for on average, while RevPAR will tell you how much revenue you’re bringing in for all your rooms. You might have 100 rooms at a rate of $100 per night, but if your occupancy is only 50% then your revenue figure won’t be anywhere near what your target is. This is why RevPAR is important to track. If you can’t solve your occupancy problem, then perhaps you can make more money on the rooms you are selling, even without raising rates – since increasing rates could be counterproductive.
Know the difference between ADR and RevPAR and use both to assess the performance of your hotel.
TrevPAR stands for total revenue per available room. On first glance it appears very similar to RevPAR but it’s quite a different measurement. While RevPAR relates only to room revenue, TrevPAR accounts for all the ways your hotel makes money and applies it back to how many rooms you have.
For example, your hotel will take revenue from all sorts of places including your bar, restaurant, parking, pools and spas, mini bar, massages, exercise classes, gym, retail sales, activity bookings etc. There’s a lot more money coming than from reservations. However, it’s still relevant to track this against your rooms because the money is still being generated from the guests in those rooms.
TrevPAR is calculated by dividing total revenue by total number of rooms.
So if your hotel revenue for a day was $15,000 for example and your hotel has 110 rooms, TrevPAR would be $136.
Naturally you’ll want to try to increase TrevPAR as this will indicate an increase in average revenue, occupancy, or both.
Since TrevPAR takes into account all revenue of the hotel and relates it back to the number of rooms, you could argue that it provides a better ‘big picture’ view than RevPAR does. However, TrevPAR fails to take into account any costs incurred or the actual occupancy rate of your hotel.
RevPASH stands for revenue per available seat hour and applies if your hotel has a restaurant or other food and beverage outlets. RevPASH also occurs outside of the hospitality industry, such as at hairdressers where appointments on weekends are more expensive because there are less slots available.
Tracking the RevPASH metric is important for understanding the usage and revenue of a ‘seat’ and allows you to better plan your food and beverage operations.
To calculate RevPASH you need to divide total outlet (e.g outlet) revenue by the available seats multiplied by opening hours.
For example $15000/(50 seats x 8 hours) = RevPASH of $37.5.
Once you know how to calculate RevPASH you can start thinking through how you can enhance the revenue of your hotel restaurant. Is it a matter of opening longer or getting more customers in at the peak of the day, running promotions etc?
Hotel occupancy rate
Your hotel’s occupancy rate is understandably an important metric – you want to make sure a healthy number of guests are coming through the doors of your property. The occupancy rate will tell you exactly how full your hotel is at any point in time.
Your occupancy rate is a clear indicator of how popular your hotel is and can have a big impact on the amount of revenue your property generates. While you can increase revenue without increasing occupancy, the more guests you have coming in the more opportunity you’ll have to maximise revenue.
In saying that, 100% occupancy is not ideal for most hotels either. There will be a sweet spot for your hotel where revenue is maximised and costs are minimised.
Occupancy rate formula
Occupancy rate can be simply calculated by dividing the number of rooms booked by the total number of rooms. If you have a 100 room hotel and 70 are booked tonight then your occupancy rate is 70%.
You can look at this figure over varying periods of time, not just one night. The rate will be different depending on the length of time you consider.
Average hotel occupancy rate
You can calculate the average occupancy rate for more than just one night, if you want it as an average for a week, a month, or even longer. To do this, determine the number of total rooms you have, and the number of rooms that were filled every night.
If you want the average rate for the week, you would add together the number of rooms that were filled every night, divide that number by seven days, and then divide the resulting number by the number of total rooms you have for rent.
What is a good occupancy rate for a hotel?
Looking at occupancy rate in isolation is rather meaningless, you need to evaluate it in conjunction with other metrics to understand if increasing, or decreasing, your occupancy rate is the right thing to attempt.
In general a good hotel occupancy rate will depend on:
- The type of hotel
- The location
- Guest experience
You might safely assume the higher the occupancy rate, the better. After all you want to fill as many rooms as possible all year round to keep a steady income rolling in. However it’s not a realistic expectation to think you can have a full hotel all the time. You may have empty rooms sometimes – most often this occurs on weeknights.
You may also have times of the year where you don’t see as much business, and your occupancy rate dips lower than you would like. For example, if your hotel is located in a popular ski destination, you may see lower occupancy during the summer months. A hotel at the beach will expect lower occupancy rates in the winter.
Comparing yourself with other hotels in the area can help you get a good gauge of whether you have a competitive occupancy rate. A newer hotel in a prime location will often see higher occupancy rates, but only if your costs are fair and you treat customers well.
There are so many things that can affect occupancy rates at hotels. Price and location are by far the two most important ones, but there are plenty of other factors, as well. These include:
- Guest experience
- The cleanliness of the rooms
- The quality and availability amenities
How to increase hotel occupancy
If you do need or want to increase the occupancy rate at your hotel there are plenty of ways you can achieve it.
Sometimes all it takes is to partner with a new distribution channel. If a small increase in occupancy is all you require, even connecting one extra booking channel could make all the difference.
The same applies to social media. If you don’t already have a book now button on your Facebook page, or have an instagram account, then you could be missing vital bookings that would push your occupancy up percentage points each week.
Here are some other ideas to help you improve your current hotel occupancy rate.
List your best available rate (BAR)
Best available rate relates to the best publicly available rate for guests booking at your hotel. This before customers might apply loyalty points or promotional codes to receive discounts.
The BAR rates are available to the general public, do not require pre-payment and do not impose cancellation or change penalties and/or fees, other than those imposed as a result of a hotel property’s normal cancellation policy.
BAR pricing is an attempt to reduce confusion for hotel guests caused by complex rate strategies with many different prices. The BAR is in essence the lowest rate available for each date, and is offered to the guest.
This means the guest could pay different prices each night. The rate distributed will fluctuate to be the same as unrestricted rates available publicly on any other channel, including online retailers, hotel web sites, global distribution system (GDS), and more.
#1 Create packages and promotions
When your hotel has something more to offer than the competition around you, your occupancy rates are bound to go up. That’s a good thing, and it’s something you want to see. But think carefully about the packages and promotions you want to offer.
If your occupancy rates rise, but your prices are so low that your hotel isn’t actually making any money from its guests, those rates don’t mean anything. You can fill your hotel to capacity every night with prices that are low enough, but you’ll still be losing ground financially.
Instead, offer great packages and promotions that help people save money but are still targeted with strong pricing for your hotel in mind.
#2 Target the right markets
If your occupancy rates are lower than your competition it could mean that you are not reaching the right people with marketing initiatives.
You need to make sure your hotel is reaching the people who will be most likely to stay there. That could be business travellers, young couples, families, or any other specific traveller groups.
Knowing your target market matters and when you focus your marketing and promotional efforts on appealing to that market, it will help increase your occupancy rate.
#3 Use events
If there are cultural events that happen in your city, why aren’t you seeing a spike in occupancy? Why aren’t the people who come to these events staying with you?
Those are questions that you need to answer in order to raise your occupancy rates. Talk to groups in the area that put on these events, and find out what you can do to be a part of all the action and excitement.
Market to people who have stayed there before, and who may not know about the event. The goal is to bring people to your hotel when they come to the event, and potentially hold events at the hotel as well.
#4 Partner with local businesses
Companies often need hotels when they send their employees to various locations. Local companies may have people coming in from outside the area, and companies with a number of locations in areas around the country may have get-togethers in specific places.
These companies can easily be contacted, and there are ways to work with them to provide meeting spaces, rooms at a discount, and other perks and amenities they may appreciate. Convincing these companies to book rooms at your hotel can really raise your occupancy rate.
#5 Help people declare their love
Holding weddings at your hotel can be an excellent way to raise your occupancy rate. Even if the couple getting married are local, they probably have friends and family members who will be coming to the wedding from outside of the area.
Those people will need a place to stay, and what better place than the hotel where the wedding is being held. You don’t need a dedicated chapel to do this. You can use a meeting room that can be decorated, or other types of locations that can be romantic and beautiful.
Discounts for midweek weddings can also be a great way for you to increase your midweek occupancy. It will cost the couple less than a weekend wedding, and it will also help to raise occupancy rates during a time when these rates are typically lowest.
#6 Work with real estate agents
People who are coming to town and looking for properties to buy or rent will need somewhere to stay. Why not your hotel? It can be a great choice, but people have to know about it.
If you have good relationships with local real estate agents, these agents can recommend your hotel to the people they work with. That can help your occupancy rate increase, and can get you repeat business in some cases.
For example, when the people who are looking for property return to look again, or they move into the area and are waiting to close on the home they chose on their last trip to your location, they will need somewhere to stay. Feeling welcomed by the local community and its businesses is a great way to help people feel good about their new area and all it has to offer, as well.
ADR stands for average daily rate and simply relates to the price of your hotel rooms across your sold inventory. Specifically it is calculated using the amount of revenue earned and the number of rooms sold to give you an average rate.
As stated previously ADR is very different to RevPAR, since ADR simply indicates the price of your rooms while RevPAR will tell you how much money you yield from each room, sold or not.
Average daily rate formula: How to calculate ADR
To find out what the ADR is for your hotel divide the revenue earned from your rooms by the amount of rooms sold.
For example $3850/35 rooms sold for one night = ADR of $110. In this instance the hotel has 50 rooms so while the average daily rate is $110, the RevPAR would be $77 because only 70% of the rooms were sold.
When calculating your ADR for a longer time period it gets slightly more complicated. For example, if you want to know what your ADR is across a monthly period you need to divide your room revenue by the number of rooms and the amount of days in the month.
Here is an ADR calculator to do all the work for you:
You can use pricing strategies to increase your ADR. Here are some handy tips:
1. Packages, promotions and extras
Packages are any rate that pairs the accommodation with an add-on; it could be free breakfast, free parking, or a ticket to a local event or attraction.
Promotions are special rates that can change depending on:
- The season or holiday period
- If the guest is a VIP
- You want to capitalise on an event
You can get even more specific by offering things like mobile-only promotions.
Extras are an added expenditure that guests will only realise they want during the booking process.
This might include items like champagne and chocolate stocked in their room, shuttle services from the airport, or activities like exercise classes.
2. Events and tours
Selling tickets to local events, tours, or offering car rental is a good point-of-sale opportunity to increase your revenue per customer as well as providing a more satisfying experience for your guests.
3. Sell your hotel products
If you offer your guests the chance to buy your shampoo, bath and beach towels, art pieces, linen and so on, it can provide you with extra revenue and might even save you from the cost of replacing items that guests ‘accidentally’ pack with their own luggage when they depart.
4. Referrals and return business
If your guests give you positive feedback on completion of their stay, encourage them to share their experience with family and friends, and on social media to drive more bookings and brand awareness.
You could also set guests up with a promotion code to get a discount the next time they stay. This encourages return business and helps you keep a consistent occupancy rate.
5. Accommodate flexible travellers
Some travellers don’t have a set itinerary or allow themselves flexibility with their schedule, so take the opportunity to raise your occupancy and incremental revenue by offering guests a discount for an additional night’s stay. This might appeal to families and backpackers, or the ever-evolving ‘bleisure’ travellers.
GOPPAR stands for gross operating profit per available room. Revenue managers commonly have key performance metrics around this and it can often have variances at different hotels in regards to how it is calculated.
GOPPAR is a beneficial metric to consider because it not only provides you with an insight of the revenue that you are generating per room, but also the costs that are associated with generating this revenue. It is one of the most effective ways to analyse the bottom line of hotel performance and develop plans to improve it.
GOPPAR should be constantly monitored at your hotel, and the entire revenue management team should be involved in this analysis. Regular monitoring gives you an opportunity to make minor adjustments to your revenue management strategy along the way, such as figuring out how you can cut costs without a detrimental effect on service. Ultimately, this promotes long-term growth at your property.
GOPPAR is calculated by dividing the gross operating profit (GOP) by the number of available rooms in the hotel.
This is similar to RevPAR except it eliminates fees and expenses from the revenue figure first.
For example if you want to measure it for the period of a year:
- 100 rooms x 365 days in a year = 36500 available rooms in the year
- Total hotel revenue, including room revenue, food and beverage etc = $6 million
- Expenses including supplies and salaries etc = $2.5 million
- GOP = $3.5 million
- GOPPAR – $3.5 million/36500 = $96
So this means in the chosen year, each room is earning a profit of $96.
EBITDAR is not unique to the hotel or hospitality industry; it can apply to any company that wants to make and keep track of profits.
It stands for earnings before interest, taxes, depreciation, amortisation, and restructuring or rent costs.
EBITDAR is used to measure a company’s financial performance. Using EBITDAR in analysis helps to reduce variability from one company’s expenses to the next, in order to focus only on costs that are related to operations. This is helpful when comparing peer companies within the same industry.
The formula for EBITDAR is
EBITDAR = EBITDA + Restructuring/rental costs
WhereEBITDA = Earnings before interest, taxes, depreciation, and amortisation
Other important hotel metrics
The metrics explained above are just the most important of a long list of measurements you can use to help in the management of your hotel.
Other less urgent metrics can still be useful to keep track of as a way of understanding the day-to-day health of your business and to also enable more informed long-term planning.
LOS – Length of stay
Length of stay refers to how long a guest occupies a room. Hotels will often put a restriction on length of stay. Ideally you don’t want too many guests that only stay for one night, nor do you want too many that stay weeks on end.
If guests are only staying one night there’s more pressure on you to find the next booking for the room and also on staff to clean the room fully to receive new guests.
If guests are booked into a room for too long you don’t have the option of adjusting rates and getting new guests in for a higher price if the market dictates it so you’ll miss out on vital revenue.
This is why hotels can place minimum and maximum stay restrictions on bookings before the guest confirms their reservation.
ALOS – Average length of stay
Understanding the average length of stay at your hotel across all room nights is important for seeing how it affects the other hotel metrics you’re tracking.
You can calculate the average length of stay by dividing the total occupied rooms nights by the number of bookings. Generally a higher number is better as the lower number will probably mean an increase in labour costs.
For example if you have 70 room nights booked across the month represented by 14 individual bookings, your ALOS would be 5. This means in that particular month your guests stayed an average of five nights.
If this metric shows you that you’ve been accommodating more short stays than usual, then you can make revenue management adjustments, such as offering a better rate on average for stays that extend past two nights.
- RevPAR stands for revenue per available room, and is one of the most common and important metrics for your hotel
- TrevPAR stands for total revenue per available room. On first glance it appears very similar to RevPAR but it’s quite a different measurement
- RevPASH stands for revenue per available seat hour and applies if your hotel has a restaurant or other food and beverage outlets
- The occupancy rate will tell you exactly how full your hotel is at any point in time
- ADR stands for average daily rate and simply relates to the price of your hotel rooms across your sold inventory
- GOPPAR stands for gross operating profit per available room
- EBITDAR is not unique to the hotel or hospitality industry; it stands for earnings before interest, taxes, depreciation, amortisation, and restructuring or rent costs
- Other less urgent metrics can still be useful to keep track of as a way of understanding the day-to-day health of your business