What is RevPAR?
RevPAR, or ‘Revenue Per Available Room’, is a hotel industry metric that provides insight into the number of rooms that are being sold at a hotel and how much revenue is being generated from those bookings.
RevPAR bridges the gap between occupancy rates and average room rates, giving hoteliers a comprehensive view of their property’s profitability and a way to gauge the effectiveness of their pricing strategies and room sales efforts.
An increasing RevPAR indicates that either the average room rate, the occupancy rate, or both are on an upward trend.
Considering RevPAR in conjunction with other key performance indicators will allow you to identify areas of opportunity, adjust strategies, and ensure your hotel is on a path to sustained growth and success.
This blog will tell you everything you need to know about RevPAR and the best ways you can increase it at your property, including the vital role that hotel software can play.
Table of contents
Why is calculating RevPAR important?
Data is the backbone of many successful businesses, and the hotel industry is no exception. Every booking, guest review, room upgrade, or event held within its walls generates data. This data, when analysed and interpreted correctly, can offer invaluable insights into the hotel’s operations and guest preferences.
But why is calculating metrics like RevPAR so crucial?
RevPAR can provide a snapshot of a hotel’s financial health. It combines two critical factors: room occupancy and the average rate charged for those rooms. By calculating RevPAR, hoteliers can gauge the effectiveness of their pricing strategies, promotional campaigns, and overall room sales efforts.
RevPAR can also help identify market trends, seasonality effects, and guest booking behaviours. For instance, a sudden dip in RevPAR might indicate increased competition, a need for property renovations, or a shift in market demand. Conversely, a rise could signify successful marketing campaigns or the appeal of recent upgrades.
In essence, RevPAR serves as a diagnostic tool. It highlights areas of success and pinpoints sectors that might need attention or innovation. By regularly monitoring and analysing this metric, hoteliers can make proactive decisions, optimise their strategies, and ensure they’re always a step ahead in the ever-evolving hospitality landscape.
What is the RevPAR formula?
The formula to calculate RevPAR is:
RevPAR=Total Room Revenue / Total Available Rooms
Alternatively, it can also be calculated as:
RevPAR = Average Daily Rate (ADR) × Occupancy Rate
How to calculate RevPAR in hotels
Simply multiply your average daily rate (ADR) by your occupancy rate.
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 revenue from the night by the total number of rooms available in your hotel.
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.
RevPAR vs ADR: What’s the difference?
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.
What is RevPAR Index?
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. It’s important to understand that RevPAR and RevPAR Index are not the same thing.
RevPAR is the straightforward calculation to understand how well you are selling and profiting from your rooms,
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.
How to calculate the RevPAR Index
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 group’s is $50 your RevPAR index will be 140. This means you’ll be easily getting more than your expected market share.
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 calculation mistakes to avoid
RevPAR is a valuable metric, but only when it is accurately and meaningfully calculated. When calculating RevPAR, there are common pitfalls that can skew the results. Here’s a look at some mistakes to avoid:
Not including additional revenue
While the primary component of RevPAR is room revenue, it’s essential not to overlook additional revenue sources. This can include fees from amenities, in-room services, or even minibar sales. By excluding these additional revenue streams, you might underestimate the actual revenue generated per available room.
Not considering room types
All rooms in a hotel aren’t created equal. A suite will typically generate more revenue than a standard room. When calculating RevPAR, it’s crucial to account for different room types and their respective revenues. Averaging out all rooms without considering their types can lead to inaccurate results.
Not considering time period
RevPAR can vary significantly based on the time of year, week, or even day. For instance, a hotel might have higher occupancy during the holiday season compared to off-peak months.
When calculating RevPAR, ensure you’re considering the specific time period you want to analyse. Comparing RevPAR across different periods without this consideration can lead to misleading conclusions.
Taxes and fees
While it might be tempting to include all the revenue, including taxes and fees, in your RevPAR calculation, this can inflate your figures. It’s essential to focus on the net revenue that the hotel actually retains. Always subtract mandatory taxes and fees from your total revenue to get a true picture of your RevPAR.
Mixing multiple properties
If you manage multiple properties, it’s crucial to calculate RevPAR for each property individually. Different properties might have varying occupancy rates, room types, and additional revenue streams. Combining them can lead to a skewed understanding of each property’s performance.
To make managing multiple properties easier, check out SiteMinder’s multi-property feature. It’s the perfect solution for groups and chains, allowing you to get updated rates and availability to market in bulk quickly. It also gives you access to superior data and analytics, so you can always be making the most informed business decisions.
How to increase RevPAR at your hotel
Your RevPAR will increase when you maximise the amount of revenue you gain from each booking. One of the best ways to do this is by upselling and cross-selling to add extra purchases to a guest’s booking.
Examples might include:
- Shuttle transport services to and from airports or stations
- Food and beverage welcome packs such as champagne, fruit, and chocolates
- Tickets to local attractions or events
- Amenity packages that include things like massages or spas
- Art, craft, or exercise classes
- Pre-stay email offering upgrades or additional services such as a VIP experience
To upsell effectively, it’s important to capture direct bookings on your website. SiteMinder’s #1 ranked hotel booking engine allows you to do just that and more! And if you need help optimising your upselling or ancillary revenue opportunities, SiteMinder also has a Guest Engagement feature so you can maximise revenue from every guest at your property.
Other tactics to boost your RevPAR revolve around your marketing, distribution, and revenue management strategies. Here are some ideas to get you started:
- Put a high focus on direct bookings to maximise profit
- Try to lower cancellation rates by analysing which OTA channels have the highest/lowest cancellation rates
- Ask for reviews and promote any positive feedback you gain
- Implement minimum stay policies
- Run and maintain loyalty or reward programs to boost return stays
- Ensure your booking process is quick and smooth with a quality booking engine
While this may seem like a lot to juggle, it becomes much simpler by using a powerful hotel software platform like SiteMinder, where you can do it all from one easy location.
“At first I thought it was just a myth that using SiteMinder could boost revenue. But it turned out to be true. Revenue did increase, we are also more efficient in terms of time; we can get more work done.” – The Phala Group.
Other important hotel metrics
RevPAR is, of course, not the only key metric you should be focusing on at your hotel.
Other useful metrics that you should be tracking as part of your revenue management strategy include:
- ADR – Average daily rate
- TrevPAR – Total revenue per available room
- RevPAM – Revenue per available metre
- Occupancy rate
- RevPASH – Revenue per available seat hour
- GOPPAR – Gross operating profit per available room
- RevPOR – Revenue per occupied room
- EBITDAR – Earnings before interest, taxes, depreciation, amortisation, and restructuring
- LOS + ALOS – Length of stay + Average length of stay