Data is incredibly valuable to any hotel or accommodation business. It can help you to make accurate, informed, or strategic decisions for the benefit of your property.
Hotels are a veritable beehive of activity, with almost every kind of activity or transaction consisting of data. By using common hotel performance metrics such as RevPAR, you can paint a clear picture of what’s working within your business and what you can do to improve.
This article will explain everything you need to know about RevPAR and many other popular hotel metrics, so you can start making positive changes at your hotel today.
Formula sheet for RevPAR and other key hotel metrics
Table of contents
What is RevPAR?
RevPAR stands for revenue per available room, and is one of the most common and important hotel metrics.
It 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.
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!
Always use RevPAR in combination with other key performance metrics to optimise your hotel’s performance.
How do you 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.
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?
It’s important to understand that RevPAR and RevPAR Index are not the same thing.
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.
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.
Tips to increase RevPAR at your hotel
Your RevPar will increase when you maximise the amount of revenue you gain from each individual guest. 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
If you need help with upselling, check out the Hotel App Store for useful tools.
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 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
- Sell local products used within your hotel such as soaps and moisturisers
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