Known as Revenue per Available Room—or RevPAR for short—this metric is one of the most important in the hotel industry. Calculating it is key to developing sales and marketing strategies that actually work.
To help you understand a little more about its importance, we’ll tell you everything you need to know about this KPI. You’ll learn everything from what RevPAR is to how it’s calculated, the different types that exist, and how you can improve it.
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What is RevPAR?
The meaning of RevPAR is very simple; it is a metric that combines both occupancy and the average daily rate (ADR) to determine how much revenue is generated per available room within a specific time period.
Its main value lies in the fact that, through this metric, we can obtain valuable information about both occupancy and revenue per room. With this data, we can adjust rates and offerings to maximize revenue and the number of reservations.
How is RevPAR calculated?
In addition to understanding what RevPAR means, you should learn how to estimate it.
There are two ways to calculate RevPAR; each has its own method, but both yield the same result. Below, we’ll explain both formulas:
Formula 1: RevPAR based on occupancy and ADR
The first formula for calculating RevPAR is to multiply the Average Daily Rate (ADR) by the occupancy rate:
RevPAR = ADR × Occupancy Rate
For example, if a hotel has an ADR of $100 and an occupancy rate of 80%, the RevPAR would be 80, since the percentage must be converted to a decimal to be multiplied.
Formula 2: RevPAR based on total revenue and available rooms
The second way to calculate RevPAR is to divide total room revenue by the number of available rooms:
RevPAR = Total room revenue / Number of available rooms.
Using the same example as in the previous formula, if a hotel generates $8,000 in room revenue in a day and has 100 available rooms, its RevPAR would be 80.
4 Reasons Why It’s Important to Estimate RevPAR
To better understand the importance of calculating RevPAR, keep these 4 points in mind!
Measuring Financial Performance
RevPAR provides a clear picture of a hotel’s financial performance by combining occupancy and average daily rate into a single metric. It also allows for a more accurate estimation of cost and profit reports, based on guest flow.
Benchmarking
With RevPAR, we can compare our hotel’s performance to that of our competitors or to industry standards. If you’re learning how to conduct benchmarking, this metric is useful because it will help you identify areas for improvement.
Decision-making
It also helps managers make informed decisions about pricing, marketing, and operations to maximize profitability. This ensures that decisions are not based on assumptions or hypotheses, but rather on actual facts and data.
Investment Evaluation
For investors and owners, RevPAR is an essential metric when evaluating the viability and potential return on an investment in the hotel industry. This is especially true when developing new projects or expanding existing ones.
How can I use RevPAR in my sales strategies?
By understanding and analyzing RevPAR, managers can adjust rates based on demand, optimize occupancy, and design more effective marketing campaigns. For example, if they notice that their RevPAR is too low, they can take steps such as lowering the rate or increasing the visibility of room availability.
Similarly, RevPAR helps identify profitable market segments, which in turn helps establish sales strategies tailored specifically to that segment or season. This helps maximize the hotel’s occupancy rate and revenue.
How Can RevPAR Be Used to Assess the Feasibility of a Hotel Project?
In addition to helping improve sales strategies, RevPAR can be extremely useful for planning and evaluating new hotel projects. By estimating the expected RevPAR, you can determine whether a project will be financially viable.
If you’re an investor, you can use this data to estimate the return on investment and its average payback period. Experts use this indicator in conjunction with other variables of an investment project to make better decisions.
Net RevPAR, TRevPAR, and Goppar: What Does Each One Mean?
It is important to know that there are different types of RevPAR, or variations. These are the main ones:
- Net RevPAR. Similar to RevPAR, but excludes commissions and fees paid to third parties such as travel agencies or OTAs.
- TRevPAR (Total Revenue per Available Room). This includes all revenue generated by the hotel, not just room revenue.
- GOPPAR (Gross Operating Profit per Available Room). It goes a step further by taking the hotel’s operating costs into account and measures the gross operating profit per available room.
How can we improve RevPAR?
Now that you know what RevPAR means, it’s important to learn how to improve it.
- Pricing Optimization. Using this metric, you can create a dynamic pricing strategy that adjusts rates based on demand and occupancy.
- Improved guest experience. This metric can guide you in offering higher rates that are justified by better services or added value.
- Sales channel management. You can use this KPI to maximize your hotel’s visibility across its sales channels, based on occupancy and booking needs.
- Promotions and Special Packages. Additionally, you can create attractive promotions and packages during periods of low demand to increase your hotel’s occupancy.
Understand and Apply RevPAR to Your Project
RevPAR may seem a bit complex and difficult. That’s why having the support of experts can make all the difference when it comes to estimating and calculating it.
At IHCS, our consultants will help you better understand your RevPAR so you can apply it and improve it. This way, you’ll be able to increase your occupancy and boost your revenue per room—which is undoubtedly a key factor in your hotel’s success. Just reach out to us, and we’ll be happy to help.
