Known as Revenue per Available Room or RevPAR for friends, this indicator is one of the most important in the hotel industry. Obtaining it is key to creating sales and marketing strategies that really work.
In order for you to understand a little more about its relevance, here we will tell you all about this KPI. You will learn everything from what RevPAR meaning is to how it is obtained, the variants that exist and how you can improve it.
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What is RevPAR?
The RevPAR meaning is very simple, it is a metric that combines both occupancy and average daily rate (ADR) of a hotel to determine how much revenue is generated per available room within a specific period of time.
Its main value lies in the fact that, through this indicator, we can obtain valuable information on both occupancy and revenue generated per room. With such data we can adjust the rate and supply to maximize the yields obtained and the number of bookings.
How is RevPAR calculated?
In addition to knowing the meaning of RevPAR, you must learn how to estimate it.
There are two ways to calculate RevPAR, each one has its own method, but both give the same result. Below, we detail both formulas:
Formula 1: RevPAR from occupancy and ADR.
The first formula to calculate 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 decimal to multiply.
Formula 2: RevPAR from total revenue and available rooms
The second way to calculate RevPAR is by dividing the total revenue per room by the number of rooms available:
RevPAR= Total revenue per room / Number of rooms available.
Following the same example as the previous formula, if a hotel generates $8,000 in room revenue in a day and has 100 rooms available, its RevPAR would be 80.
4 reasons why it is important to estimate RevPAR
To better understand the importance of estimating RevPAR, consider these 4 points!
Measuring financial performance
RevPAR provides a clear view of a hotel’s financial performance by combining occupancy and average daily rate into a single indicator. It also allows a better estimation of cost and profit reports, having a base based on customer flow.
Benchmarking
With RevPAR we can compare our hotel’s performance with that of the competition or with industry standards. If you are learning how to benchmark, this data is useful, as it will help you identify areas for improvement.
Decision making
It also helps managers make informed pricing, marketing and operational decisions to maximize profitability. This prevents decisions from being based on assumptions or hypotheses rather than facts and data.
Investment evaluation
For investors and owners, RevPAR is an essential metric when evaluating the viability and potential return on a hotel investment. Especially when developing new projects or expanding existing ones.
How to use RevPAR in my sales strategies?
By understanding the meaning of RevPAR and analyzing it, managers can adjust rates according to demand, optimize occupancy and design more effective marketing campaigns. For example, if they notice that their RevPAR is too low, actions can be taken such as reducing the rate or increasing awareness of room availability.
Similarly, RevPAR helps to identify profitable market segments, which helps to establish sales strategies only for that segment or season. In this way, the hotel’s occupancy rate and revenue can be maximized.
How to use RevPAR for the viability of a hotel project?
In addition to serving to improve sales strategies, RevPAR can be very useful for the planning and evaluation of new hotel projects. By estimating the expected RevPAR, you can determine if a project will be financially viable.
If you are an investor, you can make use of this data to estimate the return on investment and its average term. Experts use this indicator together with other variables of an investment project to make better decisions.
Net RevPAR, TRevPAR and Goppar: What is each one?
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): Includes all revenues generated by the hotel, not only room revenues.
- GOPPAR (Gross Operating Profit per Available Room): Goes one step further by considering the hotel’s operating costs and measures the gross operating profit per available room.
How to improve RevPAR?
Now that you know what RevPAR means, it is important to learn how to improve it.
- Price optimization: Through this indicator you can create a dynamic pricing strategy that adjusts rates according to demand and occupancy.
- Guest experience improvement: With this indicator you can guide you to offer higher rates, but justified with better services or added value.
- Sales channel management: It is possible to use such KPI to maximize the visibility of your hotel in its sales channels according to occupancy and booking needs.
- Promotions and special packages: In addition, you can create attractive promotions and packages during low demand to increase your hotel’s occupancy.
Understand and apply RevPAR in your project.
RevPAR may seem a bit complex and difficult, that’s why having the support of experts can make the difference in its estimation and calculation.
At IHCS, our consultants will help you better understand your RevPAR so you can apply and improve it. This way, you will be able to increase your occupancy and improve your revenue per room, which is a key factor for the success of your hotel. Just contact us and we will be happy to help you.
