Understanding Revenue Per Available Room (RevPAR) For Hotel Success

What is RevPAR and why is it crucial for the success of any hotel?

Any hotel or hospitality company can benefit significantly from data. You won't be able to make accurate, well-informed, or smart judgments for the benefit of your property without it.

Key takeaways:

• Data-driven decisions are essential for hotel success
• More data and measurement methods become available over time
• Strategic performance metrics like RevPAR help identify what's working

As a hotelier, you must be aware of the potential presented by this data. By utilizing typical hotel performance measures like RevPAR, you can build a clear understanding of what's working in your company and what you might enhance with strategic changes.

What Is RevPAR In Hotel?

The term 'revenue per available room' (or 'RevPAR') relates to one of the most popular and relevant metrics for hotel success.

RevPAR provides several key insights:

• Shows how much revenue various market groups in your destination are generating
• Indicates the number of rooms sold at a hotel and the amount of income made from such reservations
• Gives you the opportunity to assess one aspect of your total revenue management model

This metric is essential for understanding your hotel's performance in the competitive marketplace.

How To Calculate RevPAR In Hotels

Revenue per available room is a hotel service quality measure. The formula for calculating RevPAR is straightforward.

There are two primary methods to calculate RevPAR:

1. Method 1: Multiply your occupancy rate by your average daily rate (ADR), then divide by 100.
• Formula: RevPAR = (Occupancy Rate × ADR) ÷ 100
2. Method 2: Divide your total room revenue by the number of rooms in the property.
• Formula: RevPAR = Total Room Revenue ÷ Total Available Rooms

RevPAR Example

Example 1:

For instance, if your hotel is 40% full and has an ADR of $1,000, your RevPAR will be $400.

• Calculation: (40 × $1,000) ÷ 100 = $400

Example 2:

Another way to figure it out is to divide the total earnings for the night by the overall number of rooms in your hotel. If a 100-room hotel has an 80% occupancy rate, it equals 80 rooms occupied.

Your total room revenue will be $8,000 if you multiply 80 rooms by $100 ADR. You'll get your $80 RevPAR by dividing $8,000 by the total number of rooms available (100).

• Calculation: $8,000 ÷ 100 = $80

Yearly RevPAR:

Simply multiply your available rooms by 365 days each year to get your property's yearly RevPAR. The yearly room nights available for the 100-room property is 36,500. That's a lot of hotel nights to generate revenue from!

RevPAR Index Explained

The RevPAR Index is a metric derived from RevPAR. It compares the RevPAR of your hotel to the RevPAR of the hotels within your competition.

This assessment will show you:

• How successful your sales and profit management tactics are being implemented in comparison to your competitors
• How your variance compares to your rivals and how much the difference is worth

Practical Example:

For instance, let's assume that your hotel's RevPAR Index score is 15% lower than the competition. It suggests that by investing in your products or services, you could be able to bridge the gap and get the same revenue that your rival is now generating, if not more.

You will be able to rationalize an investment in your resources if you have this knowledge. You can evaluate whether your pricing and vacancy initiatives are working if you keep a watch on your rivals' RevPAR Index on a regular basis.

Figure Out Your RevPAR Index

So, how do you figure out the RevPAR Index?

Formula: RevPAR Index = (Your RevPAR ÷ Sample Set's Total RevPAR) × 100

Your hotel's RevPAR Index will be shown as a percentage. An index of 100 means you're performing at the market average. Above 100 indicates you're outperforming the market, while below 100 means you're underperforming.

RevPAR Formula Excel Template

Many hoteliers prefer using Excel templates to automate their RevPAR calculations. A well-designed template can help you:

• Track RevPAR over time - Monitor daily, weekly, monthly, and yearly trends
• Compare performance - Analyze RevPAR against ADR and occupancy rates
• Make data-driven decisions - Quickly identify which strategies are working

Key components of a RevPAR Excel template:

• Date/Time period columns
• Occupancy rate input
• ADR input
• Automatic RevPAR calculation
• Revenue comparison charts
• Year-over-year analysis

[Download our free RevPAR calculation template here] (Link to downloadable resource - This is a perfect opportunity for lead generation and backlinks)

RevPAR And The Technicalities To Room Revenue Formula

You may start using RevPAR to increase your revenue after you know how to calculate it. This can be accomplished by increasing either room rates or occupancy.

Important consideration: Keep in mind that increasing ADR (average daily rate) has fewer expenses, so increasing rates will have a greater effect on your profitability. Increasing occupancy usually necessitates additional housekeeping, dry cleaning, utility, and other bills, all of which will counterbalance your revenue increase.

Pricing

You may utilize RevPAR to see whether your rooms are being charged appropriately. Based on 40% occupancy and a $1,000 average daily rate, RevPAR was $400 in our previous scenario.

Case Study:

Let's take a closer look at what seems to be a solid performance. It seems to be a huge reversal if the average daily rate is raised to $1,300 and occupancy declines to 35% (just 35 rooms are sold).

Is that, however, true? RevPAR rises to $455, resulting in increased overall income and lower operational costs.

Even though this is not an overall good performance for a hotel, RevPAR can enable you to swiftly determine the topline effects of rate changes.

Understanding your hotel performance

You can calculate RevPAR for any time frame, making it simple to spot trends in your results.

The metric gives insight into how to modify rates to boost efficiency, regardless of whether you find steady year-over-year growth or regular declines every May or December.

Because RevPAR is such a broadly used metric, it can be used to determine how well your hotel competes in your local market.

Marketing program evaluation

Understanding your RevPAR and whether you want to grow by increasing occupancy or ADR will help in selecting marketing promotions and campaigns.

To increase occupancy:

• Consider offering certain categories of travelers reduced prices
• Offer a night free if they stay for an extended period of time
• Target specific market segments with tailored promotions

To boost your ADR:

• Look into programs that add value to your rooms, such as food, parking, or subsidized spa services
• Find ways to boost visibility without lowering rates
• Focus on upselling and package deals

What Other Metrics Should I Use With RevPAR?

We've identified several additional hotel metrics that are frequently used in close collaboration with RevPAR to provide insight into your property's profitability.

Average Daily Rates (ADR)

The average daily rate (ADR) is a measure of how much people pay for hotel rooms. The goal for most hotels is to boost ADR over time by effectively implementing pricing and marketing strategies.

Important limitation: This metric, which is used to calculate RevPAR, ignores unoccupied rooms and thus does not provide a true picture of overall sales and profitability.

GOPPAR (Gross Operating Profit Per Available Room)

Unlike RevPAR, GOPPAR calculates gross profit per room by factoring in other revenue sources, such as food service, as well as all expenses. This provides a more complete picture of the hotel's overall effectiveness.

GOPPAR Formula: GOPPAR = (Total Revenue - Operating Expenses) ÷ Available Rooms

RevPAR vs. GOPPAR: A Detailed Comparison

Understanding the difference between RevPAR and GOPPAR is crucial for making informed revenue management decisions.

Key takeaway: A hotel can have high RevPAR but low GOPPAR if operating expenses are too high. Always analyze both metrics together for a complete picture of your hotel's financial health.

TRevPAR (Total Revenue Per Available Room)

Total Revenue Per Available Room (TRevPAR) is a modernized version of the industry-standard RevPAR. Unlike RevPAR, TRevPAR takes into account extra income generated by each hotel visitor, such as funds spent in the restaurants, lounge, and room service, among other things.

Why TRevPAR matters:

• Provides a more comprehensive view of total hotel revenue
• Accounts for all revenue streams, not just room bookings
• Helps identify opportunities to increase ancillary revenue
• Better reflects the true value of each guest

TRevPAR Formula: TRevPAR = Total Hotel Revenue ÷ Available Rooms

Example:

If your hotel generates $100,000 in total revenue (rooms + restaurant + spa + other services) and has 100 available rooms, your TRevPAR is $1,000.

When it comes to optimizing earnings potential, analyzing those additional guest costs might make all the difference. TRevPAR continues where RevPAR ends. Both models look at the amount of income generated per vacant hotel room, but TRevPAR takes into account extra revenue generated from each hotel visitor, such as money spent in the dining, bar, room service, and other resources.

While the distinction between the two models seems slight at first look, examining those additional guest costs may make all the difference when it comes to optimizing profit potential.

NRevPAR (Net Revenue Per Available Room)

Net Revenue Per Available Room (NRevPAR) is another important metric that accounts for distribution costs and commissions. This metric shows the actual revenue your hotel retains after paying online travel agencies (OTAs) and other distribution channels.

NRevPAR Formula: NRevPAR = (Total Room Revenue - Distribution Costs) ÷ Available Rooms

Why NRevPAR is important:

• Shows true revenue retention after commissions
• Helps evaluate distribution channel effectiveness
• Encourages direct booking strategies
• More accurate profitability indicator than RevPAR alone

Example:

If your hotel generates $80,000 in room revenue but pays $12,000 in OTA commissions, your net revenue is $68,000. With 100 available rooms, your NRevPAR is $680.

RevPAR Calculator

A RevPAR calculator is an electronic or digital tool used to calculate RevPAR numbers. This calculator may be used to figure out your RevPAR values and make comparisons with that of your rivals.

You may also utilize them to evaluate the health of your company or change your lodging prices to maximize income.

When choosing a RevPAR calculator, consider doing a lot of research. This is in order for you to choose one that gives accurate numbers, for effective results.

The average daily rate (ADR) is a measure of how much people pay for hotel rooms. The goal for most hotels is to boost ADR over time by effectively implementing pricing and marketing strategies.

What Is An Ideal Occupancy Rate For Hotels?

A hotel property that brings in the maximum revenue is one with a high occupancy rate.

However, there's no one-size-fits-all answer. When it comes to finding the optimal occupancy rates for your hotel, there are no clear rules. What works well for one hotel may not work well for another, and the other way around.

Factors that influence ideal occupancy rates:

• Hotel type (luxury, mid-scale, economy)
• Location and market demand
• Seasonality patterns
• Operating costs
• Target market segments

Experimenting to figure out what works best in your situation is essential. Looking at the occupancy rate in your area is a good place to begin.

How To Increase Hotel Occupancy In Correlation With RevPAR

Above every other thing, a decent hotel occupancy rate depends on:

• Hotel type - Different hotel categories have different occupancy expectations
• The location - Prime locations typically achieve higher occupancy rates
• Guests' satisfaction - Happy guests lead to repeat bookings and referrals

Special offers during off-seasons may seem to be a guaranteed strategy to boost hotel occupancy, but this isn't always the case. For example, discounts and deals may help convert prospective consumers who are considering traveling for vacation, but they have little effect on the demand for vacation.

To do so, you'll adopt innovative value-adding techniques. Here are some strategies that can be considered.

Change marketing for low-demand seasons

When you disclose a poor occupancy rate, strategists advise you to change your marketing. Your hotel promotion approach for low occupancy times must be precise.

Effective strategies:

• Target different market segments (e.g., business travelers during leisure season)
• Adjust your messaging to highlight off-season benefits
• Use social media and email marketing to reach potential guests
• Partner with local attractions and events

How to Increase RevPAR in a Low Season

Low seasons present unique challenges and opportunities for hoteliers. Here's how to increase RevPAR during these periods:

Strategy 1: Optimize Pricing Strategy

• Use dynamic pricing to adjust rates based on demand fluctuations
• Consider length-of-stay discounts to fill more room nights
• Implement last-minute booking promotions strategically

Strategy 2: Target Alternative Market Segments

• Focus on business travelers if you typically serve leisure guests
• Attract local staycation markets with special packages
• Partner with corporate clients for mid-week bookings

Strategy 3: Add Value Instead of Just Discounting

• Create packages that include meals, spa services, or local experiences
• Offer complimentary amenities that cost little but add perceived value
• Bundle services to increase both occupancy and ADR

Strategy 4: Leverage Technology

• Use revenue management systems to identify optimal pricing points
• Implement automated marketing campaigns for low-demand periods
• Analyze historical data to predict and prepare for low seasons

Strategy 5: Improve Distribution Channel Mix

• Increase direct bookings to reduce commission costs
• Use OTAs strategically for low-demand periods only
• Develop partnerships with tour operators and travel agents

Remember: The goal isn't just to fill rooms, but to maximize RevPAR by balancing occupancy and ADR effectively.

Engage in customer care and employee development

Predictability and demand may not be as essential as your reputation if you observe your occupancy rate is much lower than your competitors.

Hotels that have the finest guest experiences will nearly always come out on top, regardless of the season. You can delight guests and guarantee that a significant number of visitors to your neighborhood opt to stay at your hotel by investing in employee training and guest service initiatives.

Key initiatives:

• Regular staff training programs
• Guest satisfaction monitoring and improvement
• Employee recognition and retention programs
• Service excellence standards

Examine your usage rates for various facilities to see how demand changes over time

Like locations, high demands in hotel amenities fluctuate.

Promote high-demand amenities in marketing and sales communications, while pushing lower-demand facilities in premium packages. Consider altering your services if you detect frequent requests for specific facilities at your hotel or other nearby establishments.

By becoming the hotel that caters to families, you may attract a new consumer group. Listening to your customers can help you enhance demand and hence hotel occupancy.

Think of your hotel property as a location business rather than property

A change in direction might sometimes be the secret to increasing hotel occupancy.

If you go outside your own property to the larger area, you can come up with some amazing expansion ideas. Interact with your local CVB (Convention and Visitors Bureau) or DMO (Destination Marketing Organization) to learn more about how they attract tourists to your area and how you can collaborate with them to promote certain activities or services.

Speak with local companies to see if you can work together on events, including their items in welcome baskets for guests, or develop co-branded activities.

Events are wonderful for attracting crowds and increasing demand and capacity

But no event should be conventional.

Consider your target demographics and your current marketing efforts. Is there an event that meets each party's marketing strategy?

For instance, if you want to target seniors for midweek travel, can you have a local blogger discuss retirement budgeting? How about partnering with a local real estate agent who can give house-hunting recommendations?

You can assess the effect of targeted events on occupancy by group and ensure a satisfactory return on investment. By offering value with customized packages, you'll also build trust with a new thread of visitors.

Improving And Increasing RevPAR For Hotel

Improving your RevPAR

Assume your expense per room is $40, which means that anybody who checks into your hotel to fill any empty room will cost you $40 in housekeeping, services, food, and damages.

Scenario Analysis:

Consider how much money you could make if you could populate your ten rooms with either:

• Option A: 100% occupancy rate at $50 per room
• Option B: 70% occupancy rate at $65 per room

Which one would you choose?

When you calculate RevPAR, you get a value of $50 for (A) and $45.50 for (B). Option 'A' seems to be the better choice.

However, analyzing how much money you really generate after variable expenses yields a different result:

• Option A: If you earn a profit of $10 from each of your ten rooms, you will make a total profit of $100 each night
• Option B: You earn $25 from 7 rooms (after $40 expenses), for a total of $175 each night

This demonstrates why it's important to consider profitability, not just RevPAR alone.

Increasing your RevPAR

RevPAR is essential, but how can we make it stronger? There are several strategies to accomplish this, including improving your hotel's evaluations and increasing its exposure.

Using dynamic pricing to increase income is a relatively easy approach to do it.

Dynamic pricing may seem difficult, but it is not. It takes hundreds of statistics to figure out the demand for hotel rooms and then optimize for profit. But implementing dynamic pricing for your hotel is straightforward and effective.

Dynamic pricing increases occupancy and hence income. You may enhance RevPAR (revenue per available room) by tracking market trends and comparing the competitors' pricing to yours.

The 'U' pricing method maximizes hotel income by offering a cheap price during a particular time frame ahead of the booking date. Price increases may be done prior to this date if demand grows.

Is a High RevPAR Always Good?

This is a critical question that many hoteliers struggle with. While a high RevPAR is generally positive, it's not always an indicator of optimal performance.

When High RevPAR is Good:

• Achieved through balanced growth - Both occupancy and ADR are healthy
• Sustainable profitability - High RevPAR translates to strong GOPPAR
• Market leadership - You're outperforming competitors while maintaining quality
• Efficient operations - You're maximizing revenue without excessive costs

When High RevPAR Can Be Problematic:

• Achieved through unsustainable discounting - High occupancy but very low ADR may hurt profitability
• Ignoring profitability - High RevPAR but low GOPPAR indicates cost issues
• Market share erosion - Competitors might be capturing higher-value segments
• Guest satisfaction decline - Maximizing revenue at the expense of guest experience

The Profitability Paradox:

A hotel with 90% occupancy at $80 ADR has a RevPAR of $72. Another hotel with 70% occupancy at $120 ADR has a RevPAR of $84. The second hotel has higher RevPAR, but which is more profitable?

If the first hotel has low operating costs, it might be more profitable despite lower RevPAR. This is why analyzing RevPAR alongside GOPPAR, NRevPAR, and operating expenses is crucial.

Key Takeaway: High RevPAR is a goal, but it should be achieved through strategic pricing and revenue management, not at the expense of profitability or guest satisfaction.

The Future Of Revenue Management For Hotels

The future of RevPAR is TRevPAR (Total Revenue Per Available Room). As the hospitality industry evolves, hoteliers are recognizing that room revenue alone doesn't tell the complete story.

Emerging Trends:

• Holistic revenue management - Focusing on total guest spend, not just rooms
• Ancillary revenue optimization - Maximizing revenue from restaurants, spas, and other services
• Integrated technology solutions - PMS systems that track all revenue streams
• Data-driven decision making - Advanced analytics for predictive revenue management

The Evolution of Metrics:

1. RevPAR - Focused on room revenue only
2. GOPPAR - Added profitability perspective
3. TRevPAR - Comprehensive total revenue view
4. NRevPAR - Net revenue after distribution costs

As hotels diversify their revenue streams, understanding and optimizing TRevPAR becomes increasingly important for long-term success.

Conclusion

RevPAR is a powerful and essential metric for hotel success, but it's just one piece of the revenue management puzzle. To truly understand your hotel's performance, you should analyze RevPAR alongside other critical metrics like ADR, GOPPAR, TRevPAR, and NRevPAR.

Key Takeaways:

• RevPAR measures revenue efficiency - It shows how well you're monetizing your available rooms
• Balance is crucial - High RevPAR achieved through strategic pricing and occupancy optimization is ideal
• Context matters - Consider profitability, guest satisfaction, and market position alongside RevPAR
• Technology can help - Automated revenue management systems can optimize RevPAR calculations and pricing strategies
• The future is holistic - TRevPAR and other advanced metrics provide a more complete picture of hotel performance

Remember: Understanding RevPAR is the first step toward mastering hotel revenue management. While metrics provide valuable insights, they're most powerful when combined with strategic thinking, market knowledge, and a focus on guest satisfaction.

Ready to take your revenue management to the next level?

To put these strategies into practice and see how a powerful Property Management System (PMS) can automate your RevPAR calculations and dynamic pricing, Schedule a Demo with BookingNinjas Today (CTA link).

Our comprehensive PMS solution includes:

• Automated RevPAR, GOPPAR, and TRevPAR calculations
• Advanced revenue management and dynamic pricing tools
• Real-time performance analytics and reporting
• Integration with all major distribution channels

We recommend that in other to have a successful hotel business and increase RevPAR, you should focus on selling all of your rooms.

Selling a room at a discounted price is much better than having a vacant room.