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  14 Feb 2022
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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 if you don't have it.

With the flow of time, more data becomes accessible, as do the methods for measuring and tracking it.

As a result, using data to analyze and improve your company's performance is more important than ever.

Hoteliers must be aware of the potential presented by this data.

You can build a clear understanding of what's working in your company and what you might enhance with strategic changes. Do this by utilizing typical hotel performance measures like RevPAR.

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.

It's a simple method to see how much revenue various market groups in your destination are generating.

Finally, this metric gives an indication of the number of rooms sold at a hotel and the amount of income made from such reservations.

It gives you the opportunity to assess one aspect of your total revenue management model.

How To Calculate RevPAR In Hotels

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

Simply multiply your occupancy rate by your average daily rate (ADR) divide it by 100.

Another way to do it is by dividing your total room revenue by the number of rooms in the property.

RevPAR Example

For instance, if your hotel is 40% full and has an ADR of $1000, your RevPAR will be $400.

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

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

Also, 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.

The RevPar Index can tell you how your variance compares to your rivals and how much the difference is worth.

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?

RevPAR index = Your RevPAR / the sample set's total RevPAR

Your hotel's RevPar Index will be shown in percentage.

RevPAR And The Technicalities To Room Revenue Formular

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.

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 $1000 average daily rate, RevPAR was $400 in our previous scenario.

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 $1300 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 if 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.

If you want to increase occupancy, consider offering certain categories of travelers reduced prices or a night free if they stay for an extended period of time.

If you want to boost your ADR, look into programs that add value to your rooms, such as food, parking, or subsidized spa services, as well as ways to boost visibility without lowering rates.

What Other Metrics Should I Use With RevPAR?

We've identified two main 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.

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, this metric 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.

RevPAR Calculator

A RevPAR calculator is an electronic or digital tool used to calculated 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 other for you to choose one that gives accurate numbers, for effective results.

What Is An Ideal Occupancy Rate For Hotels?

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

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.

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

  • The location

  • Guests' satisfaction

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.

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.

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 or DMO 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.

Consider how much money you could make if you could populate your ten rooms with either a) 100% occupancy rate at $50 or b) 70% occupancy rate at $65. Which one would you choose?

When you calculate RevPAR, you get a value of $50 for (a) and $45.5 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.

If you earn a profit of $10 from each of your ten rooms, you will make a total profit of $100 each night. In example (b), you earn $18 from 7 rooms, for a total of $126 each night.

Increasing your RevPAR

RevPAR is essential, but how can we make it stronger? There are several strategies to accomplish so, 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.

The Future Of Revenue Management For Hotels

The future of RevPAR isTRevPAR. TRevPAR unlike RevPAR takes into account extra income generated by each hotel visitor, such as funds spent in the restaurants, lounge, and room service, among other things.

When it comes to optimizing earnings potential, analyzing those additional guest costs might make all the difference.

Suggested by its name, Total Revenue Per Available Room (TRevPAR) is a modernized version of the industry-standard RevPAR.

This is the most extensively used indicator for comparing performance in the hospitality business.

TRevPAR continues where RevPAR ends. Both models look at the amount of income generated per vacant hotel room.

However, 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.

Conclusion

Although RevPAR is a very strong and effective metric for the success of your business, other less critical metrics may still be crucial to assess your revenue in order to understand your company's wellbeing.

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.