What Is RevPAR And How To Increase It?
What is RevPAR and what you can do to increase it? There is plenty you can do! Read on to find out more!
In the hotel industry, it's all about how well one knows the key performance metrics to optimise revenue and stay ahead of the curve. One of the most essential hotel business terminology for hoteliers is RevPAR (Revenue Per Available Room).
The RevPAR refers to the revenue per available room, which basically means the average revenue that is earned by the hotel per room available, without considering whether a room is actually occupied or not. It incorporates two of the important measures: Average Daily Rate ( adr) and Occupancy Rate, into a single insightful data.
What Is RevPAR and Why is important?
RevPAR is a reliable estimate of a hotel’s overall revenue efficiency. This metric considers all rooms in a hotel, whether they are occupied or not, making it a comprehensive way to evaluate revenue generation. For hoteliers, understanding and optimising RevPAR is essential for staying competitive in the industry.
RevPAR integrate two essential elements of a hotel's performance: room pricing strategy and occupancy rates. These elements work together to provide a comprehensive measure of revenue growth. The points that follow are represented by a greater RevPAR, either or both:
- Higher room rates: Making recommendations for sensible pricing schemes.
- Increased occupancy: Showing that you can draw in more visitors.
RevPar is essential for to make plans, identify seasonal variations and income trends, strategic planning, fact-based expansion objectives and modify pricing and marketing tactics.
How to Calculate RevPAR
There are two formulas to calculate the RevPAR, both giving the same result but answering different needs of operation:
RevPAR Formula 1: ADR × Occupancy Rate
This approach links the room rate directly with how many of the available rooms are occupied, making it an effective way to assess the impact of pricing strategies on revenue performance.
Formula:
RevPAR = ADR × Occupancy Rate
Example:
Imagine your hotel has an ADR of £150, and the occupancy rate is 80%. Using this formula:
- RevPAR = £150 × 0.80
- RevPAR = £120
This calculation shows that your hotel is generating £120 per available room, on average, for the given period.
RevPAR Formula 2: Total Room Revenue ÷ Total Available Rooms
This formula is especially useful for analysing overall revenue performance over a specific time frame.
Formula:
RevPAR = Total Room Revenue ÷ Total Available Rooms
Example:
Let’s say your hotel has 100 available rooms and generates £12,000 in total room revenue for one night. Using this formula:
- RevPAR = £12,000 ÷ 100
- RevPAR = £120
Again, the result is £120, demonstrating that both formulas yield the same outcome when applied correctly.
RevPar Calculator
Which RevPAR Formula for your business?
Both methods are equally valid, and the choice depends on the data you have at hand:
- Use Formula 1 when you have detailed information about the ADR and occupancy rate for the period in question.
- Use Formula 2 when total room revenue and the number of available rooms are more readily available.
For most hotels, integrating both methods into regular reporting provides a more comprehensive view of performance.
The Importance of Accurate RevPAR CalculationsAccurate RevPAR calculations will go a long way in showing your hotel's financial performance. Calculations will enable the identification of periods of underperformance that require immediate alterative action and opportunities to adjust pricing strategies or promotional campaigns, and areas for operational improvement to maximise hotel revenue.
What Is Your Result Showing You: Insights Into Room Revenue And Occupancy Trends
If the trend for RevPAR is upward, it may indicate successful dynamic pricing strategies or improved guest retention. On the other hand, a downward trending RevPAR may indicate the need to reassess rates or marketing efforts to attract more guests. We can use these insights to:
- Benchmark Performance: Compare revenue efficiency across a portfolio or against the competition in the same market.
- Identify Seasonal Trends: Check the highs and lows of revenues throughout the year to better price your product or service.
- Measure the effectiveness: Determine whether price changes, marketing, or selling efforts are yielding revenue.
Furthermore, RevPAR acts as a key metric for assessing long-term profitability. While it doesn’t account for expenses, combining RevPAR with other metrics like GOPPAR (Gross Operating Profit Per Available Room) allows for a more comprehensive view of overall revenue.
Balancing KPIs for Decision Making in Hospitality
As much as RevPAR has improved, it gives an incomplete picture of the performance of a hotel. While strong RevPAR can mask high operating costs, weak RevPAR may be offset by supplemental revenue from other services. With multiple KPIs to benchmark, hoteliers now have a holistic picture of their operations and can build strategies that maximize revenue and optimize profitability.
Comprehensive Revenue Strategy
Integrating RevPAR with metrics like ADR (Average Daily Rate), occupancy rate, and others allows hotels to develop well-rounded strategies. This balanced approach helps:
- Uncover opportunities for revenue growth.
- Address operational inefficiencies.
- Create sustainable, long-term financial plans.
Viewing RevPAR as part of a broader performance framework that can give actionable understanding of success.
Why Balancing Metrics is Essential
While it's an essential tools, RevPAR does not account for profitability or costs. Complement RevPAR analysis with other metrics like:
- GOPPAR, or Gross Operating Profit Per Available Room, gives insight into accounting for operating expenses.
- TRevPAR, or Total Revenue Per Available Room, considers other revenues derived from ancillary services-catering, spas, events.
This balanced methodology supports the hotel in performing positively in the long term, while keeping up a strong RevPAR performance.
How to Improve RevPAR: Key Strategies for Hoteliers
Improving Revenue Per Available Room (RevPAR) is a key strategy to optimise revenue and remain competitive in the hospitality industry. There are essential principles for every hotelier by combining dynamic pricing, effective booking policies, guest-centric strategies, and data-driven adjustments, hoteliers can create a comprehensive approach to enhance revenue efficiency. , moreover, we can also consider these factors:
Optimise Bookings with Length of Stay Requirements
LOS requirements also happen to be effective in balancing occupancy and revenue, as hotels may use minimum or maximum stay rules to maximise room availability during peak periods and challenge a guest to make a longer stay during quieter times.
For instance, during a popular local festival, a hotel might implement a two-night minimum stay policy to optimise room turnover and revenue. Similarly, offering discounted rates for extended stays during weekdays can help fill rooms that might otherwise remain vacant. This strategic approach ensures that hotels not only increase occupancy but also boost overall revenue, positively impacting RevPAR hotel performance.
Maximise Revenue through Direct Bookings
Reducing on third-party platforms like OTAs is another effective strategy for improving RevPAR. By encouraging direct bookings, hotels can retain more revenue by avoiding high commission fees and fostering direct relationships with their guests.
Promotion of exclusive privileges such as free breakfast, relaxed cancellation policies, or member-exclusive discounts will encourage direct booking through the hotel's website. A strong direct booking strategy not only promotes revenue growth but also guest loyalty, which in turn improves RevPAR.
RevPAR: Benefits and Limitations
Revenue Per Available Room (RevPAR) is one of the most widely used metrics in the hotel industry, offering valuable insights into a property’s ability to generate revenue from its available rooms. While RevPAR is an essential tool for assessing performance, it is not without its limitations. To maximise its value, hoteliers need to understand both what RevPAR measures and what it does not, as well as how it can be complemented with other key metrics.
The Benefits of RevPAR
RevPAR provides a clear and efficient way to evaluate revenue generation. It combines the average daily rate (ADR) and occupancy rate into a single figure, helping hotels measure how well they are using their available room inventory to drive income.
- Measures Revenue Efficiency
- RevPAR focuses on how effectively a hotel is converting available rooms into revenue. For example, a property with a high RevPAR is balancing strong occupancy levels with competitive pricing strategies, which is essential for sustained financial health.
- Benchmarking Performance
- Hoteliers use RevPAR to compare their performance with competitors or other properties within their portfolio. This benchmarking helps identify strengths and weaknesses, guiding data-driven decisions.
- Tracks Trends Over Time
- Monitoring RevPAR over weeks, months, or seasons allows hotels to identify patterns and adjust strategies to optimise future performance. For instance, if RevPAR consistently dips during a particular period, it might signal a need for targeted promotions or rate adjustments.
RevPAR’s ability to distil performance into a simple, actionable metric makes it indispensable for hotels striving to maintain a competitive edge.
The Limitations of RevPAR
Despite its usefulness, RevPAR is not a comprehensive measure of a hotel’s financial health. Understanding its limitations is crucial for avoiding potential blind spots in revenue management.
- Does Not Account for Operating Costs
- RevPAR focuses solely on revenue, without factoring in the expenses associated with running a hotel. For example, a property with high RevPAR but excessive operational costs (e.g., staffing, utilities) may still struggle to achieve profitability.
- Excludes Non-Room Revenue
- While RevPAR measures room revenue, it overlooks other important income streams, such as food and beverage (F&B), event spaces, spa services, or parking. These additional sources can significantly impact a hotel’s overall profitability.
- Ignores Profitability
- RevPAR does not measure net profit. A hotel with strong RevPAR but inefficient cost management or debt obligations may not be as financially secure as the metric suggests.
For these reasons, relying solely on RevPAR can provide an incomplete picture of a hotel’s performance, particularly in properties where ancillary revenues or operational expenses play a significant role.
Complementing RevPAR with Other Metrics
To address these limitations, hoteliers should use RevPAR alongside other performance indicators for a more holistic understanding of their property’s financial health.
- GOPPAR (Gross Operating Profit Per Available Room)
- Unlike RevPAR, GOPPAR accounts for operational costs, offering insights into profitability. By comparing revenue to expenses, GOPPAR helps identify areas where cost control can improve overall financial performance.
- TRevPAR (Total Revenue Per Available Room)
- TRevPAR expands on RevPAR by incorporating all revenue streams, not just room revenue. This metric is especially valuable for hotels with significant non-room income, such as resorts or conference centres.
By combining RevPAR with these additional metrics, hoteliers can evaluate both revenue efficiency and profitability, creating a balanced approach to performance analysis.
Balancing RevPAR with a Holistic Perspective
While RevPAR remains a cornerstone of hotel revenue management, its limitations highlight the need for a broader analytical framework. Using RevPAR in conjunction with GOPPAR and TRevPAR ensures that hotels can:
- Identify inefficiencies in both revenue generation and cost management.
- Capture the impact of ancillary revenue streams.
- Develop strategies that optimise both occupancy and profitability.
This balanced approach allows hoteliers to make informed decisions that not only enhance revenue but also support long-term growth and financial stability.
Benchmarking RevPAR for Hotel Success
RevPAR (Revenue Per Available Room) is not only a measure of internal performance but also a powerful tool for benchmarking against competitors. By comparing RevPAR across similar properties or within a portfolio, hoteliers can gain valuable insights into their market position and identify opportunities for growth.
Using RevPAR for Competitive Benchmarking
Hoteliers can use RevPAR to assess how effectively their property is generating revenue compared to others in the same market or segment. This comparison provides a clear understanding of whether their pricing strategy, occupancy rates, or revenue management practices are aligned with industry standards.
For example:
- A property with a RevPAR lower than competitors in the same market might need to adjust its pricing strategy or enhance its guest offerings.
- Conversely, a hotel with a higher RevPAR than the market average can identify the strategies that are driving success and continue refining them.
By leveraging competitive data, hotels can not only improve their performance but also make informed decisions about investments and operational changes.
The Role of Historical Trends and Market Data
In addition to comparing RevPAR against competitors, tracking historical trends within your property is essential. Analysing RevPAR over time allows hoteliers to identify seasonal patterns, peak periods, and slower months. This data can then inform decisions about pricing, promotions, and staffing.
Market data also plays a crucial role in benchmarking. External factors such as local events, economic conditions, or changes in demand can significantly impact RevPAR. Monitoring these variables helps hoteliers stay ahead of market trends and adapt their strategies accordingly.
Opportunities for Growth Through Benchmarking
Benchmarking RevPAR provides a foundation for identifying growth opportunities. For instance:
- Pricing Adjustments: If competitors achieve higher RevPAR with similar occupancy rates, reviewing and optimising pricing strategies can bridge the gap.
- Guest Experience Enhancements: Low RevPAR compared to market leaders might highlight areas for improving services or facilities to attract more guests.
- Operational Efficiency: Analysing RevPAR in conjunction with cost metrics can uncover inefficiencies that, when addressed, lead to increased profitability.
Benchmarking empowers hoteliers to set realistic goals, track progress, and maintain a competitive edge in a dynamic market.
Practical Examples of RevPAR Optimisation
Understanding RevPAR is one thing; applying strategies to improve it is another. Real-world scenarios and practical examples can illustrate how effective revenue management can boost performance.
Scenario 1: Adjusting Pricing During High Demand
A hotel with 100 rooms charges an Average Daily Rate (ADR) of £120 and achieves an 80% occupancy rate during the summer season. Its current RevPAR is:
- RevPAR = ADR × Occupancy Rate
- £120 × 0.80 = £96.
To optimise revenue, the hotel implements dynamic pricing during a major local event, increasing ADR to £150 while expecting occupancy to drop slightly to 70%. The new RevPAR calculation is:
- £150 × 0.70 = £105.
This adjustment results in higher revenue despite a slight decline in occupancy, showcasing the effectiveness of strategic rate adjustments.
Scenario 2: Introducing Upselling Opportunities
A boutique hotel offers guests an option to upgrade to a premium suite for an additional £50 per night. If 10 out of 50 guests accept the upgrade, the hotel generates an extra £500 per night. This incremental revenue increases the total room revenue, directly boosting RevPAR without requiring additional room sales.
Scenario 3: Implementing Length of Stay Requirements
During a holiday weekend, a resort enforces a two-night minimum stay policy. By filling rooms with longer-staying guests, the hotel reduces turnover costs and maximises revenue over the high-demand period. This policy not only improves operational efficiency but also contributes to higher RevPAR.
These examples demonstrate how targeted strategies can deliver measurable improvements in RevPAR, making it a dynamic and actionable metric for hotel success.
How can Roomstay help you grow RevPAR?
Increasing RevPAR is the way to maximise revenue in hotels and stay ahead in the competitive market. RoomStay's flexible platform equips hoteliers with the tools to enhance direct bookings, refine revenue strategies, and outshine OTAs.
Partner with us to grow your RevPAR from booking to post-stay for ensured repeat business, better reviews, and increased RevPAR. We drive more direct with customer journey insights, value-added perks, and last-minute offers. Building trust through loyalty programs and exclusive deals, we enhance customer retention and make sure to treat the loyal guests in the best possible way.
