What is RevPar?
RevPAR, or revenue per available room, provides a simple overview of your revenue performance—quickly letting you know if you’re doing a good job of making money as well as booking rooms. Expressed in dollar terms, RevPAR is calculated by multiplying the average daily rate (ADR) by how many rooms are sold (occupancy rate).
What it can tell you:
RevPAR takes into account all your rooms, sold and unsold, to help you understand the property’s overall revenue performance. The metric allows comparisons between time periods (quarterly, yearly, etc.) and between properties (competitive sets, portfolios, markets, etc.). Using RevPAR allows you to knowledgeably adjust rates and availability to boost growth.
What it can’t tell you:
RevPAR doesn’t consider expenses, so it won’t tell you if you’re operating profitably. Even with high marks for RevPAR, if operating expenses are outpacing revenue, your bottom-line will suffer. Evaluate gross operating profit per available room (GOPPAR) for a more holistic view of property performance.
If you’re trying to compare two properties of different size, RevPAR alone is not a good measure because it is calculated on a per room basis. A hotel with lower RevPAR, but many more rooms, could easily have higher revenue.
RevPAR formula:
Occupancy rate x ADR
or
Total room revenue / Total available rooms
How to calculate RevPAR
There are two ways to calculate RevPAR:
1. Multiply your occupancy rate by your ADR
Occupancy rate x ADR
For example, if there are 40 rooms available with an occupancy rate of 90% (you’ve sold 36 rooms) and an average daily rate of $100 your RevPAR would be $90.
.90 x $100 = $90
2. Divide your total room revenue by the number of rooms
Total room revenue / Total rooms available
36 sold rooms at an ADR of $100 gives you a total revenue of $3,600, divided by the 40 total available rooms, results in a RevPAR of $90.
$3,600 / 40 = $9
How to use RevPAR
Once you know how to calculate RevPAR, you can begin to use it to grow your revenue. Boosting either occupancy or room rates will do this—keeping in mind that fewer expenses are associated with increasing ADR, so raising rates will have a more significant impact on your profitability. Increasing occupancy tends to require additional housekeeping, laundry, utility and other expenses that will offset your revenue gain.
Setting rates
You can use RevPAR to evaluate if you’re charging enough for your rooms. In our example above, RevPAR was $90 based on 90% occupancy and $100 average daily rate. While that seems like strong performance, let’s look more closely.
If you raise the average daily rate to $130 and occupancy drops to 75% (only 30 rooms sold) that seems like a major reversal. But is it? RevPar actually goes up to $97.50—increasing the total revenue generated and reduced operating expenses. RevPar can help you quickly understand the topline implications of your rate adjustments.
Understanding performance
RevPAR can be calculated for any time period, so you can easily identify patterns in your performance. Whether you discover steady year-over-year growth or regular declines every July—the metric provides insight on how to adjust rates to improve performance. And, because RevPAR is such a widely adopted metric, it can be used to understand how well your property is competing for business in your local market.
Evaluating marketing programs
Understanding your RevPAR and whether you want to grow by increasing ADR or occupancy will help determine the marketing campaigns and promotions you deploy. If increased occupancy is the objective, you may want to explore offering specific types of travelers discounted rates or a free night for an extended stay. If increased ADR is the goal, consider programs that add value to your rooms – free breakfast, parking or discounted spa services—or opportunities to increase visibility without reducing rates.
How do I use RevPAR with other metrics?
There are several additional hotel metrics that provide an insight into the financial performance of your property, we’ve highlighted three that are often used in conjunction with RevPAR.
Average Daily Rate (ADR)
ADR measures the average rate paid for rooms that are sold. For most properties, the goal is to increase ADR over time through effective pricing and promotion. Used to calculate RevPAR, this metric does not take into account unoccupied rooms, so does not give a true account of overall revenue performance.
Revenue Generated Index (RGI)
Also known as RevPAR Index, this metric is used to determine if a hotel is gaining a fair share of revenue compared to the properties they most directly compete with for bookings. It illustrates how a hotel’s RevPAR is performing in contrast to this competitive set and helps determine if rates should be increased and/or costs decreased.
