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What Is The RevPAR Calculation & Why Is It Important?

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Posted by HiRUM Software Solutions - 05/07/2023
hotel receptionist checking in a guest

We regularly highlight the importance of making data-driven decisions for your accommodation business. Harnessing the insights from your data gives you the best opportunity to identify new opportunities, optimise your business operations and improve your bottom line. However some of the terminology and jargon used in this space can be confusing, particularly if you’re new to the industry. So we’re breaking down some of the key metrics used in the industry and helping you understand how you can leverage them to improve your profitability. In our recent blog we looked at average room rate and we’re now going to take a look at another vital KPI (key performance indicator): RevPAR. What does Rev PAR mean, what is the formula for calculating it and why is it important? Read on and we’ll explain.

What Is RevPAR?

If you manage a multi-room operation, it’s essential to track and measure your accommodation’s performance. One of the most critical metrics to monitor is Revenue Per Available Room (Rev PAR). RevPAR is a crucial metric in the hotel industry as it provides a comprehensive view of your hotel’s financial performance. In this post, we will explore why it’s important, how to calculate it, and how it can be used to evaluate hotel performance and make informed business decisions.

The Meaning of Rev PAR and Its Significance in the Hotel Industry

RevPAR is a metric used to measure a hotel’s financial performance by combining two essential factors: occupancy rate and average room rate (ARR). In simpler terms, RevPAR is the total revenue generated by a hotel per available room, whether the room is occupied or not. It’s a critical metric for hoteliers as it provides insight into how well a hotel is performing financially. RevPAR is often used to compare a hotel’s performance against its competitors, track performance over time, and identify trends in the market. However it’s important to use it alongside some of the other hotel data analytics to get a true picture of performance.

Understanding the RevPAR Formula

There are a couple of ways to reach this data however, to calculate RevPAR, you need to know two key metrics: occupancy rate and average daily rate (ADR), sometimes known as Average Room Rate. The simplest formula for calculating RevPAR is as follows:

RevPAR = Occupancy Rate x ADR

Occupancy rate is the percentage of available rooms that are occupied during a specific period. ADR is the average price paid per room per night. By multiplying these two metrics, you can calculate the total revenue generated per available room.

So if your accommodation is 80% occupied and your average daily rate is $150, then your RevPAR is $120.

Alternatively you can divide total room revenue by the total number of rooms available.

  • So if you have 100 rooms in your property and 80% of them are occupied, then you have 80 occupied rooms.
  • Multiply this by the average daily rate of $150 and you get a total room revenue of $12,000.
  • Then divide that by the total number of available rooms (100) and you reach your RevPAR figure of $120

This can be calculated over a specific time period, to ascertain your peak periods, or for a specific room type, to highlight your most popular rooms.

If your RevPAR is increasing this means that either your average room rate is growing, your occupancy rates are increasing or both.

Using RevPAR to Evaluate Hotel Performance and Make Data-Driven Decisions

RevPAR is a crucial metric for evaluating hotel performance. It provides insight into how well a hotel is performing financially relative to its competitors. By monitoring RevPAR, hoteliers can identify trends in the market and make informed business decisions. For example, if RevPAR is declining, it may be an indication that the hotel needs to adjust its pricing strategy or marketing efforts to attract more guests. RevPAR can also be used to evaluate the effectiveness of revenue management strategies, such as dynamic pricing.

Examples of How RevPAR Can Be Used in Different Contexts

RevPAR can be used in various contexts to make KPI data-driven decisions. For example:

  • Revenue Management: RevPAR is a crucial metric for revenue management. By monitoring this metric, hoteliers can adjust pricing and inventory strategies to maximize revenue.
  • Forecasting: RevPAR can be used to forecast future revenue and occupancy rates. By analyzing historical RevPAR data, hoteliers can predict future trends and adjust their strategies accordingly.
  • Market Analysis: the calculation can be used to compare a hotel’s performance against its competitors. By analyzing RevPAR data for similar hotels in the market, hoteliers can identify areas for improvement and adjust their strategies accordingly.

Tips For Increasing Revenue

Ultimately the goal for every property management business is to increase revenue and profits and lower costs. Your RevPAR will increase when you grow the revenue from each booking at your property.

There are a number of strategies that you could adopt to increase RevPAR once you understand your metrics. Some factors that could positively influence this include:

  • Upselling and cross selling extras to a guest’s booking such as food and beverages or tours and tickets to local attractions
  • Understanding your booking seasonality so that you can effectively leverage your pricing strategy during peak season
  • Try and grow your direct bookings so there is less cost involved in achieving the booking
  • Implement a minimum length of stay policy so you can control costs by limiting guest turnover. This can be a useful strategy during times of peak demand.
  • Encourage return stays by marketing to previous guests

So whatever your property type, whether you are a hotel, motel or resort, measuring and monitoring your business data analytics is not only great business practice but it will allow you to maximise your profit and remain competitive.

Your business intelligence data is invaluable when it comes to improving your performance. It provides invaluable insights to help you make informed, effective and efficient business decisions and in turn help you to maximise your profitability.

Talk to the team at HiRUM about how we can help you access the most important hotel data analytics for your property.

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