One Reason Why You Shouldn't Be Googling "RevPAR vs ADR"

There are myriad acronyms in the glossary of hospitality financial analysis, but two in particular haunt hotel managers like a specter: ADR ... Latest Blog ResourceCenter MonthlyTrends COVID-19Coverage HotelBenchmarking MarketReports Pricing ContactUs Latest Blog ResourceCenter MonthlyTrends COVID-19Coverage BlogSearch: BacktoBlog Prev Next HotStatsBlog OneReasonWhyYouShouldn'tBeGoogling"RevPARvsADR" LauraResco 29July2019 FacebookShare TwitterShare LinkedinShare Therearemyriadacronymsintheglossaryofhospitalityfinancialanalysis,buttwoinparticularhaunthotelmanagerslikeaspecter:ADR(averagedailyrate)andRevPAR(revenueperavailableroom).  AlthoughADRmeasurestheeffectivenessofroomsratemanagement,RevPARreflectshowrateandinventoryinteracttogenerateroomsrevenue.Continuedgrowthinboththesemetricsisoftenanillusoryquest:Increasedratesmightleadtofallingoccupancynumbers,whichcannegativelyaffectoverallroomsrevenueifroomsgounfilled.  So,intheRevPARversusADRcontest,whichisthebettermeasureoffinancialperformance?Googlecanoffermorethan40,000resultsforthisqueryinlessthanasecond.However,thisisnottherightquestiontoask.Whensearchingforthebestfinancialperformanceindicator,insteadGoogle:“WhatisGOPPAR?” BothRevPARandADRreflectonlytop-lineresultsandarecircumscribedtotheroomsdepartment.Thisisanincompletefinancialpictureintwoways:1.Itdoesnottakeintoconsiderationalloftheotherrevenuecentersinthehotel.2.Itprovidesnoinformationaboutthecostsandexpensesthatareincurredinthecourseofgeneratingrevenueandkeepingtheoperationrunning.  Althoughtheroomsdepartmentisgenerallyahotel’smostimportantrevenuegenerator(ataround65percentoftotalrevenueinfull-servicehotels),itdoesn’tmakeallotherrevenuestreamsnegligible.Thereareplentyofrevenue-generatingopportunitiesinF&B,healthclub,spaandotheroperateddepartmentsthathotelierscan’taffordtodisregard.Moreover,theincreasingcostsofsales(mainlythroughOTAcommissions)andlaborexpensesnowrequirehotelmanagerstobemorepainstakinglyawareoftheirbottomlinethanever.  GOPPAR(grossoperatingprofitperavailableroom)revealsahotel’swholefinancialpicture.It’sanindicatoroftheefficiencyandprofitabilityoftheoperation—howmuchmoneyperavailableroomisgeneratedandkeptafteraccountingforallexpenses.Thismetricisimportanttohotelmanagersandownersalike,becauseitreflectstheiroperation’sprofitabilitystructure. ThemathinvolvedinthecalculationofGOPPARisverystraightforward:Simplysubtractgrossexpensesfromgrossrevenueanddividebythenumberofavailablerooms.ThepracticeofconsistentlybenchmarkingGOPPARallowshotelierstoidentifyareasforimprovement,aswellasbestpractices.Moreover,trackingGOPPARovertimeisagoodmethodforassessingdifferentrevenue-managementstrategies,byestablishingthecostsassociatedwitheachadditionaldollarofrevenue.But,mostimportantly,duringtimesofeconomicexpansion,it’seasytogetlostintheRevPARandADRfrenzy,andletexpensesslowlycreepup.Havinganin-depthunderstandingofanoperation’sprofitabilitystructurethroughGOPPARbenchmarkingmakeshoteliersmoreagileintheirabilitytorespondtochangesinthebusinessenvironmentwhendownturnshit. RevPARandADRaregoodperformanceindicatorswhenitcomestounderstandingthetopline,buttheyarenotenoughtodepictthefinancialrealityofahotel.It’snotamatterofRevPARversusADR,butrather,achangeinparadigm.Astechnologymakesstridesinthecollectionandprocessingofdata,it’stimeforhotelierstotakeadvantageofmorecomplexindicators,suchasGOPPAR,andincorporatethemintotheirtrackingandbenchmarkingefforts Benchmarking ShowYourSupport Share Tweet Share NEXTBLOG TheRaptorsWontheNBATitle,ButWhatCityWontheGOPPARCrown? TrendingNowBoxURL SubscribetoHotStats SubscribetoHotStats andgetemailsdeliveredstraighttoyourinbox aboutnewresourcesandinsights. Ifyou’dliketoaskaquestionaboutourservices,orsimplywanttofindoutmore,getintouch.WehaveofficesintheUKandUS. [email protected] HeadOffice: BradburyCentre2SansomeWalkWorcesterWR11LHUnitedKingdom GetinTouch: UK/EMEA+442078922222 AMERICAS+1-877-255-5022 [email protected] HotelBenchmarking MarketReports Pricing About TermsandConditions PrivacyPolicy ©2021Allrightsreserved.