What is RevPAR and How Can Your Hotel Increase It?

Revenue per available room is a better measure of success than ADR is. This is because ADR does not take into account occupancy. You could charge $1000 per ... WhatisRevPARandHowCanYourHotelIncreaseIt? DefiningRevPARandADRRevPAR(revenueperavailableroom)isthemostcommonmeasureofsuccessofahotel’srevenueandmarketingstrategy.Itisactuallyaverysimplemeasure,andisabetterperformanceindicatorthanADR(AverageDailyRate).ItcanbecalculatedusingthefollowingRevPARformula:RevPAR=AverageIncomepernight ÷TotalnumberofRoomsAsanexample;ifyouhave10roomsinyourhoteland$1000averageincomepernight,thenyourrevenueperavailableroomwouldbe$100.Thismeansthatforeveryavailableroomyouonaveragemake$1000 ÷10= $100.Anothercommondefinition(whichworksouttothesamenumberintheend)usesAverageDailyRate(ADR)andOccupancyRate.AverageDailyRateistheamountyouchargeperroomonaverageandoccupancyrateisyouraverageoccupancyrate.ThisishowtocalculateRevParbythismethod:RevPAR=AverageDailyRate(ADR)×OccupancyRateUsingtheexampleabove,ifyounormallycharge$200foryourroomsandyouhave50%occupancyrate,thenRevPAR=$200 ×0.5=$100.RevPARvsADR? RevenueperavailableroomisabettermeasureofsuccessthanADRis.ThisisbecauseADRdoesnottakeintoaccountoccupancy.Youcouldcharge$1000pernightforyourhotelrooms(ADR=$1000)butifyouonlysell1room-nightayearyouhaven’tbeenverysuccessful.ImprovingRevPARButcanyougetabetterwayofmeasuringsuccess?Theanswerisyes.Letmegiveanexampleofhow.Imagineyourvariablecostperroomis$30–meaningthateveryonewhoturnsupatyourhoteltofillanemptyroomcostsyou$30incleaning,service,breakfastandwearandtear.Imagineifyoucouldfillyour10roomswitheithera)100%occupancyat$40orb)75%occupancyat$50.Whichwouldyouprefer?CalculatingRevPARgivesavaluefor(a)of$40andavaluefor(b)of$37.50.(a)lookslikethebetteroption.Howevercalculatinghowmuchactualmoneyyoumake(aftervariablecosts)givesadifferentfigure.Incase(a)youmake$10profitfromeachofyour10rooms–totalpernightof$100.Incase(b)youmake$20profitfrom7.5rooms–totalpernightof$150.AtRoomPriceGenie,ourhotelrevenuemanagementsoftwaredoesn’ttrytomaximiseRevPar;insteadweadjustforvariablecosts.Theformulatocalculatethisgivenbelow(AdjRevPAR):AdjRevPAR=Average(Incomepernight–Variablecostspernight) ÷TotalnumberofRoomsIncreasingRevPARSoRevPARisveryimportant.Buthowdoweincreaseit?Therearemanywaystodoso,includinggettingbetterreviewsandmorevisibilityforyourhotel.Formoredetailsonthese,youcanreadourFreeRevenueManagementBook.Butthereisaverysimplewayofincreasingrevenueandthatistousedynamicpricing.Dynamicpricingmaysoundcomplicated–infact,itiscomplicated.Itinvolvesthousandsofcalculations,workingoutdemandforyourhotelroomsandthenoptimizingtogetthehighestprofit.Buthavingdynamicpricingforyourhotelisnotsocomplicated.Toseehowsimpleitcanbe,justsignupforano-obligationfreetrial.WebelievewecanhelpyouincreaseyourRevPARbyupto15%.Wecostapproximately1roomnightpermonth–soasmallfractionoftheamountitwouldsaveyou.Andifyouarenottotallyhappyyoucancancelatanytime–wedon’thavelongcontractsorlock-ins. Don’tsimplytakeourwordforitthough,revenuemanagementexpertandDirectorofMaster’satLesRochesGlobalHospitality,ScottDahlsatdowntohaveachatwithusaboutexactlywhatyoucouldbedoingtoincreaseyourRevPAR.Checkoutthevideobelowtoseemoreonwhathehastosay.  RPG:WhatisRevPARandhowdoyouimproveit? SD:Firstofall,RevPARis‘RevenuePerAvailableRoom’–butIthinkitisthebestmeasurementofahotelsabilityto,incombination,filltheirhotelandfillitatthebestpossibleprice.  It’sareallyreallyimportantKPI(KeyPerformanceIndicator)forus.Ithinkthere’sgoingtobesomeadditionalrefinementwhenwestarttotalkaboutdistributioncostsintheformofthingslikeNetRevPAR,buttherealityis,it’stheoneKPIthatwehavethatmeasuresthequalityofthebusinessandthehotelandhoweffectivelyweusetheinventorywhich,keepinmind,issuperperishableproductsousingtheinventoryisreallyimportant.  Andsohowdoyouimproveitisthosetwopiecesright?Forme,Iamabelieverthatfirstandforemostweeliminatespoilage,sofirstandforemostwewanttosellallofourrooms,orthemajorityofourrooms.Sometimesthere’sadiminishingreturnontryingtosellthelastcouplethatcauseyoutoselltherestofthemcheaperthanyouwouldneedto.ButmoreoftenthannotthebestRevPARcomesfrommaximisingtheasset.It’sreallyuncommonthatraisingyourpricerealhighandnotsellingallofyourroomsisthebestapproachmarketcondition-wisebecause,withinthat,thereshouldbesomepricethatwouldallowyoualsotosellthemall.  So,inmyopinion,youimproveRevPARbyfirstsellingallofyourroomsandthenreallymakingsurethat,asyou’resellingthem,you’resellingthematthebestpossibleprice.  Youlikedthisarticle?Subscribetoourblog StayupwiththelatestRevenueManagement,DigitalMarketingandHotelTechnologytrends.  Populararticles 9thingswe’velearnedbydoingpricingforhundredsofsmallerhotels Runningahotelisalotofwork.Andpricingisoftenasecondaryconsideration,withtheguestexperiencecomingfirst.Sadly,thepeoplewho ReadMore» Yourhotel’spricesareprobablytoolow! Weoftenfindthatthehotelswesetuparenot,inouropinion,chargingenoughfortheirrooms.Especiallynow,inapost-coronaperiod, ReadMore» RevenueManagementbasicsforsmallerhotels Whatisrevenuemanagement? Pioneeredbytheairlineindustryintheearly1980s,revenuemanagementisawayofpricingandmarketingproductsthatare ReadMore» TryRoomPriceGenieforyourproperty 14-dayfreetrial.Nocreditcardrequired. 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