What Is Revenue Per Available Room (RevPAR)?
Revenue per available room (RevPAR) is a metric used in the hospitality industry to measure hotel performance. The measurement is calculated by multiplying a hotel's average daily room rate (ADR) by its occupancy rate. RevPAR is also calculated by dividing a hotel's total room revenue by the total number of available rooms in the period being measured.
Key Takeaways
- Revenue per available room (RevPAR) is a performance measure used in the hospitality industry.
- RevPAR is calculated by multiplying a hotel's average daily room rate by its occupancy rate.
- RevPAR is also calculated by dividing total room revenue by the total number of rooms available in the period being measured.
- RevPAR reflects a property's ability to fill its available rooms at an average rate.
- An increase in a property's RevPAR does not necessarily mean greater profits.
An increase in a property's RevPAR most likely indicates an improvement in occupancy rate.
Understanding Revenue Per Available Room (RevPAR)
RevPAR is a metric used in the hospitality industry to assess a property's ability to fill its available rooms at an average rate. An increase in a property's RevPAR means that its average room rate or its occupancy rate is improving. However, an increase in RevPAR does not necessarily mean better performance.
RevPAR fails to consider the size of a hotel. Therefore, RevPAR alone is not a good measure of overall performance. A hotel may have a lower RevPAR but still have more rooms that earn higher revenues.
Additionally, growth in RevPAR does not mean that a hotel's profits are increasing. This is because RevPAR does not use any profitability measures or information on profits. Focusing solely on RevPAR, therefore, can lead to declines in both revenue and profitability. Many hotel managers prefer to use the average daily rate as a performance measure since it is among the main drivers of hotel occupancy. Therefore, with accurately priced rooms, the occupancy rate should increase, and a property's RevPAR should also naturally increase.
RevPAR Example
For example, a hotel has a total of 150 rooms, of which the average occupancy rate is 90%. The average cost for a room is $100 a night. A hotel wants to know its RevPAR so it can accurately assess its performance. The hotel manager can calculate the RevPAR as follows:
($100 per night x 90% occupancy rate) = $90.00
The hotel's RevPAR is, therefore, $90.00 per day. To find the monthly or quarterly RevPAR, multiply the daily RevPAR by the number of days in the desired period. This calculation assumes all rooms are the same price.
The hotel manager can make key assessments and decisions regarding the hotel property based on the RevPAR. The manager can see how well the hotel is filling its rooms and how wisely the average hotel room is priced. With a $90 RevPAR but a $100 average room, the hotel managercould reduce the average rate to $90 to help realize full capacity.
What Does RevPAR Tell You?
RevPAR is a metric used in the hospitality industry to assess a property's ability to fill its available rooms at an average rate. An increase in a property's RevPAR means that its average room rate or its occupancy rate is improving.Since it tells you the revenue per available room, whether it's occupied or not, it can aid hoteliers in accurately pricing their rooms. Additionally, RevPAR can form the basis for measuring properties against each other.
Where Does RevPAR Fail?
An increase in RevPAR does not necessarily mean better performance so using this alone to measure overall performance might lead to inaccurate results. Also, RevPAR fails to consider the size of a hotel. A hotel may have a lower RevPAR but still have more rooms that earn higher revenues. Additionally, growth in RevPAR does not mean that a hotel's profits are increasing.This is because RevPAR does not use any profitability measures or information on profits.
What Are Alternatives to RevPAR?
The drawbacks to RevPAR have led to the birth of other metrics, focusing on revenue, profits, and growth, to measure hotel performance. TrevPAR (total revenue per available room), accounts for all the revenue generated by the hotel, including revenue from other associated entities, such as its restaurants. Another is ARPAR (adjusted revenue per available room), which is similar to RevPAR but accounts for revenue and costs per occupied room.Finally, there is GOPPAR (gross operating profit per available room) which is a strong indicator of performance across all revenue streams, including room variables such as internet bills.
