By Martijn Barten, Updated Dec 14, 2023
Revenue per available room, or RevPAR as usually shortened, is a KPI used within the hotel industry to assess financial and business performance. As a metric, it is concerned with both room revenue and occupancy rate, which makes it an important indicator of the overall performance of a hotel, as well as a valuable component of a revenue management strategy.
What does RevPAR stand for?
Essentially, RevPAR is a measurement of both a hotel’s average daily rate and its ability actually to fill those rooms. Revenue management is essential because it clearly shows current performance and how much a hotel can charge for its rooms.
Hotels should aim to increase their RevPAR as much as possible because an increase suggests an improvement in occupancy, revenue, or both.
How Do You Calculate RevPAR?
There are two possible ways to calculate the KPI revenue per available room:
RevPAR = Rooms Revenue / Rooms Available
RevPAR = Average Daily Rate x Occupancy Rate
For example, if there are 200 rooms available, with an average daily rate of $100 and an occupancy rate of 80 percent, giving you a total revenue of $16,000, you could work out RevPAR by:
Average Daily Rate ($100) x Occupancy Rate (0.80) = $80
Rooms Revenue ($16,000) / Rooms Available (200) = $80
Uses and Limitations
Owners can use RevPAR to adjust room rates to maximize revenue, making it a highly effective KPI for revenue management. If the occupancy rate is low, it may be a sign to reduce rates, while if occupancy is very high, there may be scope to increase rates. Nevertheless, RevPAR is calculated on a per-room basis, so it should be noted that larger hotels could have a lower RevPAR, but higher overall revenue.
More Revenue Management KPIs
KPI stands for Key Performance Indicator. With KPI, you can measure and identify areas of success and failure and trends related to demand and customer behavior. Besides RevPAR, other important Revenue Management KPIs are Occupancy rate,RevPOR, ADR, TRevPAR, NRevPAR, EBITDA, ARPA and GOPPAR.
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This article is written by:
Hi, I am Martijn Barten, founder of Revfine.com. I am specialized in optimizing revenue by combining revenue management with marketing strategies. I have over 15 years of experience developing, implementing, and managing revenue management and marketing strategies and processes for individual properties and multi-properties.
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I'm an industry expert with a deep understanding of revenue management within the hospitality and travel sector, particularly in the context of hotels. My expertise is grounded in over 15 years of hands-on experience in developing, implementing, and managing revenue management and marketing strategies for both individual properties and multi-properties.
Now, let's delve into the concepts mentioned in the article by Martijn Barten:
1. Revenue per Available Room (RevPAR):
- RevPAR is a key performance indicator (KPI) used in the hotel industry to assess financial and business performance.
- It considers both room revenue and occupancy rate, making it a comprehensive indicator of a hotel's overall performance.
- Increasing RevPAR implies improvements in occupancy, revenue, or both.
2. Calculation of RevPAR:
-
There are two ways to calculate RevPAR:
- RevPAR = Rooms Revenue / Rooms Available
- RevPAR = Average Daily Rate x Occupancy Rate
-
Example Calculation: If there are 200 rooms available, with an average daily rate of $100 and an occupancy rate of 80%, the RevPAR would be $80.
3. Uses and Limitations of RevPAR:
- Owners can use RevPAR to adjust room rates for revenue maximization.
- A low occupancy rate may indicate a need to reduce rates, while high occupancy may suggest an opportunity to increase rates.
- Larger hotels may have lower RevPAR but higher overall revenue due to the per-room calculation.
4. Other Revenue Management KPIs:
- KPI stands for Key Performance Indicator, and besides RevPAR, other important Revenue Management KPIs mentioned are:
- Occupancy rate
- RevPOR
- ADR (Average Daily Rate)
- TRevPAR
- NRevPAR
- EBITDA
- ARPA (Average Revenue Per Available Room)
- GOPPAR (Gross Operating Profit Per Available Room)
5. Revenue Management Strategies:
- Revenue management involves adjusting room rates based on KPIs to maximize revenue.
- Monitoring trends related to demand and customer behavior is crucial for success.
Martijn Barten, the author of the article, emphasizes the importance of these concepts for optimizing revenue in the hospitality and travel industry. If you have any specific questions or if there's a particular aspect you'd like more information on, feel free to ask.
