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RevPAR (Revenue per Available Room)

What is RevPAR in the hotel industry?

RevPAR (Revenue per Available Room) is a metric used in the hotel industry to measure the average revenue generated from a room in any given period of time. It is calculated by dividing the total revenue from hotel rooms by the number of available rooms in a given period of time. RevPAR is used to analyze a hotel’s performance and compare it against competitors in the same market.

RevPAR can vary across different types of hotels because each type of hotel has its own unique amenities, services and pricing. 

Other elements that impact RevPAR include: 

  1. Occupancy rate: This is the percentage of rooms that are filled at any given time and is a key factor when it comes to determining RevPAR.
  2. Room rate: Higher room rates will result in higher RevPAR, but it is important to keep in mind that too high of a rate can drive away potential customers.
  3. Seasonality: Depending on the time of year, there may be more or less demand for rooms, which can have a huge impact on RevPAR.
  4. Location: Hotels in desirable locations tend to have higher occupancy and room rates, resulting in higher RevPAR.
  5. Competition: Hotels that are in competitive markets and have to compete with other hotels for customers will likely have lower RevPAR.
  6. Amenities: Hotels with more amenities, such as high-end restaurants or spas, can charge a premium for their rooms and can result in a higher RevPAR.
  7. Marketing: Hotel marketing campaigns can have an impact on a hotel's RevPAR, as they can bring in more customers and help create a higher demand for rooms.

How do you calculate RevPAR for a hotel?

The formula for RevPAR in hotels is calculated by multiplying the Average Daily Rate (ADR) by the Occupancy Rate (OR).

RevPAR is a relatively straightforward metric to calculate for a hotel.

The formula for RevPAR is: RevPAR = Average Daily Rate (ADR) * Occupancy Rate (OR).

For example, if the ADR is $100 and the Occupancy Rate is 75%, the RevPAR would be $75 ($100 x 75%).

What is a good RevPAR for a hotel?

A RevPAR of greater than $100 is generally considered to be a good RevPAR for a hotel. However, this is only a general rule and does not apply to every hotel equally. What is considered a good RevPAR for a luxury hotel will not be the same as a limited service property. 

At a luxury property, a good RevPAR is typically higher than the average RevPAR for the market in which it is located. For a limited service property, a RevPAR inline a market’s local average (or slightly below it) could be considered strong. 

Why is RevPAR important to hotels?

RevPAR is important because it allows hoteliers to evaluate the performance of their properties holistically by combining two core metrics: ADR and occupancy rate. Since RevPAR takes both ADR and occupancy rate into account, RevPAR is able to pick up on whether or not a hotel is unable to charge higher rates for their rooms. At the same time, it can help a hotelier determine if too many of their rooms are routinely vacant.

Example 1: Hotel Unable To Charge Higher Rates

100-room property charges $25/night → occupancy 100%. RevPar would be 25 * 100% = $25

Sure a 100% occupancy rate is great — but in this example the hotel is charging a very low nightly rate, which is why occupancy rate is likely so high. A relatively low RevPAR of $25 accurately calculates that there are potential problems for the hotel. 

Example 2: Hotel Has Too Many Vacant Rooms 

100-room property charges $100/night → occupancy 25%. RevPar would be $100 * 25% = $25

In this example, the hotel is charging a more respectable $100 per night; however, the hotel is unable to generate the bookings needed for a healthy occupancy rate. Again, the relatively low RevPAR of $25 accurately calculates issues at the hotel.

Both examples provide the exact same relatively poor RevPAR, but for different reasons. In the first example, it's because the hotel’s ADR is low. In the second example, it's because the occupancy rate is low.

Knowing their RevPAR helps hoteliers determine the effectiveness of their pricing and marketing strategies, and can be used as a benchmark to measure and compare performance over time. It can also be used to identify areas of improvement and adjust pricing and marketing accordingly.

How do you increase a hotel’s RevPAR?

Increasing RevPAR is important because it indicates that the hotel is performing well and is able to generate more revenue from its available rooms. There are several ways to increase a hotel's RevPAR.

  1. Increase Room Rates: Increasing room rates is one of the most effective ways to increase a hotel's RevPAR. Hotels should look at their competitors’ room rates and adjust their own accordingly. It is also important for hotels to consider market fluctuations when setting room rates.
  2. Increase Occupancy Levels: Increasing occupancy levels is another way to increase a hotel's RevPAR. Hotels should look at their competitors’ occupancy levels and adjust their own accordingly. They can also focus on marketing strategies like discounts and loyalty programs to attract more customers.
  3. Increase Ancillary Revenue: Ancillary revenue is another way to increase a hotel's RevPAR. Examples of ancillary revenue include room service, rental vehicles, and spa services. Hotels should look for ways to increase their ancillary revenue by offering more services or creating packages to attract customers.
  4. Improve Service Quality: Improving service quality is also an important factor in increasing a hotel's RevPAR. Hotels should focus on training their staff to provide exceptional service and create a pleasant experience for their customers. 
  5. Increase Repeat Customers: Increasing repeat customers is another way to increase a hotel's RevPAR. Hotels should focus on creating loyalty programs and offering discounts and incentives to encourage customers to return.

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