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:
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%).
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.
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.
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.
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