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January 9, 2022

What is RevPAR and How Can Your Hotel Increase It?

RevPAR (revenue per available room) is the most common measure of success of a hotel’s revenue and marketing strategy. It is actually a very simple measure, and is a better performance indicator than ADR (Average Daily Rate).

What is RevPAR and How Can Your Hotel Increase It

Defining RevPAR and ADR

What is RevPAR? 

RevPAR (revenue per available room) is the most common measure of success of a hotel’s revenue and marketing strategy. It is actually a very simple measure, and is a better performance indicator than ADR (Average Daily Rate). 

How to calculate RevPAR ?

It can be calculated using the following RevPAR formula:

RevPAR = Average Income per night ÷ Total number of Rooms

As an example; if you have 10 rooms in your hotel and $1000 average income per night, then your revenue per available room would be $100. This means that for every available room you on average make $1000 ÷ 10 =  $100.

Another common definition (which works out to the same number in the end) uses Average Daily Rate (ADR) and Occupancy Rate. Average Daily Rate is the amount you charge per room on average and occupancy rate is your average occupancy rate. This is how to calculate RevPar by this method:

RevPAR = Average Daily Rate (ADR) × Occupancy Rate

Using the RevPAR formula, if you normally charge $200 for your rooms and you have 50% occupancy rate, then RevPAR = $200 × 0.5 = $100.

RevPAR vs ADR?

Revenue per available room or RevPAR is a better measure of success than ADR is. This is because ADR does not take into account occupancy. You could charge $1000 per night for your hotel rooms (ADR = $1000) but if you only sell 1 room-night a year you haven’t been very successful.

Improving RevPAR

Now you know the RevPAR definition, and how to calculate RevPAR for your hotel. But can you get a better way of measuring success? The answer is yes. Let me give an example of how. 

Imagine your variable cost per room is $30 – meaning that everyone who turns up at your hotel to fill an empty room costs you $30 in cleaning, service, breakfast and wear and tear. Imagine if you could fill your 10 rooms with either: a) 100% occupancy at $40 or b) 75% occupancy at $50. Which would you prefer?

Calculating RevPAR gives a value for (a) of $40 and a value for (b) of $37.50. (a) looks like the better option. 

However calculating how much actual money you make (after variable costs) gives a different figure. In case (a) you make $10 profit from each of your 10 rooms – total per night of $100. In case (b) you make $20 profit from 7.5 rooms – total per night of $150.

At RoomPriceGenie, our hotel revenue management software doesn’t try to maximise RevPar; instead we adjust for variable costs. The formula to calculate this given below (AdjRevPAR):

AdjRevPAR = Average (Income per night – Variable costs per night) ÷ Total number of Rooms

Increasing RevPAR

So RevPAR calculation is very important. But how do we increase it? There are many ways to do so, including getting better reviews and more visibility for your hotel. For more details on these, you can read our Free Revenue Management Book. But there is a very simple way of increasing revenue and that is to use dynamic pricing.

Dynamic pricing may sound complicated – in fact, it is complicated. It involves thousands of calculations, working out demand for your hotel rooms and then optimizing to get the highest profit. But having dynamic pricing for your hotel is not so complicated.

To see how simple it can be, just sign up for a no-obligation free trial. We believe we can help you increase your RevPAR by up to 15%. We cost approximately 1 room night per month – so a small fraction of the amount it would save you. And if you are not totally happy you can cancel at any time – we don’t have long contracts or lock-ins.

Don’t simply take our word for it though, revenue management expert and Director of Master’s at Les Roches Global Hospitality, Scott Dahl sat down to have a chat with us about exactly what you could be doing to increase your RevPAR. Check out the video below to see more on what he has to say. 

RPG: What is RevPAR and how do you improve it? 
SD: First of all, RevPAR is ‘Revenue Per Available Room’ – but I think it is the best measurement of a hotels ability to, in combination, fill their hotel and fill it at the best possible price. 
RevPAR is a really really important KPI (Key Performance Indicator) for us. I think there’s going to be some additional refinement when we start to talk about distribution costs in the form of things like Net RevPAR, but the reality is, it’s the one KPI that we have that measures the quality of the business and the hotel and how effectively we use the inventory which, keep in mind, is super perishable product so using the inventory is really important. 
And so how do you improve it is those two pieces right? For me, I am a believer that first and foremost we eliminate spoilage, so first and foremost we want to sell all of our rooms, or the majority of our rooms. Sometimes there’s a diminishing return on trying to sell the last couple that cause you to sell the rest of them cheaper than you would need to. But more often than not the best RevPAR comes from maximising the asset. It’s really uncommon that raising your price real high and not selling all of your rooms is the best approach market condition-wise because, within that, there should be some price that would allow you also to sell them all. 
So, in my opinion, you improve RevPAR management by first selling all of your rooms and then really making sure that, as you’re selling them, you’re selling them at the best possible price. 

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