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).
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.
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.
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
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.