What is RevPar?
RevPAR (Revenue Per Available Room) is the most commonly used KPI to measure financial performance in the hotel industry. Many of you readers will probably be quite familiar with this ratio.

Why are hotels using it?
Specifically, Revenue Managers are using RevPAR to compare the performance of their property against:
– themselves for a certain period of time
– their competitors
– through benchmarking tools like
– the industry/the market (Asset Managers/owners need to understand the RevPAR they can expect before investing)

How to calculate RevPar?
The most straightforward formula to calculate RevPAR is:

Average Daily Room Rate x Occupancy Rate

To reach the same result, one may also use the following formula:

Total room revenue in a certain period (excl sales tax, discounts & meals) / # of available rooms in the same period

Average Daily Room Rate
ADR is the average daily income per paid occupied room. Read all about ADR and some insiders news here.

Occupancy Rate

The occupancy rate is the share of available rooms that are occupied during a given time. Read more about Occupancy Rate here.

A quick calculation.

Hotel the Grand

Number of Rooms: 100

Average Room Rate: €90

Average Occupancy Rate: 85%

€90 per night x 0.85 = €76,50

 

 

Conclusion: Hotel the Grand generated approximately €67,50 in revenue per day from each of its hotel rooms.

Pro’s
– Using the RevPar index, it is easy to compare to other hotels, like e.g. an NPS score. A high index (on a 0-100 scale) means the hotel is doing well vs. the aggregated group of lodging accommodations.
– Instant view of how much you might be able to charge the room

Con’s
It only focuses on revenues and not on profit. A hotel might be paying a lot of money for the revenue to come in. It possibly has a high ADR, but a low Occupancy Rate. This means the hotel hotel is not really profitable.
It only focuses on room revenue while a hotel can create profit/revenue with more than just their rooms. A Michelin star hotel restaurant will contribute more with the restaurant than the hotel.

Relating (news) items:
7 resolutions for Revenue Managers