Do you know what RevPAR means? What about how to understand it, track it, and maximize it? For those looking to brush up on their revenue management skills or reinvigorate their revenue strategy, we’ve created a complete “how-to” guide that will walk you through what RevPAR is, why it’s consistently the primary indicator of hotel success, and how you can increase your hotel’s room revenue to maximize profits.
The complete guide to manage and maximize hotel RevPAR
When measuring hotel performance, RevPAR is the most commonly used metric to determine financial success. Hotel revenue managers seek solutions and strategies to maximize profits and increase RevPAR. They are tasked with bringing in more and more revenue by selling the same amount of rooms
Understanding RevPAR
By harnessing the true power of your property’s RevPAR potential, you’ll see increases in room rate averages, higher ROIs and larger profit margins.
What is RevPAR?
RevPAR is a term commonly used in the hotel industry to measure overall revenue performance. The term RevPAR stands for “revenue per available room.” RevPAR tracks the total number of rooms available to sell on property (not rooms sold) as well as the total room revenue brought in each night.
Delving deeper, RevPAR measures a hotel’s ability to sell its available rooms and maintain a certain average rate. RevPAR allows hoteliers to identify their most profitable periods and track if revenue strategies have been successful in boosting business.
How is RevPAR calculated?
Two different formulas can be used to determine hotel RevPAR, each providing the same result. You can use either calculation, or both, depending on your personal preference.
1. ADR X Occupancy Rate = RevPAR
2. Room Revenue / Available Rooms = RevPAR
We’ve provided example performance data below that represents a single night’s occupancy and revenue totals at a fictional 152 room hotel. Review the formula examples to see how the two different RevPAR calculations arrive at the same result.
Sample hotel performance data:
● Total # of rooms: 152
● Rooms Sold: 124
● ADR: $103.25
● Room revenue: $12,803.00
● Occupancy rate: 81.58%
RevPAR calculations:
1. $103.25 (ADR) X 81.58% (occ.) = $84.23 (RevPAR)
2. $12,803.00 (revenue) / 152 (total rooms) = $84.34 (RevPAR)
Does RevPAR include out of order rooms?
There are differing opinions on whether or not out of order rooms should be included when calculating RevPAR. As the rooms cannot be sold, some hotels choose to remove out of order rooms from their total available rooms count. Hotels who follow this policy calculate RevPAR differently.
■ RevPAR = revenue / (total # of rooms - O.O.O. rooms)
A more accurate RevPAR total, however, would include out of order rooms in their total available count, effectively treating them as “sold,” but without revenue attached. This is a harsher calculation, true, but it presents a more accurate RevPAR total for tracking purposes.
If your hotel’s RevPAR is consistently affected by unavailable rooms, revenue managers should closely track the trend, forecast future lack of availability, and adjust rate strategies appropriately.
In addition to RevPAR, occupancy and ADR are the other two key performance indicators that hotels use to measure overall success. Occupancy measures the percentage of total available rooms that are rented each night. ADR, or average daily rate, measures the average room revenue per night based on the total of rooms sold. If your property consistently ranks high in all three categories, you’re already on the right track.
Analyzing & tracking RevPAR
Review revenue reports and look for unexpected peaks or valleys in RevPAR. Utilize the hotel’s property management system, sales systems, or brand reporting to review your hotel's past performance. Subscribe to the STR Report for easy-to-read performance metrics and forecasting data for your hotel and area competition.
To track group RevPAR performance, Cvent provides real-time data analysis of your group business. Helps you keep track of your RFPs, see how you measure up against the competition, and forecast future trends through the Group Business Outlook tool.
Keep a close watch on booking patterns and changes in market mix to catch ineffective RevPAR strategies early.
Booking patterns
Were there days or weeks when your average LOS was one night? Were there seasons where longer booking patterns were in high demand?
Too many single-night stays can leave travelers seeking extended accommodations without a room to book at your property. Not only will this affect shoulder date occupancy by diverting multi-night stays to the competition, it can also drastically decrease your overall revenue earning potential. In opposition, periods with heavy multi-night stay patterns may be perfect dates to raise BAR rates and maximize on future RevPAR potential.
Market segment performance
When analyzing past RevPAR performance, pick a few dates or seasons where your RevPAR was highest. Drill down into the data and look at the market segment mix that resulted in your most profitable days.
Look for patterns over dates with elevated RevPAR:
● Spikes in corporate travel
● Large number of OTA bookings
● Sizable group blocks
● High demand for same-day bookings
When reviewing RevPAR data, pay less attention to special event dates. Your property’s market mix will be very limited due to lack of available discounted rates, previously contracted corporate blackout dates, LOS requirements and lack of group business. Instead, focus on RevPAR anomalies, consistent mid-season spikes and your strategy during peak travel seasons.
Setting RevPAR goals
Top performing hotels have mastered RevPAR and how to influence it. They are able to increase rates without sacrificing occupancy.
Aim for annual increases
When it comes to performance, especially financial performance, hotels are always fighting a war on two fronts. In addition to working to outperform the comp set, successful high-demand hotels also constantly compete against themselves. While keeping prices competitive with comparable area properties, consistently strive to increase your overall RevPAR year over year, even if it’s only by a fraction of a percentage.
Be reasonable about growth potential
If you consistently see RevPAR increases each year around 2%, it’s unlikely that you’ll be able to meet a 6% YOY goal. Without major hotel updates or renovations, it’s going to be very difficult to justify such a steep rate increase, especially to regular guests.
Some properties, based on their market and amenities, will be able to increase RevPAR significantly with the right strategy in place. Under ideal circumstances, hotels may even see an annual increase of 5-10% or more. Hotels in oversaturated areas, however, may find 3-4% increases each year difficult, or even impossible to attain.
Account for unavailable rooms
If your property is expected to undergo renovations, or has been experiencing consistent maintenance issues, take that information into account when planning revenue and RevPAR goals. Estimate the anticipated number of unavailable rooms and determine if your owners or management company will include unavailable rooms in RevPAR totals and financial performance reviews.
Many hotel brands and management companies employ a performance-based bonus structure for their sales team members, so it’s imperative that hotel managers have a firm grasp on past performance trends and reasonable future expectations. Keep in mind, hotel revenue management is a team effort. Strategies should constantly evolve with the receipt of new information.
Creating a successful RevPAR strategy
Look for high occupancy dates where your ADR was lower than ideal, or where your hotel sold out with a discounted group on the books. These situations are key indicators of RevPAR improvement opportunities and could indicate a need for strategy changes.
1. Set LOS restrictions
Adding length of stay restrictions is a quick way for hotels to increase occupancy and overall revenue by ensuring that the hotel doesn’t fill with too many single night guests.
2. Plan for special events and blackout dates
Ensure hotel success during expected area-wide sellouts and guarantee maximum your ability to capture revenue through detailed preparation. Close discounted rate plans (if applicable), set LOS restrictions and refuse discounted group blocks during high-demand travel (unless the special event is group related). Raise BAR rates to reflect demand and enforce strict cancellation policies with early cancellation deadlines.
3. Set rates with comp set in mind
Increasing rates in an attempt to improve ADR or RevPAR is an effective strategy—under the right conditions. As a sole revenue strategy, however, it is unlikely to be successful. Your property’s daily rates should always be competitive when presented against the rates of area hotels. Raising rates alone may improve your ADR numbers, but will likely drive business to comp set hotels costing occupancy and RevPAR.
ADR is the driving force behind RevPAR changes, not occupancy totals. As a result, the pricing position of a hotel’s rates is a more accurate revenue forecasting tool than the number of booked rooms.
Based on your property’s unique revenue goals, market conditions, and historical performance, create a revenue strategy focused on maximizing RevPAR without sacrificing other key performance indicators like occupancy and ADR. Individual hotels will experience different RevPAR determinants so there is no “one size fits all” solution. Do the research and test different strategies to see what works and what doesn’t.
Balancing RevPAR and group business
Set group goals and standards for different seasons based on average group block demand. Review previous group data and identify opportunities to raise group rates in the future. Utilize these reports to forecast future group demand.
1. Taking group business is not always profitable
Note dates where there is high BAR demand and when accepting discounted group travel could hinder RevPAR growth potential. Close those dates off to group business.
2. Place a cap on accepted group rooms
Set group block caps for each season with the goal of building a profitable base of discounted group and transient business. Hotels should never sell out on group business alone, as it will shut out the opportunity to receive BAR business at higher rated, non-discount rooms. During periods of high transient travel demand, set lower group caps than you would during a regional swim meet. A healthy mix of sales will increase RevPAR growth potential.
3. Consider the cost of concessions
Remember that group concessions like comp rooms will lower your overall RevPAR numbers. Adding non-room concessions like complimentary meeting or meal space, however, will give hotels the opportunity to raise group rates without sacrificing overall room revenue.
Evaluate your market share regularly to ensure that you’re getting your fair share of available business. Stay competitive with other hotels in the market but don’t be afraid to attempt a price increase YOY.
Hotels that treat travellers well, consistently make improvements to their property and boast outstanding service from an exceptional staff will have an easier time increasing RevPAR. When guests feel that their money is well spent, they are willing to spend more and spend more often.
FAQs
1. What is a good hotel RevPAR?
Individual hotel performance should be measured against the goals they set for themselves. If your property has a RevPAR goal of $119 and your average is $124, then you’ve surpassed your goal! Hotels with a RevPAR index over 100 are getting more than their “fair share” of total area business, outperforming the competition.
2. How can hotels increase RevPAR?
Hotels can increase their RevPAR numbers by changing up their average length of stay patterns, monitoring trends, and improving their targeting marketing strategies.
3. How are ADR and RevPAR different?
ADR measures the average rate of all rooms sold per night, whereas RevPAR is the measurement of revenue earned divided amongst all available rooms on property. ADR is a measurement of what was sold, and RevPAR compares the amount of revenue earned each night against the total profit potential of the hotel.
4. What changes hotel RevPAR?
Hotel RevPAR is influenced by a wide variety of factors such as area travel demand, rates at competitive properties, and seasonal travel patterns. RevPAR is also affected when hotel rooms are out of order or unavailable for sale.
5. Is RevPAR important?
RevPAR measures how successful a hotel is at filling their available rooms. Is it able to fill its rooms, or not? Does the hotel consistently sell out at a high rate? The metric is important to hoteliers as it is used to measure the overall financial success and performance of their property, as well as their ability to successfully market the hotel.
