Master RevPAR to improve your hotel's performance!

Do you manage a hotel and have you heard of RevPAR?

When it comes to developing your hotel's profitability, there are a number of measurement tools that can give you valuable pointers on what's working and what's not, so that you can define or strengthen your strategy.

RevPAR is one of the most widely used indicators by hoteliers. By calculating revenue per available room, it helps you to assess your hotel's performance and guide you in your strategic decision-making .

Find out how to calculate and analyse it now, and discover some tips on how to boost your hotel's revenues at the end of this article!

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Hotel RevPAR: definition

What does RevPAR mean?

The acronym RevPAR stands for "Revenue Per Available Room".

ℹ️ ️Please note that this means that a room is available for guests to rent, not that it is vacant during the period in question.

RevPAR is a key performance indicator (KPI) in the hotel sector, as it provides visibility on the commercial and financial performance of an establishment. It shows the number of rooms sold and the revenue they generated.

💡 Interpreting it well supports your strategy, by understanding how to improve the occupancy of your rooms and maximise the revenue they generate.

Difference with ADR and occupancy rate

RevPAR is obtained from other data such as the average daily rate per room and the occupancy rate. It is important to distinguish between them:

• The average daily rate (or ADR): this is the average rate for your rooms, i.e. the average turnover you obtain per room sold. It is calculated by dividing the amount received for all your rooms rented for one night by the number of rooms sold;

▶ ︎ E xample: if 50 rooms sold for one night bring in €5,500, then your ADR is €110.

• Occupancy rate: this is the percentage of rooms rented per night. It is calculated by dividing the number of rooms occupied for the night by the total number of rooms.

▶ ︎ E xample: if your hotel has 100 rooms and you have 50 rented, then your occupancy rate is 50%.

💡 You can also calculate the average occupancy rate over different durations (week, month, etc.), which will vary this figure depending on the period under consideration. We explain how to calculate this below.

Why monitor this indicator?

RevPAR has a number of advantages:

• it's very easy to calculate and monitor;
• it indicates the income you can expect for each available room;
• It gives a precise idea of your hotel's performance over the period studied;
• it allows you to validate or revise your strategy by adjusting the rates you charge for your services.

All in all, its proper use contributes to good revenue management.

How do you calculate a hotel's RevPAR?

Calculation method no. 1

To calculate RevPAR, you can first multiply the average daily rate by the occupancy rate.

RevPAR 1 formula:

▶︎ Example:

Let's go back to the previous example:

• ADR = €110
• occupancy rate = 50%.
• RevPAR = €55.

Calculation method no. 2

The other calculation method consists of dividing the total turnover from rooms rented for one night by the number of rooms available in your hotel.

RevPAR 2 formula:

▶︎ Example:

Let's go back to the previous example:

• total revenue generated for one night = 50 x 110 = €5,500
• total number of rooms available in your hotel = 100
• RevPAR = €55.

Calculating RevPAR for the year

RevPAR is most often calculated for one year. The time period to be studied is important to give the indicator its full relevance.

If you choose to monitor RevPAR on an annual basis, you need to take account of :

• the average selling price of a room over the year and the average occupancy rate over one year,
• or the total turnover generated by rooms over one year, and the total number of rooms available over one year.

▶ ︎ Let's go back to our example of a hotel with 100 rooms.

1. Calculate the number of rooms available over a year: 365 x 100 = 36,500 rooms available.
   
   
2. Then estimate the average occupancy rate by dividing the number of rooms let in a year (let's imagine 25,000) by the total number of rooms available in a year (36,500). This gives an average occupancy rate of 25,000/36,500 = 0.68 (equivalent to 68%).
   
   
3. Finally, determine the revenue per available room: multiply the average occupancy rate we've just calculated by your annual ADR (let's assume it's €105), which gives an annual RevPAR of 0.68 x 105 = €71.4.

How do you analyse RevPAR?

To better understand and interpret RevPAR, you should know that it is commonly used to measure the state of health :

• an establishment
• a group of hotels
• a market
• a geographical area, etc.

What information can be gleaned from it? To put it to good use, you can :

• track the performance of a hotel or chain over time ;
• evaluate any difference between your actual income and your potential income;
• compare your data with that of establishments in the same market segment.

When carrying out your analysis, here are a few best practices:

• don't use the RevPAR indicator to assess your hotel's profitability, but rather to gauge its commercial performance;
  
  
• look at the figures in context: for example, if RevPAR is naturally high for the luxury hotel industry, this does not necessarily mean that these establishments are better revenue generators than hotels in lower segments with a lower indicator;
  
  
• make sure you also consider your sources of revenue other than those from rooms (such as spas, breakfasts, rented rooms, etc.) and complete your analysis using other indicators such as :
  • ARPAR: which refines the calculation of RevPAR by introducing the average cost and average additional revenue per room occupied;
  • TrevPAR: total revenue (all sources of revenue combined) per available room;
  • average length of stay, etc.

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4 tips to improve your RevPAR

No. 1: survey market trends

Make a detailed analysis of supply and demand in the hotel market so that you can set your prices wisely.

Bear in mind, for example, that demand is on the rise:

• at certain popular times of year (school holidays, summer season, etc.),
• or around popular events close to your hotel (festivals, national holidays, etc.).

This adjustment will have a positive impact on your RevPAR.

No. 2: pay attention to your marketing strategy

The promotion of your hotel is an aspect that should not be neglected. With a well thought-out marketing strategy, you can generate traffic and online bookings on your site.

Here are some examples of what you can do:

• develop a content strategy to be distributed via different channels (blog, newsletter, social networks), in order to raise your profile;
  
  
• defining a policy for managing online reviews in order to monitor and respond to comments made by Internet users, and thus look after your e-reputation;
  
  
• set up monitoring tools and marketing KPIs to assess your impact and plan to adjust your marketing efforts.

3: Diversify your offers

Playing with different holiday offers gives you greater control over the average length of stay.

For example, in high season, you can test special offers with a minimum length of stay, so that you only accept stays of a certain length.

Conversely, a maximum length of stay would help you to promote advantageous prices for a smaller number of nights.

It's up to you to find out how to adjust the slider to increase your occupancy rates.

No. 4: Vary your distribution channels

While using channels such as OTAs (Online Travel Agencies, like Booking.com or Expedia) can quickly help to increase your occupancy rate, it's not always the best way to increase your RevPAR.

In fact, despite their role in attracting travellers because of the attractive offers they provide, relying solely on OTAs could result in a drop in your income, even if your rooms are rented.

It is on the perceived value of your rooms that you will gain by working, by communicating, for example, on all the additional services you offer. And why not then put the emphasis back on promoting them on your website?

Using a hotel management tool can help you optimise the marketing and distribution of your rooms. For example, the Asterio :

• includes a channel manager to control all your distribution channels;
• enables you to develop direct bookings on your website;
• improves your RevPAR thanks to optimised reservation management.

Now you know the essentials about RevPAR, how to read and use this indicator to better manage your establishment.

What about you? Do you use RevPAR to analyse your performance? What other indicators do you use to help you define your strategy?