RevPAR or revenue per available rooms is a highly regarded KPI (or key performance indicator) for hotel businesses, large or small…demonstrating how much V-rooooom per room you really generate!
Hospitality horsepower to coin a phrase.
- 1 RevPAR & Revenue Management
- 2 What Is RevPAR? And What Does It Mean By Definition?
- 3 Does This Data Overload Actually Make Any REAL Business Sense?
RevPAR & Revenue Management
Such indicators like RevPAR, are useful lenses which grant hotel management valuable insight of the operational health of the business.
The measurement suffices as a comparison tool, or barometer, by which to estimate how strongly or otherwise weakly your hotel is performing. Current KPI figures are set against internal historical benchmarks, a kind of personal best, or even peer to peer.
What Is RevPAR? And What Does It Mean By Definition?
RevPAR is a statistical indicator which by definition represents:
“…the total rooms bookings revenue generated by a hotel business, within a fixed time period, shared/divided equally across the total number of rooms which were available to book, during the same fixed period of time.”
What is the RevPAR formula /equation?
RevPAR = *total room bookings revenue/*total available rooms [*Note: related to a fixed & defined time period i.e. from start date, to end date.]
What does RevPAR tell you?
It tells you how much bookings income per available hotel room booking your hotel achieved during any given time period.
Essentially, what ‘weight category’ or ‘league’ your hotel competes in.
What Is RevPAR Index? How Should It Be Used?
Each hotelier will have in mind an ideal or aspiration for ‘weight (revenue) category’ or ‘index‘ within which they wish their hotel to compete.
Index is also known as a hotel competitive set.
RevPAR index is a ratio measure calculated by dividing your hotel’s RevPAR by a ‘mean average calculation of the combined RevPARs of the chosen hotels within your competitive set’ aka RevPAR Penetration, then to multiply the product of this division by 100.
RevPAR Index = (‘your hotel RevPAR’/’RevPAR of your competitive set’) x 100
RevPAR vs. ADR – How Do They Compare?
The key difference is opportunity versus sale performance.
RevPAR being the measure of revenue made against opportunity… versus… ADR being the measure of revenue made against rooms actually sold.
Where there is a difference, or gap between ADR and RevPAR, this shows inefficiencies in your sales funnel conversion performance.
TRevPAR – By Comparison
TRevPAR by comparison uses the Total Revenue figure for your hotel, rather than the restricted Room Bookings Revenue figure.
Total Revenue, by contrast in definition, includes revenue streams such as: functions & banqueting, food & beverages (inc. breakfast and dinner), business center + other revenue generating business activities.
To calculate TRevPAR you may use the equation:
TRevPAR = *total hotel revenue/*total available rooms [*Note: related to a fixed & defined time period i.e. from start date, to end date.]
This statistic gives you a reference point for comparing total hotel revenues against room bookings revenue, in light of available rooms within a given time period.
An all-round performance here should show a sizable gap between the two figures. A top heavy approach to your hotel business will show your TRevPAR almost eclipsed by RevPAR.
NRevPAR and distribution channel yield
NRevPAR is short for Net RevPAR or Net Room Revenue Per Available Room.
NRevPAR = RevPAR – distribution costs, transaction fees and travel agency commissions.
Why discount RevPAR to make a net figure?
Net figures grant an clean, uncluttered view of what’s happening in the combustion chamber of your hotel sales distribution.
The closer this NRevPAR figure is to your RevPAR, the less packing agents and preservatives in your sales fuel mix & more bounce per ounce.
The higher the octane rating of any particular sales channel, the leaner it performs. Less wastage (cost), greater efficiency (profit).
Standard best practice should always favour your online direct bookings campaigns to pull in the most profitability via your hotel website.
Online RevPAR Calculator For Revenue Managers
Does This Data Overload Actually Make Any REAL Business Sense?
In this article by Stephen Dan, Marketing Strategist, entitled “Are KPIs really useful anymore?” – he brings into question just how useful to real businesses such KPIs actually are.
Theory vs. Practice.
“I suspect that part of the problem is that data availability is now so much easier – the number of KPIs was naturally limited by the sheer difficulty of getting the information, but now with personal dashboards and analytics tools you can drown in it without too much effort. “
Have anything either to add or take away from our guide to RevPAR? Join the conversation with a comment below.