What is RevPar and how do you calculate it?
RevPAR stands for Revenue Per Available Room and hoteliers use it as key performance indicator (KPI) to measure and compare their businesses. As you will learn, RevPAR does not account for profits generated by a hotel but merely looks at the revenue. Even though the numbers may look good, a hotel may stay loose money at the bottom line. This indicator is one many that you would learn about in your hospitality management studies at a university.
How do you calculate RevPar
To understand RevPAR we better look at the formula to calculate it. You do this by taking the revenue of all rooms and divide it by the total number of rooms. The forumla looks like this:
RevPAR = Total_Revenue_For_Rooms / Total_Amount_Of_Rooms
To give an example, say you have made $3,000 in revenue for your 50 rooms last friday. If we apply the formula from above it would give your a RevPAR value of 60.
60 (RevPAR) = 3000 (Total_Revenue_For_Rooms) / 50 (Total_Amount_Of_Rooms)
By increasing your revenue, you will also improve your RevPAR value. The same goes by reducing the total amount of rooms but this is often not really a goal.
As an outsider, you may not always know the revenue of a competing hotel. But, you can find out what the average rate per room is. Additionally, as a competitor in the hotel industry, you can guess or even see on online portals the occupancy rate of other hotels. Given these to factors, we can use the Average Daily Room Rate (ADR) multiplied by the occupancy rate to come up with the revenue per available room (RevPAR). Below you can see the alternative formula:
RevPAR = Average_Daily_Room_Rate * Occupancy_Rate
For example, let's say you have a average dail room rate (ADR) of $100 and an occupany rate of 60%. If you stick the values into the formula, you'd come up with a revenue per available room of $60.
60 (RevPAR) = 100 (Average_Daily_Room_Rate) * 60% (Occupancy_Rate)
What is the difference between RevPAR and ADR
Acronyms can be little confusing and hard to remember. But, as mentioned before the average daily room rate (ADR) is used as core component to come up with the revenue per available room (RevPAR). Hence, there is a signification difference between the two.
Room revenue definition
Grouping rooms for more accuracy
Many hotels offer different room types to diversify their offerings for different target groups. For instance, a Ritz Carlton hotel may have a Junior suite at the bottom end and a Presidential suite at the top end. A regular hotel may have single rooms and double rooms. Lastly, a hostel may have single rooms for more wealthy people and rooms with 5 bunk beds housing 15 people for penny pinchers. As you can see, this can skew the generated statistics about your revenue per available room a lot. Therefore it makes sense to group similar rooms together.
RevPAR index formula
You can use the RevPAR index to compare yourself with a collection of other hotels by using their RevPAR result and put it in a formula to see if you are doing better or worse as them. The formula is very straighforward and uses your RevPAR value divided by the average RevPAR of the comparing group times 100. So the formula looks like this:
RevPAR_Index = RevPAR_From_You / RevPAR_Average_From_Others * 100
As an example we can imagine an average RevPAR value of $130 for similar hotels that target the same customer base. Your RevPAR value is $110. If we apply to formula to our values, we would come up with a RevPAR index result of 84. Since the number is below 100, we know that our pricing strategy has room for improvement or our service needs more attention to attract similar or better revenue numbers.