What is RevPAR?
Revenue per available room (RevPAR) is a key performance metric used to monitor how often a room or property is booked and the subsequent revenue it generates. RevPAR is calculated by multiplying the average daily rate (ADR) by the occupancy rate. It is an extremely important metric as it helps property managers and vacation rental owners determine the best revenue management strategy to maximize their profit.
RevPAR not only provides a sense of how a room/property is performing on the market, but it also provides an insight into whether the ADR could be further optimized or adjusted. Some ways to increase the number of bookings include increasing or decreasing nightly rates or reducing the number of dates that property has blocked off. When a property is blocked off, it is not available to be booked by guests and does not generate revenue that can be used in the calculation of RevPAR.
Using Hotel B as an example from the figure below, with an ADR of $113 and an average occupancy rate of 60%, the RevPAR is calculated to be $68 and has room for improvement. Using the RevPAR formula, the property manager could determine that by lowering the ADR to fill empty rooms and increasing the occupancy rate, RevPAR directly increases as well. To find monthly or quarterly RevPAR, multiply the RevPar by the days within that specific period.
Limitations with RevPAR
It is important to remember that RevPAR should not be used to compare properties to other properties; the calculation can only be utilized for analysis under the same conditions — essentially an apple to apple comparison. Factors that affect occupancy and price have to be consistent for a true RevPAR value. For example, location, room type, and property size greatly impact the ADR and occupancy rate of a property. The location may mean that the average daily rate is higher than in other places to appropriately match the market, while a larger property may have a lower occupancy rate because there are more rooms to fill. The above figure demonstrates how three hotels with different ADRs and occupancy rates have the same RevPAR $68) — the assumption that all three properties are performing at the same level would thus be incorrect.
It’s worthwhile to note that the metric is used to measure performance in relation to occupancy. RevPAR is certainly a useful tool for property owners and managers but is most effective when used in conjunction with other revenue tools to strategize the best possible pricing for a property. ATR Analytics creates comprehensive reports that track RevPAR, ADR, occupancy rates, and other metrics and presents them in monthly or yearly reports. While comparing the key performance indicators of a property may lead to changes that increase the RevPAR rating, it is also important to track this metric over time.
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