What is RevPAR?
While Average Daily Rate (or ADR) is an important tool in tracking the success of a vacation rental, a raw ADR does not determine revenue earned — which is the most important metric in property management. Increasing occupancy rates at the expense of daily rates could negatively impact revenue, and increasing daily rates at the expense of occupancy could have the same effect. The solution is revenue per available room, or RevPAR.
RevPAR is another key performance metric used to monitor how often a room or property is booked and the subsequent revenue it generates. As a factor of occupancy rate, average daily rate, and total revenues earned, RevPAR takes all factors into account and allows hotel managers and vacation rental owners to determine the best strategies to increase revenue.
How to Calculate RevPAR
There are two formulas to calculate RevPAR. First, for hotel industry managers, calculating RevPAR is done by multiplying the ADR by the occupancy rate. Thus, an increase in RevPAR means either the hotel’s average daily rate or its occupancy rate are increasing. This formula is normally used for hotels because, due to standard hotel operations, hotel room availability usually hovers around 100%.
For vacation rental owners and property managers who post their listings on providers like Airbnb, HomeAway, or Expedia, RevPAR is calculated by dividing the total revenue by the number of nights the listing was available. This formula accounts for the number of nights a listing removed from the market due to maintenance or any other conflict, which tells us a much more accurate story.
RevPAR not only provides a sense of how a room or 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. When a property is blocked, 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 — which leaves 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 — it’s more of an apples to apples comparison, and the calculation can only be utilized for analysis under the same conditions.
Factors that affect occupancy and price have to be consistent to produce a true RevPAR value. For example, location, room type, and property size greatly impact the ADR and occupancy rate of a given property. A great location may result in a higher ADR, 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 can have the same RevPAR $68 — but the assumption that all three properties are performing at the same level would thus be incorrect.
RevPAR is certainly a useful tool for property owners and managers, but it is most effective when used in conjunction with other data tools, helping owners strategize how to accurately price each listing.
ATR Analytics creates a line of comprehensive products that track RevPAR, ADR, occupancy rates, and other metrics in the form of monthly or yearly reports. These reports are extremely useful as they frame the indicators with respect to seasonality, event impact, year-over-year increases, and granular-level analysis. Contact us to speak with an expert to learn about how vacation rental data can help you accomplish your goals.