RevPAR (Revenue per available room) is a common industry metric used to measure the results of your occupancy and average strategy in terms of revenue generated for every asset an owner must generate profit from i.e. accommodation inventory.
It is calculated as:
Accommodation revenue divided by total inventory capacity
Example
To calculate RevPAR for one single day for an 80-room property –
$12,000 accommodation revenue divided by 80 rooms = $150
OR, a quick calculation is:
Occupancy x Average Rate
Let’s assume the property sold 50 rooms, this would give them an occupancy of 62.5% at an ADR of $240 generating $12,000 revenue.
.625 x $240 ADR = $150
- Note the two RevPAR figures are the same
On its own RevPAR tells you nothing – however, when compared to another REVPAR figure you can determine which occupancy and ADR strategy for the periods in comparison generated the highest revenue, just by observing which RevPAR was higher or lower.
REVPAR LIMITATIONS – NO REFLECTION OF PROFIT
Let’s look at an example on a 100-room property, using the formulas discussed;
Scenario 1
If you sell 100 rooms at $50 ADR your RevPAR = 100% x $50 = $50 RevPAR
Scenario 2
If you sell 50 rooms at $100 your RevPAR = 50% x $100 = $50 RevPAR
The two scenarios produce the same RevPAR so generated the same revenue.
However, there are differences between the two from a cost perspective that need to be considered.
COST CONSIDERATIONS
Scenario 1
Variable costs are greater due to higher occupancy (cost of acquisition and cleaning costs for example), however, there are more guests in house to spend money during their stay and drive ancillary spending from.
Scenario 2
Variable costs would be lower due to a lower occupancy; however, you still have a fixed cost attached to unsold rooms and there are less guests in house to generate additional ancillary revenue from.
BETTER MEASUREMENTS
NetREVPAR – (Net revenue per available room) – Factors in variable costs
GOPPAR – (Gross operating profit per available room) – Factors in variable and fixed costs
- Both of the above can be applied to just accommodation rooms or combine accommodation and additional sources of revenue from other revenue generating departments.
- The above measurements are difficult for many revenue managers to calculate quickly as they require input from finance to obtain the data relevant to costs.
- This is also why a regular revenue strategy meeting is imperative where finance is involved to provide critical information around costs.
You can complete the following certificates via the ARMA Academy:
ARMA Certificate in Revenue Management Foundations
© Melissa Kalan, 2020
