Revenue Per Available Room (RevPAR)
What it is?Revenue per available room, or RevPAR for short, is a ratio commonly used to measure financial performance in the hospitality industry. The metric, which is a function of both room rates and occupancy, is one of the most important gauges of health among hotel operators.
There are two ways to calculate RevPAR. The first formula is:
Total Room Revenue in a Given Period, Net of Discounts, Sales Tax, and Meals divided by # of Available Rooms in Same Period
Alternately, the same figure can be arrived by calculating the following:
Average Daily Room Rate x Occupancy Rate
Why it is so important?
RevPAR is arguably the most important of all ratios used in the hotel industry. Because the measure incorporates both room rates and occupancy, it provides a convenient snapshot of a how well a company is filling its rooms, as well as how much it is able to charge.
It should be noted that RevPAR, by definition, is calculated on a per-room basis. Therefore, one company can have a higher RevPAR than another, but still have lower total revenues if the second firm manages more rooms.
Rising RevPAR is an indication that either occupancy is improving, or room rates are rising -- or some combination of both. Of the two, rising room rates have a much more dramatic impact on the bottom line than corresponding increases in occupancy. It is not uncommon to see both figures rise together, though, as higher occupancy is usually concurrent with a stronger pricing environment.
RevPAR evaluates the strength of only one type of revenue-generating stream, and it is important to note that many hotels derive a substantial portion of their total revenues from restaurants, golf courses, spas, casinos, business conferences, and other amenities. Therefore, one must also consider these other revenue streams in addition to comparing RevPAR ratios among companies.
RevPAR Guru software is designed for hotels to maximize RevPAR at all times while increasing profits from all areas of the property.