If you’ve been in the hotel game for a while, you’re probably familiar with the concept of “RevPAR”. The abbreviation stands for “Revenue Per Available Room” and is an effective method of measuring a hotel’s financial performance.
RevPAR is calculated by multiplying your average daily room rate (ADR) by its occupancy rate. An alternative formula is to divide total room revenue by the total number of available rooms for a given period.
Let’s put the formula into action. Say your hotel has 100 rooms. The average occupancy rate is 85%. Each room is valued at €100 per night.
€100 (cost per night) X 85% (average occupancy) = (RevPAR) €85
The hotel’s RevPAR is €85 per day, with the calculation assuming all rooms are valued the same. Multiply the result by the number of days in three months, for example, to get a quarterly reading. If your rooms are valued at €100 per night and your RevPAR is €85, consider dropping the price to reach maximum occupancy.
RevPOR tends to be used with less frequency, despite revealing invaluable results. The abbreviation stands for “Revenue Per Occupied Room”. It disregards unoccupied rooms, taking into account the additional services of which a guest may avail while staying onsite, including room service, spa treatments, and dinners in the hotel restaurant. It is calculated by dividing total revenue by the number of occupied rooms.
RevPOR has an advantage over RevPAR as it is not influenced by seasonal changes in occupancy rates. RevPAR is simply the go-to formula as the room is the most expensive part of the transaction. Consequentially, selling more rooms equates a spike in profit. Growth in RevPOR is more gradual, and as a result, unlikely to plummet during seasonal decline. Clever marketing of your hotel’s unique products or services will lead to longevity in profitability.
If only there were a solution ingenious enough to strengthen both…