What is 'Revenue Per Available Room - RevPAR'
Revenue per available room (RevPAR) is a performance metric used in the hotel industry and is calculated by multiplying a hotel's average daily room rate (ADR) by its occupancy rate. It may also be calculated by dividing a hotel's total room revenue by the total number of available rooms in the period being measured.
BREAKING DOWN 'Revenue Per Available Room - RevPAR'RevPAR is used in the hotel industry to make an assessment regarding a hotel's operations and its ability to fill its available rooms at an average rate. Increasing a property's RevPAR means that its average room rate or its occupancy rate are increasing.
An Example of RevPAR
Let's say, for example, that a boutique hotel has a total of 100 rooms, of which the average occupancy rate is 90%. The average cost for a room is $100 a night. Using the data provided, a hotel wants to know its RevPAR so it can accurately assess its performance. A hotel manager can calculate the RevPAR by:
($100 per night x 90% occupancy rate) = $90.00
The hotel's RevPAR is therefore $90.00 per day. To find the monthly or quarterly RevPAR, simply multiply the daily RevPAR by the number of days in the desired period. This calculation assumes all rooms are at the same price.
The hotel manager can use this daily RevPAR to make key assessments and decisions regarding the hotel property. He is first able to see how well the hotel is filling its vacant rooms. It also lets him see how well the average hotel room is priced. With a $90 RevPAR but a $100 average room, he may be able to reduce the average rate to $90 and realize full capacity.
Other Things to Know about RevPAR
RevPAR, although helpful, doesn't take into account the scale of a hotel. Therefore, if a person is trying to assess two hotel or hospitality properties, RevPAR alone is not a good measure. This is due to the fact that a hotel may have a lower RevPAR but have many more rooms, giving it higher revenues.
Additionally, growth in RevPAR does not mean that a hotel's profits are increasing. This is because RevPAR doesn't use any profitability measures or information on profits. Focusing solely on RevPAR, therefore, can lead to declines in both revenue and profitability. Instead, many hotel managers are turning solely to the average daily rate as a performance measure. This is because price positioning is found to be one of the main drivers of hotel occupancy. Therefore, if a property is able to accurately price its rooms, the occupancy rate should increase, and its RevPAR should also naturally increase.