What is Revenue Per Available Room (RevPAR)?
Revenue per available room (RevPAR) is a performance metric used in the hotel industry. It 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. An increase in a property's RevPAR means that its average room rate or its occupancy rate are increasing.
An Example of RevPAR
For example, 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. The hotel manager can calculate the RevPAR as follows:
($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, 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 can see how well the hotel is filling its rooms and how wisely the average hotel room is priced. With a $90 RevPAR but a $100 average room, the hotel manager may be able to reduce the average rate to $90 to help realize full capacity.
Other Key Points 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 despite having many more rooms that give 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, since it 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.