What is Revenue Per Available Room (RevPAR)?
Revenue per available room (RevPAR) is a metric used in the hospitality industry to measure hotel performance. The measurement is calculated by multiplying a hotel's average daily room rate (ADR) by its occupancy rate. RevPAR is also calculated by dividing a hotel's total room revenue by the total number of available rooms in the period being measured.
An increase in a property's RevPAR most likely indicates an improvement in occupancy rate.
Understanding Revenue Per Available Room (RevPAR)
RevPAR is a metric used in the hospitality industry to asses a property's 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 is improving. However, an increase in RevPar does not necessarily mean better performance.
- Revenue per available room (RevPAR) is a performance measure used in the hospitality industry.
- RevPar is calculated by multiplying a hotel's average daily room rate by its occupancy rate. It is also calculated by dividing total room revenue by the total number of rooms available in the period being measured.
- RevPAR reflects a property's ability to fill its available rooms at an average rate.
- An increase in a property's RevPAR does not necessarily mean greater profits.
An Example of RevPAR
For example, a hotel has a total of 150 rooms, of which the average occupancy rate is 90%. The average cost for a room is $100 a night. 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 the same price.
The hotel manager can make key assessments and decisions regarding the hotel property based on the RevPAR. The manager 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 could reduce the average rate to $90 to help realize full capacity.
Special Considerations for RevPAR
RevPAR fails to consider the size of a hotel. Therefore, RevPAR alone is not a good measure of overall performance. A hotel may have a lower RevPAR but still have more rooms that earn higher revenues.
Additionally, growth in RevPAR does not mean that a hotel's profits are increasing. This is because RevPAR does not use any profitability measures or information on profits. Focusing solely on RevPAR, therefore, can lead to declines in both revenue and profitability. Many hotel managers prefer to use the average daily rate as a performance measure since it is the main drivers of hotel occupancy. Therefore, with accurately priced rooms, the occupancy rate should increase, and a property's RevPAR should also naturally increase.