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

Let's say 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. 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 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 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.

RELATED TERMS
  1. Revenue Per Occupied Room - RevPOR

    Revenue per occupied room is an industry metric used to evaluate ...
  2. Wire Room

    A wire room is a financial institution's funds transfer operation, ...
  3. Day Rate

    A day rate is the price/cost of a particular service performed ...
  4. Amenity

    Amenities are benefits that a property offers to potential buyers ...
  5. Housing Unit

    A housing unit is one unit of a house, apartment, mobile home, ...
  6. Account Activity

    Account activity generically applies to whenever a movement of ...
Related Articles
  1. Personal Finance

    Are Hotel Chains Too Big? (TRIP, HLT)

    In America, the six largest hotel chains dominate the industry and more likely than not you’ll end up staying at one on your next vacation.
  2. Insights

    Top 5 Most Profitable Hotel Companies

    How can companies control so many properties and rooms? The same way McDonald’s controls 35,000 restaurants: franchise agreements.
  3. Personal Finance

    Navigating The Hotel Star System

    Three stars, four stars, gold star, who star? Sometimes the hotel star system can seem as wacky as a Dr. Seuss book.
  4. Personal Finance

    Websites That Save You Money On Hotel Rooms

    Before you just reserve a room through the hotel, check out these six discount websites. But watch out for traps like nonrefundable reservations.
  5. Insights

    Hotel Disruptor: Airbnb's Sharing Economy Gambit

    As Airbnb, the largest peer-to-peer exchange service for hospitality around the world, continues to grow, government and hoteliers have taken notice.
  6. Insights

    Goldman Sachs Invests in Red Planet Hotels (GS)

    Goldman Sachs is investing $70 million in Red Planet Hotels. The Asian budget hotel chain is planning on using the capital for pre-IPO expansion.
  7. Personal Finance

    The 6 Best Alternatives to Hotels

    Discover information about some of the many-available and much-less expensive alternatives to staying in hotels when you are traveling.
  8. Personal Finance

    6 Ways To Avoid Paying For Hotel Wi-Fi

    Use these tips to get free Internet access when you're on vacation.
  9. Small Business

    Netflix's New Strategy: Penetrate Your Hotel Room

    Will Netflix’s new venture—to offer its media content in hotels—pay dividends? Investopedia explores the business potential and related developments.
  10. Personal Finance

    Visiting Las Vegas? 5 Money Saving Tips

    What "stays in Vegas" shouldn't include more of your money than necessary. Some ways to keep your Vegas budget within limits; the rest is up to you.
Trading Center