Revenue Per Available Room or RevPAR is the ratio of the total room revenue by the total number of room nights available during a given period.
It measures how good you are at generating revenue from the rooms you have available by choosing the right room rates to achieve optimal occupancy.
Use this calculator to calculate your RevPAR numbers and compare them to those of your competitors. You can also use them to assess the health of your rental business or to adjust your room rates to achieve the highest room revenue.
Table of Contents
- What is the use of RevPAR?
- Example of ReVPAR calculations
- How to interpret RevPAR?
- RevPAR caveats
- Other useful metrics
- How to improve your performance
Revenue Per Available Room (RevPAR) is the average daily revenue per room that is available for sale. RevPAR is usually calculated on a per day, per week, per month, or per year basis
You can calculate RevPAR in two ways:
- You can divide the total Room Revenue by the total Number of Available Rooms and the Number of Days in the period you are measuring for.
- You can also multiply the Average Daily Rate (ADR) with the Occupancy Percentage during a given period.
Total Room Revenue
Total Room Revenue is the revenue you earned by renting out rooms only. It does not take into account other revenue you might be generating from your vacation rental.
Room Nights Available
Room Nights Available is the total number of room nights you had available for sale during a given period.
Available Rooms is the number of rooms you have available for sale. Rooms not available for some reason, like rooms occupied by staff or down for maintenance are excluded.
Days is the number of days in the period you are measuring for.
Average Daily Rate
The Average Daily Rate (ADR) is the average revenue per room night sold in a given period. We can also express it as the average rental income per day per occupied and paid room. For a single day, it is calculated by dividing the total room revenue by the number of rooms occupied that day. Complimentary rooms and rooms occupied by staff are excluded from the calculation.
Occupancy (OCC) is the percentage of room nights sold on a given day or during a certain period.
What is the use of RevPAR?
Revenue Per Available Room or RevPAR is a hotel metric you can use to determine how good your accommodation business is at maximizing room revenue compared to other similar businesses in your area. It is also a useful performance indicator when you want to assess how good you are at filling up available rooms at a given average room rate. You can use it to adjust your room rates to find the optimal occupancy rate and maximize room revenue.
When you increase your RevPAR it means that you either increased your rates or your occupancy percentage, or both. Since occupancy is dependent on room rates, you can use RevPAR to correctly determine what your room rates should be.
Most often, high RevPAR is consistent with high profits. However, this is not always the case because RevPAR doesn’t take into account any variable costs or additional revenue. The number you are trying to maximize is always profit, not RevPAR or some other metric, so be sure you have a complete picture before you make any changes to your pricing model.
Since RevPAR is a generally accepted key performance indicator in the accommodation industry data is readily available for many different industry segments. When comparing yourself to others, find the segment with the most similar offering to yours in size, position, and clientele you cater to. By comparing your RevPAR to that of your competition you can determine how competitive your offering is. This will enable you to adjust your prices and position your accommodation better.
Example of ReVPAR calculationsTo calculate the Revenue Per Available Room (RevPAR), we can use one of the two formulas:
|RevPAR =||Room Revenue|
|Available Rooms · Days|
|RevPAR =||Average Daily Rate · Occupancy Rate|
where Room Revenue is the total room revenue, Available Rooms is the number of rooms that are available for sale, and Days is the number of days in the period for which the RevPar is calculated.
Using the formulas above, we can do some common RevPAR calculations:
Example 1: RevPAR for a 30 Day Period
Your total room revenue during the last 30 days was $101700.00. and you have 25 rooms available at your property. Then, you can calculate your RevPAR from:
|25 · 30|
which is equal to $135.60.
Alternatively, your average daily rate is $169.50, and your occupancy is 80%. You can calculate RevPAR from:
|RevPAR =||$169.50 · 80%|
also equal to $135.60.
Example 2: RevPAR for a Week
Your room revenue for one week was $7861.00, and you have 10 rooms available for rent. Then, your RevPAR is given by:
|10 · 7|
which is equal to $112.30.
Example 3: RevPAR for a Single Day
Similarly, for a single day with revenue of $700.00 and 5 rooms at your property, your RevPAR will be:
|5 · 1|
which is equal to $140.00.
How to interpret RevPAR?
You can use RevPAR to determine how good you are at filling up your available rooms at a given average rate and to compare yourself to your competitors.
High RevPAR means you have high rates or occupancy, or preferably both. Low RevPAR similarly indicates that either your rates or your occupancy levels are too low and need adjusting.
When it comes to room rates, you want to hit the sweet spot where the rates are just high enough to achieve the occupancy rate that maximizes your profit. For most accommodation providers this is somewhere a little below full occupancy. Maximizing RevPAR will usually also maximize your profits, but be careful if you have costs that increase disproportionately with increased occupancy or additional sources of revenue from your guests. To correctly determine your sweet spot you need to look at your RevPAR together with your costs and revenue streams and find the room rate that maximizes your profit.
When comparing RevPAR numbers make sure you are comparing periods of the same length and taking seasonality into account. This means you’ll need to compare weeks to weeks and months to months, Saturdays with Saturdays. Similarly, do not compare a low-demand week with a high-demand week - in this case it is better to compare the week with the corresponding week from previous years. For example, do not compare the Christmas holiday week with the first week of January but with the corresponding week from previous seasons.
You can calculate the RevPAR index by dividing your RevPAR value by that of your competitors and multiplying the result by 100. An index of 100 means you are equal to the average of your competition. More than a 100 means you are performing better than the average, and less than a 100 means your performance is worse than that of your competitors. In that case you should probably dig deeper to try and figure out why.
RevPar is a useful metric, especially for industry comparison but it does not tell you the whole story of how your business is performing. In particular, it does not take into account costs, additional revenue, or the size of the accommodation business.
You should be trying to maximize profit and not a metric like RevPAR, so be careful of these weaknesses.
Many variable costs such as cleaning, toiletries, utilities, and wear and tear can be attributed directly to renting of rooms and must be accounted for when calculating profit. If the cost of cleaning increases disproportionately compared to room revenue, for instance, it might be more profitable to have less than 100% occupancy.
Other revenue-generating operations such as transportation services, gift shops, spas, bars, restaurants, or excursions can contribute a big part of the total revenue. Such extra sources of revenue are excluded from the RevPAR. If your business is generating a lot of this extra revenue, it might be profitable for you to decrease your room rates and increase your occupancy, even though your RevPAR decreases, because the other revenue streams more than compensate for the decrease.
Another factor RevPAR doesn’t account for is the size of the hotel or accommodation business. A large hotel with many rooms can generate more profit than a small one even though the small one has higher occupancy and therefore higher RevPAR.
You should consider all of these factors before you make room rate adjustments based on your RevPAR. Other metrics like TRevPAR, ARPAR, and GopPAR have been developed to compensate for the weaknesses of RevPAR and can be a better tool for those seeking to maximize profit.
Other useful metrics
Total Revenue Per Available Room or TRevPAR is similar to RevPAR but also includes revenue from other sources connected with room rentals such as spa, transport, excursions, and more. As such it is a more accurate metric for the assessment of profit. However, TRevPAR doesn’t include costs in the calculation so you should be careful of the same errors as you would when using RevPAR to determine your performance.
To calculate TRevPAR use the TRevPAR calculator to divide total revenue by the number of rooms available and days in the period you are calculating for. The TRevPAR formula looks like this:
|TRevPAR =||Total Revenue|
|Rooms Available · Days|
ARPAR stands for Adjusted Revenue Per Available Room and takes into account variable costs per occupied room and additional revenue per occupied room. It is therefore a good metric for assessing the hotel's pricing policy concerning costs and income. Examples of costs ARPAR takes into account costs are cleaning, utilities, internet, toiletries, etc. Examples of extra revenue ARPAR takes into account are revenues from transportation, spa, bar, restaurant, gift shop, excursions, etc.
To calculate ARPAR use the ARPAR calculator to subtract variable costs from the room revenue and add additional revenue to the room revenue, before dividing it by available rooms and number of days. The ARPAR formula looks like this:
|ARPAR =||Room Revenue - Variable Costs + Other Revenue|
|Rooms Available · Days|
GopPAR is defined as the Gross operating profit Per Available Room. It is used to calculate the profit that a room generates on average. It includes the total revenue and total costs of running the hotel. The costs and revenue included are independent of room occupancy. GopPAR is a great metric when you want to get a picture of your overall performance and assess how valuable your hotel is as an asset.
You can calculate GopPAR use the ARPAR calculator to divide Gross operating profit by the number of available rooms and number of days. The GopPAR formula is given by:
|GopPAR =||Gross Operating Profit|
|Rooms Available · Days|
How to improve performance
As mentioned above, the metric you should try to improve is always profit. It is therefore important that you understand the weaknesses of all the performance metrics when it comes to how good they are at predicting greater profit. Some of the metrics provide actionable insights, but don't show the full picture. Others show a truer picture of how much profit is generated but consist of more complex relationships that need to be broken down before any action can be taken.
Some useful tactics accommodation providers employ to improve their profits are:
- Exploit the seasonality to raise your prices during the high season and lower them to adjust occupancy during the low season.
- Employ Length Of Stay (LOS) restrictions like minimum or maximum length of stay to minimize your costs and maximize occupancy. Do not accept long stays at off-season prices that spill into your high season, and try to minimize one-night stays. You can also implement arrival day restrictions, possibly in combination with the length of stay restrictions to maximize your occupancy during high-demand seasons.
- Promotions and Discounts can be used to increase occupancy during slow periods. Such incentives are also effective when encouraging guests to promote your offer to their friends and family.
- Incentives for longer stays. Offer a discount to guests who book longer stays. If you have a lot of weekend stayovers, for example, you can offer 30% off on the third night. This will encourage your guests to stay an extra day.
- Referrals. Encourage guests to write reviews and to invite their friends and family to book a stay with you.
- Marketing: social media, ads, etc. Marketing your business is often the main source of sales. Stay active on Facebook groups for vacation rental, Instagram, Twitter, etc. Large groups of people get inspiration for their next trip from these platforms.
- Online travel agencies (OTCs) are usually expensive but can be a good way to top off your occupancy. Especially if you have exhausted all other options.
- Selective audience. Targeting a niche audience can often create many referrals and reviews within that audience. It is much more probable for your guests to recommend your accommodation if they feel it offeres a great guest experience. This is especially true if the people they are talking to are in the same situation and looking for something similar. Catering to pets, families with kids, adults-only, outdoor experience, posh stays, etc. are examples of audiences you can target.
- Discourage cancellations by demanding a booking deposit and limiting or removing refunds, or offer special non-refundable rates.