Revenue per available room, also known as RevPAR, is one of several fundamental metrics frequently used to gauge the performance of an establishment in the hotel and hospitality industry. By itself, this measurement has no bearing on actual profitability and even a relatively high value doesn’t necessarily mean that things are going well. Calculating a hotel’s RevPAR is just one of many analytical methods employed by owners to quickly compare their results to competitors and track effective occupancy over time.
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Establishing Base Variables
The actual calculation may be simple, but it won’t provide an accurate view of anything without using the correct variables. In this context, an “available room” only includes the rooms that are actually open to the use of guests at a given moment. This excludes any rooms that are closed for renovating, seasonal rooms that aren’t currently in use and any areas dedicated for the use of staff members. The occupancy rate of a hotel describes the percentage of available rooms that are occupied by guests during a given time period.
Methods for Calculating RevPAR
There are two basic equations for calculating revenue per available room and both should yield the same result. The first method requires multiplying the hotel’s occupancy rate by its average rate per room, which is determined by dividing the total room rate by the number of rooms occupied. For example, an establishment with an average rate of $200 and an occupancy rate of 50 percent would have a RevPAR of $100. Owners can also reach the same result by dividing total revenue from rooms by the number of rooms occupied in a given period.
Alternative Measurements and Index
Revenue per available room is linked to a few other key metrics that are also used to gauge business performance. Total revenue per available room, or TRevPAR, is a similar measurement that uses total net revenue of the establishment instead of only revenue from rooms. This includes income from optional services on the property, room service, on-site dining and event hosting. Owners who want to keep a close eye on profitability also use gross operating profit per available room, or GOPPAR, which is calculated by dividing total profit by the number of available rooms.
Applications in Hotel Management
Even though a hotel’s RevPAR rating isn’t an absolute indicator of success, it’s widely used throughout the industry to gauge productivity, according to Forbes. Many hotels also compile a RevPAR index, which typically compares their rating to that of local competitors over a longer time period. Comparing data through an index can help owners gauge their relative performance in the market and determine what factors are impacting them versus those influencing all local establishments. Revenue ratings are also used in larger companies and franchises as one of several measurements to determine the efficacy of different management teams.
Despite their consistent and widespread use across the hospitality industry, revenue ratings aren’t the only measurement that owners should care about. However, it’s always a good idea for hotels to actively measure their RevPAR and use it as a tool for self-improvement or comparison against local competition.