Revenue Management Indicators: what is RevPar in the hotel industry?

30 April 2022

Maddalena Mazzaferri

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Revenue Management | Hotel Management

Maximum performance with a minimum effort.

Many times we have read, said, repeated the Pareto principle as a mantra, or rather, as the main goal to aspire to.

But be careful not to completely eliminate the commitment, the performance monitoring.
Without a good deal of ( even minimal) effort, the only guarantee is that the performance will not be the best and probably there will be no improvement.

Therefore, it is important to use the so-called key performance indicators (KPIs) to monitor and, if necessary, change direction, with the aim of outlining an effective strategy that takes into account the revenues of your accommodation.

Today, we are going to talk about RevPar in Hotels, vacation rentals, B&Bs, just one of these hotel performance metrics.

ADR Hotel, meaning
What is RevPAR in hotel and how to calculate it
How to improve RevPar: 3 strategies
What Octorate provides
Frequently asked questions

ADR Hotel, meaning
What is RevPAR in hotel and how to calculate it
How to improve RevPar: 3 strategies
What Octorate provides
Frequently asked questions

Introduction: ADR meaning in hotel

To understand what RevPar, is and what it is used for, we first need to introduce another important performance indicator: the ADR. ADR stands for Average Daily Rate. ADR in hotels is used to calculate the average price for each room sold on a specific date and thus to measure the success of the hotel’s performance. It is calculated by dividing the rooms revenue by the number of occupied rooms.

What is RevPAR in hotel and how to calculate it

The meaning of RevPAR is in its acronym, which stands for Revenue per Available Room e and indicates the revenue generated per available room.

In the last few years, RevPar has replaced other indicators such as the occupancy rate(occupancy rate) because it can establish more precisely the success of the performance of an accommodation.

In addition, it enables a comparison of the trends of different structures that were open and active during the same period.

There are two ways to obtain and to calculate RevPAR:

First, RevPAR is calculated by dividing the total revenue for a given period by the number of rooms available in the same period of time.

The second RevPar formula, on the other hand, includes the concept analysed in the previous paragraph, that is ADR, and the occupancy rate.

Then by multiplying the ADR by the occupancy rate, we obtain RevPAR.

Why RevPar is so important and how to improve it

Unlike occupancy and ADR, that focus on specific elements RevPAR allows you to analyse the overall performance of your revenue strategy.

In addition, it is calculated on specific periods of time and it is therefore useful for making comparative analyses over different periods.

The goal of every hotel owner is to increase this value because the increase of RevPAR coincides with the increase of the profitability of the accommodation.

There are different ways to increase RevPAR:

Aiming for dates with a higher potential: if your historical data show that the occupancy rate for specific periods of time is always 100% (public holidays, special fairs, etc.) try to raise the sales price for those dates. If the occupancy rate still remains at 100%, you will have increased RevPAR for those dates.
Up-selling e cross-selling: by offering extra services to your customers and promoting them in the right way, you can increase the turnover earned from a single room. In addition, offering a range of services that meet the needs of a large number of customers is a very profitable and effective way of increasing the occupancy rate.
Revenue Management Software: Setting up a system that allows you to work easily with dynamic rates that constantly adapt to market needs, definitely allows you to increase the RevPAR of your accommodation almost automatically.

What Octorate provides

Octorate’s All-in-One platform provides a set of monitoring tools for monitoring your accommodation ,allowing you to constantly optimise your business strategy. With PMS statistics, for example, you will have access to data such as daily and annual RevPAR, ADR and monthly occupancy rate. By adding the RMS bundle to your subscription, you will be able to complete the Statistics section with data regarding the Revenue per period and source, conversions, revenue and performance on direct bookings and more! The OctoRMS will be your virtual Revenue Manager,All of this is enhanced by a powerful Artificial Intelligence tool, capable of suggesting a level of potentiality for each date and providing you with the success rate relative to the sales price set for the day in question. Last but not least, Octorate gives you the opportunity toconnect some of the most powerful platforms for monitoring sales performance: HotelPro 360, Google Drive e Spreadsheet e Revolution Plus. What are you waiting for? Book now a free DEMO to understand how Octorate can improve, together with RevPAR, the revenue of your accommodation!

Frequently asked questions

❓ What is ADR hotel and what does it mean?

ADR stands for Average Daily Rate. ADR in hotels is used to calculate the average price for each room sold on a specific date and thus to measure the success of the hotel’s performance.

🧮 How to calculate ADR? What is the formula?

The ADR is calculated by dividing the room revenue by the number of rooms occupied.

❓ What is RevPAR in hotel?

RevPAR stands for Revenue per Available Room and indicates the revenue generated from each available room.

🧮 How to calculate RevPAR? What is the formula?

There are two ways to get and calculate RevPAR:

By dividing the total revenue for a given period by the number of rooms available in the same time period.
Multiplying the ADR (Average Daily Rate) by the occupancy rate

📈 Why is RevPAR a more important metric than the Occupancy Rate?

Unlike Occupancy Rate and ADR, RevPAR allows you to analyze the overall performance of the revenue strategy of a Hotel and a Vacation Rental. In addition, it is calculated over specific periods of time and is therefore useful for making comparative analyses over different periods. Thus, increasing the RevPAR means increasing the profitability of the hotel.

🤑 How to improve a Hotel or a Vacation Rental RevPar?

There are various ways of increasing RevPAR:

Aiming for dates with a higher potential: if your historical data show that the occupancy rate for specific periods is always 100%, try to raise the sales price for those dates. If the occupancy level still remains at 100% RevPAR will increase for the dates in question.
Using up-selling and cross-selling strategies: offering extra services to customers increases the turnover earned from a single room.
Using a Revenue Management System: Setting up a system that allows you to work easily with dynamic rates and prices that constantly adapt to market needs, enables to increase the RevPAR of the accommodation almost automatically.