It is one thing to get full occupancy in your hotel, and it is another thing for that occupancy to generate more revenue. This is where RevPAR comes into the picture. RevPAR stands for Revenue Per Available Room. It is one of the most important metrics for hotels because an increase in RevPAR means an increase in hotel revenue. Let us discuss this metric in detail.
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RevPAR - An Essential Hotel KPI
Hotel RevPAR stands for Revenue Per Available Room. It is a hotel KPI that only considers room revenue, excluding revenue gained from additional services such as food, beverages, spa, laundry, room service, and various other amenities. It is calculated daily, weekly and monthly.
The reason is that by doing this, you can calculate the revenue your rooms are generating since they are your main service. An Increase in RevPAR is essential for increasing the revenue of hotels. Each hotel room is an asset, and each asset should be utilized efficiently.
The Formula of RevPAR is as follows:
RevPAR = Rooms Revenue/Rooms Available
Or
RevPAR = ADR * Daily Occupancy Rate
For example, a hotel has 100 rooms. The average daily rate is 50 rupees, and the occupancy rate is 70% i.e total of 70 rooms are occupied, and the total revenue is 3500 rupees.
Therefore, revenue per available room can be calculated as:
RevPAR = 3500/100 = 35 or 50*0.7 = 35
This way we can know how much revenue we are earning from each room, and also calculate the optimal RevPAR to make our business viable.
Why RevPAR Is Important?
RevPAR is an important KPI not only for hotel revenue. With its help of it, you can plan room rates better, since you can determine at which price you will generate the most revenue. Similarly, it is an important metric to measure business performance as well, since higher revenue means that your business is performing well, and an increase in RevPAR means that you are improving the efficiency of the business.
Ways To Increase RevPAR For Hotels
We have now understood the importance of measuring revenue gained per available room. How the question is, ‘how to increase RevPAR for hotels?’ Multiple factors determine your hotel’s revenue. There are two types of strategies to increase for hotel’s RevPAR:
Primary Strategies:
Primary Strategies are those that have a direct impact on the RevPAR. If you apply and optimize these strategies then you will be able to increase RevPAR for your hotel.
Secondary Strategies:
Secondary Strategies will have an indirect impact on the RevPAR. It will not immediately increase RevPAR for hotels, but it will surely have a positive impact gradually over a period of time.
However, we should not ignore the secondary strategies because they enhance the primary strategies, and make the latter more effective.
Primary Strategies
First, let us understand the primary strategies. These strategies will help you directly with hotel RevPAR. With these strategies, you will be able to increase your hotel revenue.
1. Application Of Hotel Revenue Management
Revenue Management is an essential component in increasing RevPAR for hotels. It involves selling the right room, at the right price to the right customer, and at the right time. It involves adjusting the price of rooms as per demand and supply, and also involves changing cancellation, maximum stay and minimum stay policies.
Nowadays, there are revenue managers and revenue management software that will help you with revenue management, especially if your hotel has multiple room categories, or you are managing multiple properties. Revenue managers will provide you with the expertise required, and the software will adjust rates easier. If you are adjusting rates as per revenue management, you will get an optimal price that will help you increase RevPAR.
2. Implementing Different Pricing Strategies
RevPAR is directly proportional to your ADR, so in theory, the higher the ADR, the more will be the RevPAR. However, there is a difference between theory and practice. However, if you hike up the price too much, your property will be unsellable.
Hoteliers need to have a strategic approach to pricing. Here are a few things hotels can do to optimize pricing strategies for hotels:
Have different prices for the one-season, off-season, holiday season, weekends and weekdays.
Determine prices based on various guest segments.
Do a Compset Analysis to determine the best price for your room type amongst the various market options.
3. Occupancy and Percentage - They Go Hand In Hand
RevPAR is dependent on two other KPIs - ADR i.e Average Daily Rate and Occupancy Rate. Hotels mostly focus on occupancy rate, however, many forget that occupancy does not guarantee revenue and profit if the price is set too low. Hotels should adjust and modify their ADR to make the occupancy rate more efficient.
In many cases, higher occupancy can lead to a reduction in profits, if the higher occupancy does not compensate for the lower prices.
4. Direct Bookings
OTAs are major channels for bookings and guests. However, hotels also need to pay a chunk of the revenue from these sources as commissions to the OTAs hosting them. To make up for it, hotels should focus on direct bookings on their websites.
The hotel websites should have a booking engine that can convert site visitors into customers. There are many ways to increase direct bookings for hotels, and with it, you can also increase RevPAR for your hotel.
5. Reducing Cancellation Rates
Cancellations are a nightmare for hotels. Not only do you lose out revenue from that guest, but also from the potential guests that could have booked your property in his place for that day. It also adversely affects your RevPAR rate. It is disastrous, especially during peak season when every room can be and should be occupied.
One way to reduce cancellation rates is to have more non-refundable bookings. Also, one needs to adjust cancellation policies based on seasonality. During the off-season, you need to be more flexible to gain more occupancy, while during peak, season, one needs to have non-refundable bookings or make last-minute cancellations non-refundable to prevent revenue loss during this reason.
This way, you will be able to increase RevPAR for your hotels by optimally using cancellation policies.
Secondary Strategies
Now let us understand the secondary strategies you can use to increase your hotel RevPAR Rate. Although these strategies don’t have an immediate effect on your revenue, they will help you over a period of time.
1. Save Expenses
And by this, we don't mean excessive cost-cutting and compromise quality, which is lead to poor service and loss of business. It means that we need to identify unnecessary expenses and curb them to make our business more efficient. However, there are certain expenses you cannot control, those expenses are known as fixed costs.
These fixed costs will remain irrespective of whether the occupancy is 100% or even 0%. However, there are many ways to manage fixed costs. For example, you can outsource housekeeping based on the number of occupancies. For example, if you have full occupancy for a day, you can book housekeepers in advance, If you have 50% occupancy, you can reduce the housekeeping staff by half.
Same for other expenses such as perishables and electricity. For example, you can stock lesser food and beverage raw materials if the number of guests will be less this month. There are many ways to save electricity as well, such as ensuring that less electricity is wasted.
2. Plan Room Rates As Per ALOS
Average Length of stay is another important hotel KPI. It measures the average room nights a hotel guest stays at a hotel per booking. With a higher ALOS, you can increase RevPAR since you have one guest providing you with revenue for multiple days.
You can increase occupancy with the help of managing ALOS. You can set a minimum length of stay i.e promoting long-term stays over short-term stays. Or you can set a maximum length of stay, i.e discounted rates valid only up to a certain maximum length of stay.
3. Focus On Online Reviews
Online reviews are essential for any business in the digital world, especially for hotels. Many guests book rooms only after reading online reviews. Hence, it will have a direct impact on your hotel revenue and RevPAR.
Therefore Online Reputation Management is essential for any hotelier. You can try out online reputation management tools for your hotel. They will streamline all the reviews from all channels in one place, and you will not have to visit each channel individually.
4. Use Digital Marketing
Most of the guests are on the internet, using search engines and social media platforms. To attract these guests, you need a strong social media presence. Increasing guests will help you increase RevPAR, which in turn will make your business profitable. There are several digital strategies you can follow to boost your hotel’s revenue:
Advertise on OTAs and metasearch engines
Use more visual content on social media platforms
Use Google Ads to gain more customers
Formulate and execute an email marketing campaign
Post blogs regularly
Other KPIs Derived From RevPAR
Other than RevPAR, there are various other metrics derived from it. These metrics can give a much more detailed picture along with the RevPAR. Some of them are as follows:
1. Total Revenue Per Available Room (TrevPAR)
TrevPAR is the sum of all revenue received from other departments, rentals and other income, divided by the number of rooms. Here, Total revenue includes revenue from the spa, restaurant, room service, mini bar etc. It gives much more accurate information about the total revenue from the room.
Formula:
TrevPAR = Total Revenue/Total Available Rooms
2. Net Revenue Per Available Room (NrevPAR)
Net Revenue Per Available Room takes net revenue into account. Net revenue equals room revenue - distribution cost. Distribution costs exclude distribution costs, transaction fees, and travel agency fees.
Formula:
NrevPAR = (Room Revenue - Distribution Cost)/Total Available Rooms
3. Gross Operating Profit Per Available Room (GOPPAR)
You get gross operating profit after subtracting distribution costs, and other operating expenses like maintenance and staff. These are your actual profits.
Formula:
GOPPAR = (Gross Operating Revenue - Gross Operating Expenses)/Total Available Rooms.
To Conclude
Increasing hotel Revenue is essential for the operation of any hotel business. Without revenue, a hotel will not be able to meet its expenses. By following these strategies, you can increase RevPAR for hotels and also increase profits.
Read our blogs to know more about the hospitality industry and revenue management.