How to calculate RevPAR (and what to do with it!)
A glowing review may be the best metric for measuring guest experience, but as business people, hoteliers also need a way to track and evaluate their daily financial performance. To help you determine if RevPAR is the right calculation for you, we’ve explained what RevPAR is, and what it can and can’t do for you.
What is RevPAR?
RevPAR, or revenue per available room, calculates the average amount your guests paid per available room, per day, during a specified period of time.
It takes into account your occupancy rate (how many rooms are sold) and your average daily rate (ADR) to help you evaluate your daily performance.
How to calculate RevPAR
There are two ways to calculate RevPAR:
1. Multiply your occupancy by your ADR.
RevPAR = Occupancy x ADR
For example, if your occupancy rate is 70% (you sold 70 of your 100 rooms) and your ADR is $100, your RevPAR would be $70.
.70 x $100 = $70
2. Divide your room revenue by rooms available
Room revenue / Rooms available
Why is RevPAR so important?
Helps you quickly assess your financial performance.
For example, you might compare your RevPAR for the same month of the previous year to determine how you’re tracking year over year. If your RevPAR increases, that means your ADR or occupancy rate is increasing.
Helps you understand your inventory management.
RevPAR takes into account unsold rooms, which means it can tell you how well you’ve managed your inventory and rates year-over-year or seasonally.
What are the limitations of RevPAR?
No insight into profitability.
RevPAR doesn’t take into account your operating expenses, so it won’t provide insight into property profitability.
In the example below, Hotel A and Hotel B are generating a similar RevPAR, however Hotel B’s operating costs will be lower (and their profitability higher) because they only need to service 70% of their rooms.
RevPAR doesn’t predict profitability
No competitive clues.
Not having a true picture of profitability makes RevPAR a substandard metric for assessing your property’s performance against another in your market.
RevPAR is a useful metric for understanding the financial impact of your occupancy levels during a specific period of time. As with all metrics, it’s important to look at RevPAR in context and with other metrics to accurately measure the health of your business – from positive guest reviews to profitability – to get a true picture of how your property is performing.
Simplify your hotel revenue management with Expedia Group
- Create your own competitive set and compare your performance
- Access market occupancy forecasts to better understand compression in your market
- Get price optimization alerts when your price may be too high or too low