In this blog, we will learn about hotel RevPAR, how to calculate it and strategies to optimise it.

RevPAR stands for revenue per available room and is one of the most significant factors that build your hotel revenue.

When you understand the power of RevPAR, you can plan better room rates and increase your revenue. We have listed 10 proven strategies to increase your property’s RevPAR. Read the blog further to know all of them. 

What is Hotel RevPAR?

Hotel RevPAR stands for Revenue Per Available Room. It is a key metric that you should use to track your business performance.

It is pure room revenue and does not include additional services like food and beverages, spa, laundry, room service, tours or any service that a customer utilises during their stay. This way you can understand the value of every available room in the property.

RevPAR is calculated daily, monthly or yearly. 

Let us walk you through the RevPar formula to make you understand it better:

How to Calculate Hotel RevPAR?

Well, there are two ways by which you can calculate your RevPar: 

RevPAR = Rooms Revenue/ Rooms available

OR

RevPAR = Average Daily Rate (ADR) * Occupancy Rate;

Here’s an example to help you understand the formula better:

Suppose that you are a hotel with 200 rooms. The average daily rate of the hotel is $100. On any particular day, when the occupancy rate is 80% (i.e. out of 200 rooms, 160 are occupied), then total earned room revenue is $16,000. In this case, hotel RevPAR can be calculated as:

So, on that day you generated $80 per room. 

Further, you have to understand the fact that getting 100% occupancy by compromising your average daily room rate (ADR) is not beneficial.

To have a better profit percentage, you need to have a higher RevPAR.

Think about this: Do you want more money by charging a higher room rate with fewer guests? Or you’re willing to compromise your room rate and increase your occupancy? The choice is yours!

Now that you know, how to calculate hotel RevPAR, let me throw some light on,

Importance of RevPAR in the Hotel Industry

RevPAR is not just a KPI in your hotel revenue. It also helps you:

• Plan room rates better: With the formula, you can decide the profit you want to acquire from the rooms. Based on the profit percentage, you can calculate the projected RevPAR and then decide rates accordingly.
• Measure your business performance: As mentioned in the above point, with RevPAR, you can strategize profitable room rates. Similarly, if you have higher occupancy and RevPAR, then it means your hotel is performing great. 

Basically, these are the two key reasons to calculate RevPAR. Now, let’s explore the section that will interest you the most.

Proven strategies to increase your hotel RevPAR

We have seen that RevPAR is important. The question is, how to increase it?  There are multiple factors that affect your property’s RevPAR.

We have analysed all of them and formed these strategies. For better understanding, we have classified the strategies in two parts:

1. Primary strategies: These strategies will have a direct impact on your RevPAR. As soon as you apply them, you would see an immediate effect on your RevPAR. 
2. Secondary strategies: These strategies will have an indirect impact on your RevPAR. Applying these strategies, you won’t see an instant increase in your RevPAR. Instead, you will see the results gradually after over the period of time. 

Let’s first go understand the primary strategies.

1. Apply revenue management

Revenue management means selling the right room to the right customer, at the right time, and at the right price. 

Simply put, revenue management is all about adjusting the prices as per demand and supply. As and when the demand increases you have to increase your room rates. 

But, how would you do that frequently?

These days, integrated channel managers and booking engines can handle this occupancy-wise pricing on their own. All you have to do is define different occupancy slabs and set different rates for each slab. The software will automatically update the pricing as the occupancy level changes. 

When your rooms are being sold at the optimum price as per the occupancy, you‘d definitely get higher RevPAR and revenue.  

2. Implementing different pricing strategies

We have already defined that RevPAR is directly proportional to your ADR. So higher the ADR, higher will be your RevPAR. 

However, it does not imply that you randomly hike your room rates to such an extent, that your property becomes unsellable . 

You need to have a strategic approach to increasing your room prices.

For example:

• Have different pricing strategies for high seasons and low seasons, weekend and weekdays.
• Create different room rates for customer segments viz. business travelers, leisure travelers, and so on.
• You may also want to perform competition analysis and figure out the optimum rate for a room type in the market amongst your competitors to maximize your revenue. 

These are the few different pricing strategies that we recommend. You can explore other strategies from here. 

By considering different factors, you can not increase your RevPAR which will in turn increase overall revenue. 

3. Balancing your occupancy percentage and ADR

RevPAR is dependent on two important metrics- ADR and occupancy. All three of them work in sync. 

Many hoteliers still view high occupancy as the operational target, disregarding all other aspects of revenue management.

You should not only focus on having a constant ADR and 100% occupancy. To increase your hotel RevPAR, you can play around your ADR.

Let us give you an example for a better idea

If you are a hotel with 10 rooms, each costing $100. Now, on selling each room, you are getting $40 profit. Here, there could be two cases:

1.  On a particular day, there’s 100% occupancy. Either you sell all the rooms at constant ADR of $100 and earn a profit of $400. 
2. On another day, when there’s 80% occupancy. On that day, you can initially sell your 5 rooms at $100 and for the rest of the rooms, you can increase your ADR by 50$. In this way, despite having less occupancy than the previous day, your profit would be 620 $. 

So, this is how you can play around your ADR and increase your RevPAR. 

In reality, higher occupancy in many cases leads to lower profits, when the increased number of rental units doesn’t offset the loss in average rate.

4. Focus on direct bookings

Undoubtedly, OTAs play an important role in getting you more bookings. 

You see, there are always two sides of a coin.

On one hand, you are getting bookings, on the other hand, you are losing a significant chunk of your room’s revenue as OTA commissions. 

To compensate for this, you must focus on getting more direct bookings. All you have to do is, get a booking engine integrated with your hotel website, that is capable of converting your website visitors into bookers. 

Other than that, you can increase your efforts in getting more direct bookings. There are many ways through which you can increase your direct bookings via your website. You can explore them from here.

When you are getting enough direct bookings from your website, then you can gradually scale down your dependency on OTAs. 

5. Reducing cancellation rate

A high cancellation rate is a major pain point for hotels. And to be honest, it affects your RevPAR greatly. 

To save your RevPAR, you can have more non-refundable reservations. This won’t bring any changes to your cancellation policy.

Yet, putting up non-refundable reservations will definitely increase your occupancy and reduce the cancellation rate at your hotel. We have some solid strategies to reduce your last-minute cancellations. You can explore them from here.

These are the strategies that you can apply and you will see the increase in revenue straightaway. The results of these strategies will have a direct impact on your hotel’s RevPAR. 

Secondary Strategies

Apart from these strategies, there are certain actions that indirectly affect your RevPAR. Following those strategies will surge your revenue too. Let’s go through them. 

1. Save your side expenses

Let’s understand this by an example.

Say, you have a 20 rooms property. We o0pe and wish that there will be a 100% occupancy for the property for all 30 days of a month. But, that is a far reach. When you have a housekeeping team in-house, you have to pay them salaries regardless of what occupancy you have in a particular month.

To overcome this issue and save the expense you can opt for – uber for housekeeping. Instead of having a dedicated housekeeping staff 24*7, you can go through your arrival list, and then outsource the staff to get the housekeeping done. 

So, when you have more arrivals, you can outsource 3 people, and similarly, when you have fewer arrivals you can outsource fewer people. You can easily optimize your room expenses and thereby increase your RevPAR. Besides, you can also adopt IoT devices to save energy costs. `

2. Plan room rates as per length of stay (ALOS)

Trust me, mandating  ‘Minimum Length of Stay’ is still considered as the most effective way to increase revenue per room.

As RevPAR is directly proportional to the occupancy percentage, with this strategy you can increase your occupancy easily.  

To increase your occupancy rate, you can employ strategies using the length of stay restrictions as below:

Minimum length of stay: Accept long-termed stays instead of bookings with short-termed stays.
Maximum length of stay: Take reservations at discounted rates only for set maximum nights of stay

3. Manage your online reviews

Nearly half of all travelers book a hotel room by just reading online reviews. Therefore, it is important for you to focus on your hotel’s online reputation in order to bring in more guests and build your brand value.

Your hotel’s reputation has a direct impact on your hotel revenue. So you should not miss out on responding to all types of reviews. (Especially negative ones!)

You can try online review management software to streamline your response system. 

When your response to reviews gets punctual, your guests get strong confidence in your hotel brand, and your chances of getting selected by them increase. 

Well, to assist you in your response procedure, we have ready to use FREE review response templates as well)

4. Increase digital marketing efforts

Today, your potential audience searches for you on different digital platforms. Therefore, to attract your guests from these platforms, you need to have a solid online presence. 

Well, with digital marketing strategies you can increase your direct booking. Moreover, it improves the conversion rate of your website. 

You can try the following digital marketing strategies to enhance your online presence and get more bookings:

1. Interact via social media and videos 
2. Advertise on OTAs and metasearch engines
3. Start influencer marketing
4. Run online ads
5. Strengthen email marketing
6. Do regular blogging on your website

You can explore these strategies in detail from here. 

5. Run and promote loyalty programs

Running loyalty programs can be a proven strategy to increase your occupancy rate as well as RevPAR. As it attracts the existing guests to stick to your brand and encourages new guests as well. 

#Protip: If you don't have a loyalty program for your hotel, you should definitely consider having it. As it is one of the most assured marketing and revenue-generating strategies. 

It is important to note that loyalty programs work only if you offer rewards that provide your guests with some real value. You should reward them on the very next visit itself, instead of rewarding them after certain loyalty points are calculated.

This is how your existing guests will come back to you and choose you over other hotel brands. 

Relevant Read: 8 Practical Methods to Increase Repeat Guests at Your Hotel [Easy to Apply]

FAQs

Conclusion

So this was all about how you can increase your RevPAR. I have mentioned different strategies, direct and indirect strategies.  

You can start with a few direct strategies and a few indirect strategies initially for a certain time period. Study the results from these strategies, and then continue with the best-performing ones.

Now, if you want to dig deeper in your hotel RevPAR, then RevPAR has three subdivisions:

1. Total revenue per available room (TrevPAR): 

It is a sum total of net revenues from all the departments, rentals and other income for a particular period divided by the total available rooms during that period.

TrevPAR= Total revenue / Total available rooms

[Here, Total Revenue = Total Room Revenue + Spa + Breakfast + Bar + Mini Bar + Room Service + any other income]

2. Net revenue per available room (NrevPAR):

It is similar to RevPAR, except that it takes into account ONLY the net revenues you earned. It DOES NOT include your expenses such as distribution costs, transaction fees and travel agency commissions.

NrevPAR= (Room revenue-Distribution cost) / Total available rooms

3. Gross operating profit per available room (GOPPAR):

This indicates the actual profit you earned; after deducting your distribution costs, other operational expenses like maintenance, hiring staff, and more.

GOPPAR= (Gross operating revenue- gross operating expenses)/Total available rooms.

These are metrics just for calculating RevPAR, there are several other metrics or key performance indicators (KPIs) that you can read to measure your overall hotel business performance.  You can learn about them from here.

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