Hotel performance indicators # 2
In the last post we listed and briefly described the main indicators (KPIs) of employment and turnover used by revenue managers. But what is the main performance index to consider for Revenue Management strategies?
The answer given by most revenue managers is RevPAR. What is the definition of RevPAR?
RevPAR, or Revenue per available room, is the average revenue per available room. Representing the room revenue spread across all available hotel rooms (both occupied and empty), this KPI is particularly suitable for comparing hotels of different sizes and is therefore perfect for hotel benchmarking activities.
How is RevPAR calculated?
The RevPAR is calculated by dividing the room revenue (not including meal rates) by the available rooms. The RevPAR formula is therefore the following:
RevPAR = Rooms / Available Rooms Revenue The RevPAR can also be calculated by multiplying the ADR by the Occupancy rate.
In fact, the formula obtained is the following: RevPAR = ADR X OCC = Revenue of rooms / Rooms sold X Rooms sold / Rooms available = Revenue of Rooms / Rooms Available
From this formula it is easy to understand why RevPAR is considered the most reliable performance indicator: it reflects the combination of supply and demand that characterizes the hotel's revenue maximization strategy and thus provides us with a valid measurement of our hotel performance. Basing our analysis exclusively on the occupancy rate or on the average daily price could, in fact, give us misleading information:
- The occupancy rate does not consider the rate applied, so the hotel may have sold all the rooms simply by applying a very low price;
- Similarly, a high average daily price does not affect our revenue if we only sold one room! Here is a simple example to clarify this concept. The following table shows the occupancy rate, the average daily price (ADR) and the RevPAR of two hotels for the same period:
Considering only the occupancy rate, one might think that Hotel A's performance was better: however, the structure kept a very low price, so Hotel B's revenues were higher despite selling less. The actual performance of the hotels is returned by the RevPAR, which effectively combines information relating to supply and demand. This is why every Hotelier should aim to maximize their RevPAR by balancing occupancy and average rate.
Finally, it is important to point out that the RevPAR, not taking into consideration the operating costs of the hotel, certainly does not illustrate the complete economic situation of the structure, but it remains the most used indicator internationally and one of the most reliable in the Revenue Management.
With a platform like HBenchmark it is possible to compare the RevPAR of your hotel with that of competitors and of the territory. By also analyzing forecast data in addition to historical ones, each hotelier has the ability to view the future trend of their revenues and to change their strategies accordingly.