RevPAR, or Revenue per Available Room, is a key performance metric used in the hotel industry to evaluate the hotel’s financial performance. It indicates the average revenue generated per available room, taking into account both room occupancy and the average room rate.
To calculate RevPAR, the total revenue earned from room sales is divided by the total number of available rooms during a specific period:
RevPAR = Total Room Revenue / Total Available Rooms
This metric is important because it allows hotel managers to assess their overall financial health and measure their success in maximizing revenue.
An example of RevPAR can be demonstrated as follows:
Let’s say a hotel has 100 rooms available, and the average room rate is $100 per night. During a specific period, the hotel achieves an occupancy rate of 80%. The total room revenue earned would be calculated as:
Total Room Revenue = Average Room Rate * Occupied Rooms * Days
In this case, the average room rate is $100, the number of occupied rooms is 80 (80% of 100), and the number of days is the duration of the period. Let’s assume this hotel operates for 30 days. Therefore:
Total Room Revenue = $100 * 80 * 30 = $240,000
To find the RevPAR, this value is divided by the total number of available rooms:
RevPAR = $240,000 / 100 = $2,400
So, the RevPAR for this specific period would be $2,400.
Hotel managers use RevPAR to monitor their hotel’s financial performance over time and compare it against industry benchmarks. By focusing on increasing occupancy rates and room rates, they can enhance RevPAR and optimize revenue generation.