Dear WuBookers, measuring the success of a hospitality establishment and maximizing its profits are intricate operations that require preparation and experience, including in reading trend data.
Among the most important indicators for understanding results and implementing any corrective maneuvers is the RevPAR: let’s find out what it is and how to optimize it to increase revenues.

RevPAR: meaning and how it is calculated

RevPAR is an acronym that stands for Revenue Per Available Room and indicates the revenue earned from all available rooms. Unlike the ADR (Average Daily Rate) – which takes into account only rooms sold – the RevPAR takes into account all rooms, including unsold rooms. This is why it is an essential figure for assessing the absolute performance of the facility over a given period of time (a day, a week, a month, a year, and so on).

But how is RevPAR calculated?

How to calculate RevPAR

There are two ways to calculate RevPAR. The first is by dividing the turnover generated by rooms by the total rooms over the time period under consideration.

So, for example, if we want to analyze the Daily RevPAR of a hotel that has 250 rooms and a turnover of 24,000.00 euros, the operation will be: 24,000.00 / 250 = 96 euros.
To obtain the monthly or annual RevPAR, we will have to multiply the number of rooms by the days of our interest (30 or 365, for example), that is, by the available nights, and use this as the divisor of the relative turnover.

The second way, however, starts with two other KPIs: the occupancy rate (OCC) multiplied by the ADR. If your hotel has an occupancy rate of 80% and an ADR of 120.00 euros, the RevPAR will be 96 euros.

But what do the RevPAR figures mean?

As we have seen, there are two factors that directly affect RevPAR: occupancy rate and Average Daily Rate. Let us give some examples to better understand how they behave and how they affect the result.

The closer the occupancy rate is to 100%, the more RevPAR and ADR will coincide (since there will be no unsold rooms).
But if, with the same ADR, occupancy falls, the same happens to RevPAR.
In the previous example:

• OCC 80% x ADR 120€ = RevPAR 96€.
• OCC 60% x ADR 120€ = RevPAR 72€
• OCC 40% x ADR 120€ = RevPAR 48€.

In this case, it is clear that one must act on the availability of rooms by trying to sell as many as possible in order to obtain the maximum potential gain. In fact, in addition to a loss of revenue, unsold rooms also constitute a source of expense: although they do not activate variable costs–related, for example, to utilities and cleaning–they still fall into fixed costs in terms of maintenance, management, taxes, and so on. Filling them means, therefore, optimizing facility costs.

On the other hand, however, the ADR can also make a difference. The logic is linear: if, given the same OCC, ADR increases, RevPAR will also increase.

To see even better how much ADR matters, let’s imagine 3 hotels with varying OCC and ADR:

• OCC 80% x ADR 120€ = RevPAR 96€
• OCC 60% x ADR 140€ = RevPAR 84€
• OCC 40% x ADR 260€ = RevPAR 104€.

In this case, it is clear that action must be taken on room availability, trying to sell as many rooms as possible to maximize potential revenue. 

In fact, in addition to a loss of revenue, unsold rooms are also a source of expense: although they do not incur variable costs – such as utilities and cleaning – they are still part of the fixed costs for maintenance, management, taxes, and so on. Therefore, filling them means optimizing the property’s costs.

5 strategies to improve the RevPAR (and profits) of the hotel.

Although each case is different from the other and there are no – alas – magic formulas that apply to everyone, it is true that some activities can prove effective in multiple contexts. Let’s look at some of them.

1. Raise or lower rates depending on occupancy.

During busy periods, when your OCC is close to 100 percent, you can try raising the rate to raise the ADR. In this way, if occupancy remains stable, you will have also raised the RevPAR, resulting in a higher revenue (and you will also have found that your clientele is willing to pay more in some seasons).

Conversely, when the OCC is low, try lowering the rate to entice customers to book, always being careful not to exceed the threshold of the so-called bottom rate. This is the minimum amount at which to sell a room while at least covering variable costs. This way you will increase the occupancy rate – with possible effects on RevPAR – and also secure opportunities for upselling and cross-selling.

2. Include more services for higher rates

Raising the rate unjustifiably could be risky and unrewarding. It’s different, however, if you add additional services to the room that motivate its higher figure, even compared to other similar establishments. Breakfast included, free spa admission, and reserved parking are some examples of extra services that you could include in the price of the room to increase its perceived value (while still keeping the OCC high).

3. Expand your range of rooms and extra services

In general, the offer should be quite broad, both to ensure that different types of guests find a solution that suits them and to guarantee you upselling and cross-selling opportunities.

Whenever possible, diversify the list and also provide for extra proposals with which to tempt your guests, increasing the revenue generated by the room.

4. Be mindful of your brand reputation

Appearances, as we know, can be deceiving, for better or for worse. That’s why it’s essential to take care of your communication to ensure that those who visit your website or browse photos of your property on an external portal are convinced to book. A poor brand reputation risks giving the wrong impression, thus diverting potential customers to other solutions, perhaps simply because they are more appealing.

5. Set dynamic rates

As we know, tourist demand is quite elastic. For supply to satisfy it, it must also be equally flexible. How? Through dynamic rates, which change one or more times a day as demand and market trends vary. This is impossible to do manually without making mistakes, but specialized software such as RMS (Revenue Management System) can manage it automatically without difficulty. This way, you won’t have to correct every single value for each sales channel yourself, but you can always intervene if necessary.

Manage dynamic rates and monitor RevPAR with Zak

The Revenue Management System is not the only tool that can change rates automatically. This functionality is also present within Zak, the hotel management system from WuBook.

In the Yield Management area, you can:

• set up custom rules that determine rates, such as increasing sales prices by a certain percentage, for certain types of rooms, when availability drops below a given level (i.e., when the occupancy rate begins to rise), for example: +10% for single rooms when there are fewer than 5 available;
• diversify the dates on which these rules apply, choosing only some of them (weekdays or weekends, or Thursday to Monday, and so on);
• select which periods of the year the rules apply to, e.g.: for stays that will occur within the next 3 months, but not to later ones or be even more specific in selecting criteria: there are no limits to the rules you can create!

By doing so, depending on the actual performance of the rooms, the system will dynamically change the prices.

What about the RevPAR? This too can be monitored within PMS in the Statistics area. Here you can view trends in RevPAR (and numerous parameters, such as ADR and Occupancy rate, among many others) that are always up-to-date: select the period of your interest, and compare it with other periods of the year. You can also filter this and the other indexes by sales channel to see which is the most profitable and make appropriate evaluations.

In fact, as we have seen, RevPAR says a lot about your hotel’s performance and allows you to see if there is any room for improvement: having the right tools to measure it is the first step in taking proper advantage of it.