Understanding and Maximizing Hotel RevPAR

Understanding and Maximizing Hotel RevPAR

Kanha Gupta
Kanha Gupta

Hotel RevPAR, the abbreviated version of Revenue Per Available Rooms, is the standard hospitality industry metric to measure a hotel's financial performance. RevPAR considers both the average daily rate and occupancy rate, allowing hoteliers to understand the performance of their property better, regardless of size or type. In this blog, we will share some tips and tricks to help you maximize your Hotel RevPAR. 

The importance of understanding Hotel RevPAR

RevPAR is a metric that measures hotel revenue generated from both occupied and unoccupied rooms. It helps hotels accurately price their rooms to maximize revenue. It tracks the number of rooms available to sell and the total revenue generated via those room sales every night or on any given date or timeline - daily, monthly, and yearly. Please remember that RevPAR refers strictly to the room revenue and doesn't include revenue generated via additional services like F&B, spa, gym, etc. 

What affects Hotel RevPAR?

Several factors can influence hotel RevPAR. Some of them are:

  • Room rate: The amount you charge as room rent per night.
  • Seasonality: Peak or low season that impacts demand. 
  • Length of stay: It shows the average number of nights guests stay at your hotel.
  • Occupancy: The percentage of your rooms occupied at a given time.
  • Average Daily Rate (ADR): The average room rental amount you charge. 

Calculating Hotel RevPAR

There are two ways to calculate Hotel RevPAR. 

  1. Total income per night/Total available room 
  2. Average Daily Rate X Occupancy rate

For example, your hotel has 20 rooms, and you charge $200 per room - your ADR. Now, your revenue per night stands at around $2000. It means you have sold 10 rooms and are running at an occupancy rate of 50%. 

Let's calculate your RevPAR - 

Total income per night/Total available room

$2000/20 = $100

Average Daily Rate X Occupancy rate

$200X0.5 = $100

Hoteliers like you need to understand how certain factors impact Hotel RevPAR. With the required insights, you can make changes to improve your property's performance.

Tips and tricks to improve your Hotel RevPAR

Let me ask this - Would you prefer to earn more by charging more room (higher ADR) rent to fewer guests for fewer room nights, or are you willing to charge less (lower ADR) to more guests for more extended stays - to boost occupancy? 

Experts say lowering ADR to boost occupancy is not always a best practice. Instead, it would be best if you focused on improving your RevPAR. 

Strategies for Maximizing Hotel RevPAR

There are plenty of strategies that hoteliers can implement to increase their RevPAR. Some of them are:

  • Use a revenue management system - A revenue management tool can aid you in increasing your Hotel RevPAR by optimizing pricing and inventory management. Integrating it with your Hotel PMS allows you to analyze real-time demand and make informed decisions about pricing and room availability. This helps you maximize revenue by selling the right room to the right customer at the right time. Revenue management tools can also provide insights into market trends, competitor pricing, and demand forecasts, allowing you to adjust your rates accordingly.
  • Implement length of stay rules - This strategy aims to increase hotel occupancy rates and revenue per room. For instance, offer a 10% discount for bookings of five or more nights. Another example is this - setting a minimum stay for 2 nights when demand is high. This will help you sell more at a higher rate, ultimately increasing your occupancy and revenue. 
  • Run promotions and discounts - These greatly help in attracting new guests, retaining old guests, and encouraging direct booking thus, eliminating commissions paid to OTAs. Running loyalty programs is yet another game changer that can raise your RevPAR. Please note that loyalty programs work only when the rewards you offer hold real value for your customers. 
  • Reduce cancellation rates - High rates of cancellation can negatively impact your RevPAR. It is suggested to have more non-refundable reservations as this will discourage customers from canceling reservations, thus increasing your occupancy. 
  • Sell more directly - You can do this by integrating a booking engine with your hotel website. This allows your site visitors to convert into bookers. Study market trends and rates of competitors to position your own hotel’s rates accordingly to help keep the rooms at maximum occupancy. 
  • Plan room rates as per stay duration - RevPAR being directly proportional to occupancy percentage, mandating minimum stay duration can greatly help in increasing occupancy. You can prioritize long stay durations and grant reservations to those looking for a longer period. Set discount rates only for a set maximum stay duration. 
  • Exceed guest expectations - Take measures to offer required amenities to guests, fulfill pending customer services, maintain a comfortable and clean property, offer discounts and loyalty programs, etc. Your happy guests will come back to you later and are likely to pay more even if you increase your room rates as they don’t mind paying premium rates for better services. They also stay longer, leading to improved occupancy rates and RevPAR. 

Increasing Hotel RevPAR could be very challenging given today’s fierce competition and changing guest preferences. But you can surely achieve it with the right tools like a revenue management system that comes integrated with a cloud-based Hotel PMS. And yes, no doubt, you will need a seasoned revenue manager who understands what needs to be done and when and why. Let us know if you have seen success in achieving a higher Hotel RevPAR with any other tricks. We would love to hear from you.