What is Revenue per Available Room (RevPAR)? And how to calculate it.

• How to calculate RevPAR (Formula and Examples)
• What is the relationship between ADR and RevPAR?
• How to use RevPAR
• The Role of RevPAR in Profitability
• RevPAR Alternatives

What is Revenue per Available Room (RevPAR)? And how to calculate it. 

Revenue per available room (RevPAR) is the hospitality industry’s gold standard for measuring top-line performance in a hotel, portfolio, market segment or geographic area. Incorporating both average daily rate and occupancy rate, RevPAR enables hoteliers and industry stakeholders to understand performance success across any given period as well as potential gains or losses in revenue regardless of property size or type.

How to calculate RevPAR (Formula and Examples)

RevPAR Formula

RevPAR shows the revenue generated per room regardless of if rooms are occupied or not. Thus, RevPAR is calculated by dividing total room revenue by total rooms available. This metric is of course applicable to any currency.

RevPAR = Room Revenue/Total Rooms Available 

RevPAR Calculation Examples

Example 1: 

Hotel A, a 150-room property in the U.S., made a room revenue of $15,000 last night. Thus, Hotel A’s RevPAR was $100.  

15,000/150 = 100

Example 2: 

Hotel B, a 30-room property in China, made a room revenue of CNY6,000 last night. 

6,000/30 = 200

What is the relationship between ADR and RevPAR?

ADR, along with occupancy, is factored in RevPAR. ADR examines the relationship between room nights sold (demand) and room revenue. This is different from RevPAR, as the emphasis with RevPAR is placed upon room revenue and its relationship with the number of rooms available (supply). Both KPIs (key performance indicators) are widely used within the global hospitality industry and provide a deep understanding of revenue-generating dynamics in the marketplace. Read this additional blog for more on the value of ADR.

How to use RevPAR

RevPAR is a comprehensive snapshot of how well hotels are filling and pricing rooms—think of it as an instant “health check” on room business. Analyzing RevPAR over time guides business’ short- and long-term decisions as well as growth of market share.

Hotels have a range of avenues for generating revenue from room service to guest experiences, but room sales are the key source of income and typically the revenue source with the highest profit margin. The RevPAR metric helps you understand how well you are optimizing the mix between rooms available to sell and the room revenue being generated.

Benchmarking your RevPAR will allow you to answer questions such as:

• Am I effectively leveraging all the rooms in my property or portfolio? 
• Do I need to change my revenue management strategy during periods of low demand?
• Am I ahead of the competition or can I make gains in occupancy and ADR? Am I taking advantage of high demand periods the same as my competitors and market?
• Which days of week, months or seasons provide opportunity for further growth?

CoStar and its Benchmark feature display the RevPAR metric in all historical time series. Observing this key metric provides actionable insights to assist in maximizing performance potential. For hoteliers, RevPAR is a crucial metric in the revenue management process.

What is a good RevPAR?

There is no universal answer to that question. Because RevPAR is a function of both occupancy and ADR, levels in the metric will always vary based on property and market types. Where there is universal value is RevPAR percentage change and RevPAR index.      

RevPAR Percentage

Understanding RevPAR percentage change provides an opportunity to track your performance from one period to another and ultimately the strength of your current revenue management strategy. RevPAR percentage change can also be ranked against your competitive set, providing vital insight into how your performance compares against the competition.

RevPAR percentage is calculated as follows: (RevPAR This Year/RevPAR Past Year) -1     

RevPAR Index (Revenue Generating Index)

Another way to assess your performance against the competition is through the use of indexing. This is an approach used throughout Benchmark which provides you with an understanding as to how you compare against your competition. A RevPAR Index, also referred to as Revenue Generating Index (RGI), measures performance relative to an aggregated grouping of hotels (i.e., Competitive Set, market, submarket, etc.). Should the performance be equal, a property's RevPAR Index is shown as 100, compared with the aggregated group of hotels.

To determine whether an index is “good” or “bad,” hotels need to understand performance against a comp set over time and identify where they are able to grow their own business faster than the competition. 

That understanding is important when you consider these index examples:

• If a luxury hotel has only upper upscale hotels in its competitive set, it should be above 100. Being at 120 may be “bad performance.” 
• If an economy hotel has midscale hotels in its comp set, a RevPAR index below 100 may be an indication of success.

To calculate RGI: (Subject hotel RevPAR / Aggregated group of hotels’ RevPAR) x 100 = RevPAR Index

The Role of RevPAR in Profitability

Another benefit of RevPAR is its role in measuring profitability. When it comes to the bottom line, collecting and reporting P&L data is more complex because ownership and management groups are more fragmented than brands. Fortunately, RevPAR is a leading indicator of profitability, with percentage changes in gross operating profit per available room (GOPPAR) generally 1.5 to 2.0 times more than RevPAR.

RevPAR Alternatives

The rental of rooms is the largest revenue source for hotels in most of the world. However, rooms are not the only revenue stream, so it is important to consider metrics such as total revenue per available room (TRevPAR) and GOPPAR, which provide additional insight into performance and profitability.

TrevPAR (total revenue per available room) Formula

TRevPAR is calculated in a similar way to RevPAR with the main difference being that all revenue is taken into consideration—not just revenue derived from the sale of rooms. 

Total Revenue Per Available Room = Total Revenue/Total Available Rooms

Learn more about TRevPAR and its use in the global hotel industry.

GOPPAR (gross operating profit per available room) Formula

GOPPAR goes even further by taking the profit after combining total revenues and total expenses and dividing once again by rooms available. 

GOPPAR = Gross operating profit (GOP) / Total number of available room nights

Learn more about GOPPAR and its use in the global hotel industry.