# RevPAR Explained: Calculate Hotel Revenue & Occupancy Metrics

![Revenue Per Available Room (RevPAR)](https://www.investopedia.com/thmb/nji7FjJn2hOnoDIyI2c5Z_z7OvQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Term-Definitions_Revenue-per-available-room-Final-V3-cee633d66bf945cf9b0b57aa0ccf291c.jpg)

*— Investopedia / Mira Norian*

## What Is Revenue Per Available Room (RevPAR)?

RevPAR, or Revenue Per Available Room, serves as a key performance indicator in the hospitality sector. By calculating RevPAR, hotel operators can assess their ability to fill rooms at average rates, helping them make pricing and occupancy decisions. Understanding RevPAR's nuances allows hoteliers to compare against industry standards and make informed decisions to optimize revenue.

### Key Takeaways

*   Revenue per available room (RevPAR) is a crucial metric in the hospitality industry, reflecting a property's ability to fill its rooms at an average rate.
*   RevPAR is calculated by multiplying a hotel's average daily room rate by its occupancy rate, or by dividing total room revenue by the total number of available rooms.
*   An increase in RevPAR doesn't necessarily mean higher profits, as RevPAR does not account for expenses or hotel size.
*   Alternatives to RevPAR, such as TRevPAR and GOPPAR, incorporate additional revenue streams and expenses, providing a broader view of hotel performance.
*   RevPAR can aid in comparing hotel performance over time and against competitors, but it should be complemented with other metrics for a full financial assessment.

> **Important**
>
> An increase in a property's RevPAR most likely indicates an improvement in occupancy rate.

## In-Depth Look at RevPAR: What It Means for Hotels

RevPAR is a metric used in the hospitality industry to assess a property's ability to fill its available rooms at an average rate. An increase in a property's RevPAR means that its average room rate or its occupancy rate is improving. However, an increase in RevPAR does not necessarily mean better performance.

RevPAR fails to consider the size of a hotel. Therefore, RevPAR alone is not a good measure of overall performance. A hotel may have a lower RevPAR but still have more rooms that earn higher revenues. In addition, certain larger rooms (i.e. penthouses) may overcompensate for lower quality rooms that are not being checked or are unavailable.

Like other financial metrics, RevPAR is best suited as a comparison tool. Hotels can track their RevPAR over time to see if it changes with seasons or consumer preferences. In addition, RevPAR can be used to compare against other hotels in the area to get a better sense of how one hotel may be performing compared to other. Remember, this performance measure focuses on revenue only and ignores expenses.  

> **Fast Fact**
>
> It may be difficult to compare RevPAR with other hotels because the revenue and occupancy information may not be readily available. Therefore, management must be prepared to set internal RevPAR targets.

## Calculating RevPAR: Methods and Examples

There are two ways to calculate RevPAR. First, hotel management can take the total amount of room rent revenue and divide it by the total rooms available to have been rented. Note that the total rooms available includes rooms that were available but were not occupied for this calculation.

$\begin{aligned}\textbf{RevPAR} = \frac{\textbf{Total Revenue}}{\textbf{Number of Rooms Available}}\end{aligned}$

Alternatively, they can calculate RevPAR by multiplying the average daily rate by the occupancy rate. This method is more appropriate and more accurate for fully-occupied hotels with limited rooms that are unavailable as it is based on total occupancy, not total availability.

$\begin{aligned}&\textbf{RevPAR}=\textbf{Average Daily Rate}\times\textbf{Occupancy Rate}\end{aligned}$

Either formula returns a dollar amount that is theoretically lower than the actual actual daily rate (as a hotel can not be or at least should not be occupied past 100%).

## Strategies to Boost Your Hotel’s RevPAR

Increasing RevPAR means a hotel is earning more money for every room it has. Hotel management can use several strategies to improve RevPAR.

*   **[Forecast](https://www.investopedia.com/terms/f/forecasting.asp) Demand More Accurately.** Demand for hotel rooms wax and wane, and hotels must be aware of what is going on around them to better understand consumer trends. In theory, this allows for hotels to charge higher prices during peak demand seasons and lower prices during slower seasons. This information also helps determine if and how much of a discount the hotel should offer for soon-to-be unoccupied rooms for an evening.
*   **Require Longer Stays.** By requiring guests to stay a minimum number of nights, a hotel runs the risk of losing business to hotels willing to offer greater flexibility. However, it also gambles on the opportunity that locking in customers for longer stays will result in a business that would have not otherwise occurred. To incentivize longer stays, some hotels may offer pricing discounts or promotional packages.
*   **Excel at Customer Service.** Sometimes, a financial goal of increasing revenue is best met by meeting non-financial service targets. In this case, guests are more likely to return to a hotel after a great experience and more likely to not award repeat business after a poor one. Although RevPAR might not rise immediately with better service, long-term revenue can improve as guests return and make recommendations.
*   **Leverage technology.** To improve RevPAR, make it easy for guests to book rooms and access needed information. This includes having a robust online booking system, central reservation system to most efficiently coordinate bookings, and a helpful location to outline frequently asked questions. This may also entail striving to build out an e-mail distribution list to better communicate and stay in contact with former guests.

> **Important**
>
> Some hotels require a minimum stay should their rooms be booked by a third-party (i.e. Expedia). To compensate for the fees they'll need to pay the third-party booking company, the hotel can earn more money by requiring a longer stay.

## Exploring Alternatives: Metrics Beyond RevPAR

RevPAR is a common metric useful in comparing figures across brands and locations. However, RevPAR does not use any profitability measures or information on profits. Focusing solely on RevPAR, therefore, can lead to declines in both revenue and profitability as it does not inform users of expenses.

Many hotel managers prefer to use the [average daily rate](https://www.investopedia.com/terms/a/average-daily-rate.asp) as a performance measure since it is among the main drivers of hotel occupancy. Therefore, with accurately priced rooms, the occupancy rate should increase, and a property's RevPAR should also naturally increase. Properties may also opt for a similar but slightly different formula by only considering the occupied rooms and measuring [RevPOR](https://www.investopedia.com/terms/r/revpor.asp).

In addition, there are several other "per available room" metrics used in the hotel industry.

### TRevPAR (Total Revenue Per Available Room)

Total revenue per available room (TRevPAR) is similar to RevPAR. However, it also includes revenue earned by amenities such as spas, pools, entertainment areas, and restaurants. Though TRevPAR faces the same downside as RevPAR by not considering expenses, it also gives a greater holistic view about what revenue is earned for every available room.

_$\begin{aligned}&\textit{Calculation: } \frac{\textit{Total Revenue}}{\textit{Number of Available Rooms}}\end{aligned}$_

### ARPAR (Adjusted Revenue Per Available Room)

Adjusted revenue per room factors in variable costs and variable revenue. It manipulates average daily rate by subtracting the variable expenses such as the cleaning, utility, water, internet, TV, and supplies expenses. However, ARPAR also factors in additional revenue such as room service that may otherwise be subtracted from RevPAR. ARPAR starts to factor in expenses, though it still omits many overhead costs needed to operate a hotel.

$\begin{aligned}&\textit{Calculation: (ADR} - \textit{VCpOR} + \textit{ARpOR)}\times\textit{OR}\\&\textbf{where:}\\&\text{ADR}=\text{Average daily rate}\\&\text{VCpOR}=\text{Variable cost per occupied room}\\&\text{ARpOR}=\text{Additional revenue per occupied room}\\&\text{OR}=\text{Occupancy rate}\end{aligned}$

### GOPPAR (Gross Operating Profit Per Available Room)

[Gross operating profit](https://www.investopedia.com/ask/answers/031015/what-difference-between-gross-profit-operating-profit-and-net-income.asp) per available room takes a larger view at an operating property by factoring in even more expenses, especially those for rooms that are not occupied. The downside to GOPPAR is it may include expenses that are not controllable by hotel management.

$\begin{aligned}&\textit{Calculation: }\frac{\textit{Gross Operating Profit}}{\textit{Number of Available Rooms}}\end{aligned}$

## Practical RevPAR Example: Understanding its Impact

Imagine a hotel has a total of 150 rooms, of which the average occupancy rate is 90%. The average cost for a room is $100 a night. A hotel wants to know its RevPAR so it can accurately assess its performance. The hotel manager can calculate the RevPAR as follows:

$\begin{aligned}&(\$100 \text{ per night }\times 90\% \text{ occupancy rate)} = \$90\end{aligned}$

The hotel's RevPAR is, therefore, $90.00 per day. To find the monthly or quarterly RevPAR, multiply the daily RevPAR by the number of days in the desired period. This calculation assumes all rooms are the same price.

The hotel manager can make key assessments and decisions regarding the hotel property based on the RevPAR. The manager can see how well the hotel is filling its rooms and how wisely the average hotel room is priced. With a $90 RevPAR but a $100 average room, the hotel manager could reduce the average rate to $90 to help realize full capacity.

## What Does RevPAR Tell You?

RevPAR is a metric used in the hospitality industry to assess a property's ability to fill its available rooms at an average rate. An increase in a property's RevPAR means that its average room rate or its occupancy rate is improving. Since it tells you the revenue per available room, whether it's occupied or not, it can aid hoteliers in accurately pricing their rooms. Additionally, RevPAR can form the basis for measuring properties against each other.

## Where Does RevPAR Fail?

An increase in RevPAR does not necessarily mean better performance so using this alone to measure overall performance might lead to inaccurate results. Also, RevPAR fails to consider the size of a hotel. A hotel may have a lower RevPAR but still have more rooms that earn higher revenues. Additionally, growth in RevPAR does not mean that a hotel's profits are increasing. This is because RevPAR does not use any profitability measures or information on profits.

## Should RevPAR Be High or Low?

For almost all hotels, RevPAR should be higher as this indicates a company is earning more revenue per available room. However, there are several things to consider. First, even though the hotel may be able to charge more, RevPAR does not consider expenses and a company may be better suited avoiding certain expenses and charging less.

Second, a hotel's RevPAR should be in line with its strategic plan and business motel. Hotels aiming to be budget-friendly may want to have a fairly low RevPAR; otherwise, they'll be known for their higher prices and their operating model may have failed.

## The Bottom Line

RevPAR, or revenue per available room, is a key metric in the hospitality industry that helps gauge a hotel's ability to fill rooms at competitive rates. By evaluating RevPAR, hotel managers can benchmark their performance against competitors, track financial performance over time, and identify areas for operational improvement. However, RevPAR does not account for profitability, so it should be complemented with other metrics like GOPPAR or ARPAR for a comprehensive assessment. Hotels should align their RevPAR goals with their strategic objectives, ensuring they balance revenue generation with cost controls and consumer preferences.