Are you interested in improving your hotel performance? If you are, the chances are that you have already found that the best way to do it is to step up revenue management and increase your hotel’s RevPAR. This article may find you confused, knowing that you must increase RevPAR but not knowing how to do it.
After all, there are several ways to increase RevPAR, and only a couple of them are highly efficient. There is no need to worry. We will sort you out. Below you will find what RevPAR is, ways to increase it, and a real-world example of how one hotel did it.
What is RevPAR in the hotel industry?
RevPAR stands for hotel revenue per available room. Besides the average daily rate (ADR), RevPAR is one of the most commonly used metrics by hotel revenue management professionals. It tells you a lot about your hotel performance.
RevPAR basically tells you about the efficiency of your hotel to fill the available rooms at an average rate. An increase in RevPAR means that your occupancy rate or average room rate is improving. Still, as in any other line of business, you should not rely on only one KPI when assessing your hotel’s performance.
RevPAR can tell you a lot about your venue, but we recommend you use it along with ADR to assess your hotel’s profitability accurately.
How to calculate RevPAR
You can easily calculate RevPAR if you know the formula and your hotel revenue. Here is the commonly used formula for RevPAR:
RevPAR = Total Room Revenue / Number of Available Rooms
You can calculate RevPAR in another way:
RevPAR = ADR * Occupancy Rate
ADR is the average daily rate or how much money your hotel generates per occupied room per day on average. Here is how to calculate ADR:
ADR = Room Revenue in a Day / Number of Sold Rooms
Occupancy Rate stands for the percentage of rooms occupied in your hotel. Here is the formula:
Occupancy Rate = (Total Number of Occupied Rooms / Total Number of Available Rooms) * 100
What is a good RevPAR
Ok, now, with 2 RevPAR formulas, you can do your calculations easily. But how do you know if your hotel’s RevPAR is good? How do you know whether it needs improving? To answer these questions, you need to know what is a good RevPAR.
Good RevPAR is a RevPAR that is at least of average value in your market. How do you know the average RevPAR in your market? There are many hospitality industry reports you can use to find it out. You can always refer back to Statista. According to this portal, the average RevPAR in the US lodging industry was $86.76 in 2019. You can also take a closer look at average RevPAR by different regions.
Ways to Increase RevPAR
How to increase RevPAR then? If you take a look at the 2 RevPAR formula variations, it becomes clear that you can increase RevPAR by increasing the total number of occupied rooms (attract more guests) and total room revenue (make guests spend more while staying in your hotel). Here is how some hotels did it.
Data-Driven SEO Strategy – The East Hotel, Hangzhou
The East Hotel is a luxurious boutique hotel in Hangzhou, China. Scatter plot analysis of ADR and occupancy rates in hotels in Zhejiang Province 2013 indicated that both direct booking and booking through OTAs were in decline. However, the East Hotel had 10% better results on average in all KPIs, including Average Occupancy and RevPAR.
The East Hotel improved its RevPar by leveraging a data-driven SEO strategy. They met the market demand by simply targeting the “West Lake Hangzhou” keyword, relevant to their target quests. The hotel’s RevPAR in 2013 was $69.63, and it went up to $91.22 in 2014.
Improve Ancillary Revenue – Herods
One of the finest luxury hotels known worldwide, Herods managed to improve RevPAR by increasing total room revenue. They did it by converting guests to spend money on additional ancillaries and room upgrades.
Herods implemented UpStay, a cutting-edge technology that enabled it to automatically convert up to 20% of its guests and improve the hotel’s bottom line. Implementing UpStay was easy as it works out-of-the-box with the most popularly used Channel Managers, Booking Engines, and Property Management Systems.
Implementing Channel Manager – The Central Park Hotel, London
The Central Park Hotel in London is an iconic building featuring its unique contemporary style. However, even with the best practices in place and outstanding guest experience, the hotel started falling behind the competition. They identified the cause – an old system for channel management.
The hotel management decided to go for a brand new solution. With a new channel manager, The Central Park Hotel was able to upload rates in a matter of seconds across all of its distribution channels. As a result, the hotel increased ADR and RevPar by 10% on average.
Increase Direct Bookings – The Relais Christine Hotel, Paris
The Relais Christine Hotel in Paris is truly a masterpiece. It was already quite popular, but the management decided to try to increase RevPAR even more. They decided to increase direct bookings and potentially decrease the number of nights reserved through OTA.
They used a broad strategy to achieve it – they created a new website, fine-tuned their pricing strategy, and implemented a new reservation system to facilitate direct booking. The results quickly followed – direct bookings increased by almost 30%, and there was a 63% decrease in reservations through OTA.
Things to avoid if you want to increase RevPAR
There are some things that you can unintentionally do and decrease your hotel’s RevPAR. Let’s quickly go through them so that you can know which pitfalls to avoid:
Ignoring your online reviews;
Not leveraging digital marketing;
Running an operation without a loyalty program;
Not addressing high cancellation rates;
Keeping the same room rate plan despite the length of stay;
Increasing RevPAR can help you capture more profit. As you can see, there are different strategies to do it. Hopefully, the examples we’ve shared with you will help you better understand the actions that have led to RevPAR improvements. In any case, every hotel is different, and you should run a thorough analysis of your operation to identify the most optimal strategy for increasing RevPAR in your hotel.