Hotel revenue management is one of the most important processes that your front office can use to make strategic, data-based decisions. It can help you forecast demand, optimize prices and room availability, and boost hotel revenue.
How Is Hotel Revenue Calculated?
To calculate your hotel revenue, you need to measure certain KPIs (Key Performance Indicators). Here are the most important KPI formulas used in hotel industry for effective revenue management.
ADR (Average Daily Rate)
ADR is a KPI that shows your hotel’s average revenue per occupied room per day.
As it doesn’t include empty rooms, you can use it to compare hotel performance and revenue to previous periods, thus forecasting seasonal trends better.
ADR = Room Revenue / Number of Sold Rooms
Example: If you’ve generated $10,000 room revenue with 20 rooms booked in a day, your ADR would be $500.
Total Room Revenue
Total room revenue is a KPI that shows how much revenue your hotel generates for all occupied rooms in a certain measured period. It’s a necessary performance metric for calculating your RevPAR and GOPPAR.
Total Room Revenue Formula
Total Room Revenue = Number of Sold Rooms * ADR
Example: If you have sold 45 rooms at an ADR of $400, your total room revenue would be $18,000. If your hotel has 30 available rooms, your RevPAR would then be $600.
RevPAR (Revenue per Available Room)
RevPAR takes all your rooms into consideration to help you determine the performance of your ADR and occupancy rate.
You can use it to see how well your hotel is performing during a certain period (day, week, month, or year), which makes it one of the key metrics for measuring profitability.
RevPAR = Total Room Revenue / Number of Available Rooms
RevPAR = ADR * Occupancy Rate
Example: If your hotel has an ADR of $500 and an occupancy rate of 60%, your RevPAR would be $30,000.
RevPAR vs. ADR
ADR doesn’t take empty rooms into consideration, while RevPAR does. ADR shows how much revenue your every booked room is generating on average, while RevPAR shows your revenue for all rooms.
That’s why RevPAR is a more important KPI to measure. A high RevPAR means a high occupancy rate, or a high ADR (or both), which means better hotel performance and profitability.
GOPPAR (Gross Operating Profit per Available Room)
GOPPAR represents the revenue that’s left after handling various expenses, such as monthly bills, salaries, insurance, and taxes.
As it excludes operational costs, it’s a better KPI than RevPAR. You can use it to gain insights into your overall revenue and performance, as well as identify the most revenue-generating parts of your property.
GOPPAR = Gross Operating Profit (GOP) / Number of Available Rooms
Gross Operating Profit = Total Room Revenue - Gross Operating Expenses
Example: If your total room revenue is $50,000 and your gross operating expenses are $15,000, you would need to divide the GOP of $35,000 with 20 available rooms, for instance. Your GOPPAR would be $1,750.
TRevPAR (Total Revenue per Available Room)
TRevPAR includes all the revenue your hotel generates beyond booked rooms, such as from your restaurant, spa, fitness center, parking, and any other amenity.
You can use it to measure the performance of your amenities and understand different demographics better. You can then capitalize on different markets and boost revenue.
TRevPAR = Total Net Revenue / Number of Available Rooms
Example: If your hotel has 150 rooms and you’ve generated total revenue of $25,000 in a day, your TRevPAR would be $166.
RevPASH (Revenue per Available Seat Hour)
RevPASH represents the revenue that a particular food and beverage outlet in your hotel (restaurant or bar) has generated per seat per hour.
You can use it to find out which times during the day are most profitable and when you may be missing out on opportunities. It can help you manage your service hours better and optimize your prices.
RevPASH = Total Outlet Revenue / (Number of Seats * Opening Hours)
Example: If your restaurant, for instance, which has 50 seats and is open for 8 hours, has generated a revenue of $18,000, your RevPASH would be $45.
ALOS (Average Length of Stay)
ALOS is the average length of stay, that is, the average number of days people stay at a hotel during a particular period.
You can use this metric to identify an opportunity to offer better rates for longer stays, thus increase your revenue.
ALOS = Total Occupied Room Nights / Number of Bookings
Example: If you’ve had 15 separate bookings during a particular month that make a total of 60 room nights, your ALOS would be 4. That means that your hotel guests stayed an average of four nights at your hotel during that month.
LOS (Length of Stay)
LOS is the number of nights a particular guest has stayed in your hotel. It can help you optimize occupancy and room rates.
You need to use this calculation when measuring the ALOS.
LOS = Checkout Date - Check-in Date
Example: If a guest has checked in on March 15 and checked out on March 21, the LOS would be 6. If you add up the LOS of all the other guests during a month, you will get a total LOS for that month. Dividing it with the number of bookings will show you your ALOS.
EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring or Rent Costs)
EBITDAR helps you measure your hotel’s financial performance and profit opportunities when your expenses are higher than average, or you’re restructuring your hotel.
You can also use it to compare your financial performance against other hotels in the area.
EBITDAR = EBITDA (Total Revenue - Expenses) + Restructuring or Rent Costs
Example: Let’s say your total revenue for a particular period is $100,000, and you need to spend a total of $45,000 for interest, taxes, depreciation, and amortization. If your restructuring or rent costs are $20,000, your EBITDAR would be $75,000.
CPOR (Cost per Occupied Room)
CPOR helps you keep track of your room profitability.
You can use the hotel cost per room calculation to determine how much your booked rooms cost you in terms of fixed and variable expenses.
CPOR = Total Rooms Departments Cost / Number of Sold Rooms
Example: If you paid a total of $14,000 in operating expenses for your 15 booked rooms in January, your CPOR is $933.
The occupancy rate is the most basic KPI for hotel revenue management. You can apply it to any period to see how well your hotel is performing over time.
Occupancy Percentage Formula
Occupancy = (Total Number of Occupied Rooms / Total Number of Available Rooms) * 100
Example: If your hotel has 50 occupied rooms out of 70 during a particular period, the occupancy rate for that period is 71.4%.
Occupancy Forecast Formula
Occupancy Forecast = (Number of Rooms Forecasted to Be Booked / Total Available Rooms) * 100
Example: If you expect to have 45 out of 70 rooms booked during a specific period, it would mean you expect a 64.2% occupancy.
Room Nights Calculation
Room Nights = Total Sold Room Nights / Total Property Accommodation
Example: In April (30 days), you had a total of 50 rooms available. That’s a total of 1,500 sellable room nights. If you sold 985 room nights, your room nights would be 19.69% (0.65% * 30 days).
Using all these hotel revenue management formulas regularly will help you keep track of the key KPIs for increasing revenue and profits. The most important ones to measure are ADR, RevPAR, GOPPAR, and occupancy, but don’t underestimate the power of all the others.