While emerging technologies push the hospitality industry and make specific processes easier to stay on top, you still need to know the basics. If you want to take your hotel revenue management to the next level, you need to learn how hotel revenue is calculated.
If you’ve never done it before, you might think it is very hard. Trust us, it’s not. Once you master the Key Performance Indicators (KPIs) and know how to calculate each one of them, calculating hotel revenue becomes easy. Let’s start.
How to calculate room revenue hotel
To calculate room revenue, you need first to calculate the following KPIs:
- Average Daily Rate (ADR)
- Total Room Revenue
- Revenue per Available Room (RevPAR)
ADR is your go-to KPI if you want to discover how much revenue your hotel generates per occupied room per day on average. It only includes occupied rooms which makes it an important KPI when you want to do forecasting.
ADR = Room Revenue in a Day / Number of Sold Rooms
Right next to ADR, we have another KPI, Average Room Rate or ARR. Unlike ADR, you can use ARR to calculate the average rate for different periods (week, month, year).
ARR = Total Room Revenue / Total Rooms Occupied
Total Room Revenue
Total Room Revenue is a KPI that you need to calculate in order to see how much revenue all your occupied rooms
generate during the given period.
Total Room Revenue = Number of Sold Rooms * ADR
RevPAR is another performance metric. However, this one takes into account all your rooms. It can help you determine the occupancy rate and performance of your ADR.
RevPAR helps you measure the profitability of your operation as it enables you to assess the hotel’s performance during a specific time. It also allows you to compare your hotel’s performance to the average performance of other hotels in the market.
RevPAR = Total Room Revenue / Number of Available Rooms
RevPAR = ADR * Occupancy Rate
The Occupancy Rate is easy to calculate. You have to divide the Total Number of Occupied Rooms by the Total Number of Available rooms and multiply the result by 100.
RevPAR also enables you to compare your hotel’s RevPAR to the average RevPAR in the market. To do it, you need to calculate the Revenue Generation Index or RGI.
RGI = Your Hotel’s RevPar / Hotel Market RevPAR
How to calculate lost revenue for a hotel room
Every room in your hotel is your asset that comes with certain upkeep expenses and can generate revenue. Every day the room remains unoccupied translates into lost revenue for that particular hotel room. Calculating lost revenue for a hotel room is straightforward, and you can do it for specific periods.
Lost Revenue for Hotel Room = Number of Days a Room Was Unoccupied (during a week, month, or year)* ADR.
How to calculate displaced revenue for hotel rooms
Displaced revenue occurs when you have to make a tough decision to move or not accept some guests to accept group booking. For instance, you can be faced with either taking a group with ten rooms at $180 or a group of 20 rooms at $130. Or, should I accept these 30 corporate guests or our regular customers?
Calculating the displaced revenue for hotel rooms helps you choose the best course of action to take. It allows you to compare the outcomes of several scenarios from a financial standpoint. To properly do it, you need to factor in the following:
- How many nights each group or individual are going to stay
- What room types will they book
- Is the group planning to use your facilities for F&B activities?
When you determine all of the above, you can calculate the total group revenue. You need to calculate all expected revenues for both scenarios and identify the differences. When you know the displaced revenue for hotel rooms, you can make an informed decision.
Take into account the revenue your hotel generates beyond rooms
Your hotel doesn’t only generate revenue through booked rooms. You also need to consider all the amenities available to your guests, including parking, spa, restaurant, fitness center, or anything else you might have.
When you’ve accounted for all the available amenities, you can calculate Total Revenue per Available Room or TRevPAR.
TRevPar = Total Net Revenue / Number of Available Rooms
Your ultimate goal is to ensure that TRevPAR outperforms RevPAR as it shows that your guests are spending their cash not only on your rooms but your amenities as well. You can easily improve TRevPAR with cutting-edge solutions such as UpStay, which helps hoteliers convert up to 20% of their guests to buy additional ancillaries.
How to calculate a monthly hotel revenue
Calculating a hotel’s monthly revenue is straightforward now that you’ve figured out your ADR. If you want only to assess how much revenue your hotel generates through renting rooms, you can do it like this:
Hotel Monthly Revenue = ADR * Number of Available Rooms * The Number of Days in a Month
However, if you want to take into account revenue that both rooms and amenities generate, you need to calculate revenue per available seat hours or RevPASH:
RevPASH = Total Outlet Revenue / (Number of Seats * Opening Hours)
The monthly hotel revenue formula, which includes amenities and room revenue, would look like this:
Hotel Monthly Revenue = Daily RevPASH * Opening Hours * Number of Seats * The Number of Days in a Month
How to calculate annual revenue hotel
You can use the same formulas from above to calculate annual hotel revenue. However, some hotels don’t work 365 days a year. When using the formulas from above, make sure to calculate exactly how many days a year your hotel stays open and just use that number instead of the number of days in a month.
How to calculate hotel breakeven revenue
Hotel breakeven revenue is the menial revenue your need to generate to cover your operational cost. You need to calculate all your expenses, ranging from running a front office to hotel cleaning services. Knowing the break-even point is important because you know how much revenue you need to generate to start generating profit.
Breakeven Hotel Revenue = Fixed Costs / (Selling Price per Room – Variable Cost per Room)
How to calculate forecast in hotel revenue
Forecasting hotel revenue provides many benefits. For instance, you will be able to predict when your hotel will be most profitable throughout the year and set a proper strategy to maximize revenue.
The most basic strategy is to use the basic forecasting model, including ADR, total revenue, occupancy, room nights sold, and market trend. Due to the complexity of prediction models, we are not going to discuss them. However, you can find them online pretty easily.
With all these formulas at your disposal, you can monitor your hotel’s KPI every day, calculate room revenue and overall hotel revenue. These KPIs are vital if you want to stay on top of your hotel revenue management, and you need to control them regularly to make informed decisions before the competition beats you to it.