If you have a hotel property, you obviously know about one of the most commonly used metrics: RevPAR. Let’s take a closer look at this performance indicator, with its pros and cons, and look at how it can be boosted with some sound decision-making!

What is RevPAR and how do I calculate it?

RevPAR (Revenue Per Available Room) is a performance indicator widely used in hospitality to measure a property’s ability to fill its rooms at a given average rate. How is it calculated? There are two ways of working out your RevPAR:

  • Multiply your daily average room rate (i.e. accommodation revenue taken divided by the number of rooms rented out) by your occupancy rate
  • Divide your total room revenue by the number of rooms available in the hotel

As an example, let’s look at a property with 200 rooms. Its average occupancy rate is 60% and the average cost of a room is €90 a night. So:

  • OR: 200 x 60% OR = 120 rooms rented out
  • Revenue: 120 rooms rented out x €90 = €10,800
  • €10,800 / 200 (total rooms) = €72 RevPAR

Why use RevPAR as an indicator for your hotel?

If your hotel’s RevPAR improves, it’s because your occupancy rate and/or average room rate has gone up. So it lets you measure your hotel’s growth and quickly evaluate the state of your finances. When you compare it with figures from previous years, RevPAR gives you a view of your property’s performance over time: a disparity arising over a given period might represent high or low season, an event going on in your region or a general economic crisis such as the one we experienced recently… It can also be handy to compare your RevPAR with that of your direct competitors who offer identical services, so you can tell your own performance and the aptness of your pricing policy.

Be aware that RevPAR doesn’t let you analyse every aspect of your hotel business!

Keep an eye out and take the time to aggregate your data before drawing conclusions about your property’s performance. You should know that an increase in RevPAR alone does not tell you which indicator (daily average rate and/or occupancy rate) is growing or shrinking. A rising average rate can hide a drop in the occupancy rate and a loss of clientèle, or vice versa. For example:

Let’s come back to our hotel with 200 rooms.

  • Its OR drops to 45% following an increase in the room price to an average daily rate of €140. Its RevPAR is €63.
  • It drops its rates and now rents out its rooms for €80 on average, thus attracting new guests and driving the occupancy rate up to 80%. Its RevPAR is €64.

Firstly, if we compare RevPAR only, which is practically identical in both cases, it’s impossible to see that the data is actually very different and what it is that’s changed. As such, it becomes very hard to analyse the health of your hotel business and apply the right corrective measures! Have more or less rooms been rented out? Have we got more guests, or fewer? Have we sold nights at a higher or lower price?

Secondly, the average room rate is influenced by several factors: special rates set for certain targeted customers, special offers, bookings taken through platforms and thus subject to commission, seasonal rates and their variation with supply and demand, etc. So what analysis can really be made?

In addition, your RevPAR may be increasing even when your costs are going up in parallel (staff, cleaning products, water or electricity). In short, higher RevPAR does not necessarily mean higher profit.

Finally, RevPAR does not take into account ancillary revenue generated by customers in other departments of the property (restaurant, spa, shop, activities, etc.). To include all your hotel’s sources of revenue, it’s the TRevPAR you must calculate.

Hoteliers, this is how you boost your RevPAR and your revenue

For your RevPAR curve to climb, you must either boost your hotel’s occupancy rate, your daily average room rate, or both!

Develop your sales strategy – ideally in direct sales, to maximise net margin

Opting for different distribution channels, including OTAs such as Booking.com or Expedia, helps get your property known far and wide, including abroad. The slight downfall: though this solution allows you to increase your visibility and fill your rooms, your RevPAR might not necessarily go up, due to the associated commission that weighs down on your revenue.

Keep an eye on the price put up by the OTAs and always offer a better price for direct booking to offset the cost. It will pay to work on the perceived value of your rooms, by making sure to communicate all the extra services you include. Of course, all of this is made possible by a high-quality website and perfected online reputation with nice comments and glowing reviews!

  • To help maximise sales, save time and improve your visibility, Asterio PMS includes a Channel Manager connected to all the major OTAs. Your Asterio assistant also includes a native booking engine that’s ideal for sealing direct bookings through your website. It’s the perfect blend for rolling out an effective sales strategy combining OTAs and direct sales!

Meeting market expectations with smarter pricing

You might think that when visitor numbers are down, the only solution is to reduce your rates. Well, this might not be the wisest idea, even if it’s tempting after the COVID-19 period to want to fill your property as fast as possible by kicking off a price war. But if the demand isn’t there, it’s not going to be stimulated by a reduced rate. Besides, it might look bad when your prices go up again in the future. To attract more customers in this context, it’s smarter to offer one-off discounts (e.g. free meal with your stay, 3 nights for the price of 2) and/or up the quality of your services with a late check-out at 3pm or extra attention to detail in the rooms, for example.

You mustn’t forget either that a bolder pricing policy helps fund valuable investments that will attract more customers. Looking back, France has always done well off the back of difficult periods in comparison to other countries by attracting a clientèle that’s focused on the quality of facilities, excellent service and comfort.

  • As you already know, the key is to acquire a good understanding of market demand. To do so, revenue management tools such as SpotPilot help you better understand current trends and competitor behaviour to position your pricing policy in the best way possible. Asterio for example is capable of connecting to SpotPilot to boost your profit and streamline your pricing.

Diversifying revenue streams

Sales at a hotel aren’t purely linked to selling nights in a hotel room. Here’s our advice:

  • Open a shop that sells products in line with your hotel’s offering.
  • Multiply your food and beverage opportunities: room service, in-room dining experiences, champagne bottle as extra, on-site restaurant etc.
  • Capitalise on nearby places of interest to offer transport, an excursion or airport shuttles for guests on business.
  • Form partnerships with local shops or activity centres to negotiate a referral scheme.
  • Put together a range of complementary services, inform your clientèle and make it easy for them to book: gym, concierge service, spa, etc.

Not only do you enrich your hotel’s offering – to the delight of your guests, who then become return customers and recommend you to others – you also generate more revenue!
By managing all your hotel’s activities with a single customer database, Asterio facilitates all these extra sales. One bill, zero friction: dinners and spa treatments are all posted to the customer’s account so they can pay for everything at the end of their stay!

Win customer loyalty

Bringing guests in is the first step, but you must make it your aim to bring them back! Return customers – weekend, business or holiday makers – are a lever to your occupancy rate and thus your RevPAR. In addition, regular customers generally book directly through you, and in advance, which is always great from a profitability point of view…

How do you maintain a direct link to your customers? With a property management system designed for contact and customer satisfaction!

Asterio includes a booking engine for your hotel, allowing the customer to quickly and easily log in online, sign up using Facebook or Google, access their bills and bookings, confirm an option taken over the phone, etc. In short, flexibility and ease of use, for hassle-free booking. Asterio also auto-sends confirmation emails, payment reminders, special offer and thank you SMS messages after the stay… Your customers feel comforted, valued and will no doubt appreciate this close relationship!

Manage and Grow / 30 June, 2021

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