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Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Revenue per Available Room (RevPAR)

What it is:

Revenue per available room, or RevPAR for short, is a ratio commonly used to measure financial performance in the hospitality industry. The metric, which is a function of both room rates and occupancy, is one of the most important gauges of health among hotel operators.

There are two ways to calculate RevPAR. The first formula is:

Total Room Revenue in a Given Period, Net of Discounts, Sales Tax, and Meals
---------------------------------------------
# of Available Rooms in Same Period

Alternately, the same figure can be arrived by calculating the following:

Average Daily Room Rate x Occupancy Rate

How it works (Example):

Consider the following results from Company XYZ's latest quarter:

Number of Rooms: 1000
Average Room Rate: $90
Average Occupancy Rate: 75%
Total Room Revenue ((1000 rooms x $90/room x 75% occupancy) x 90 nights in the quarter): $6,075,000

Using the first formula and the information above, we can calculate that Company XYZ's RevPAR was:

($6,075,000/90,000) = $67.50

Using the second formula, we can arrive at the same answer:

$90 per night x 0.75 = $67.50

Therefore, we can conclude that Company XYZ generated approximately $67.50 in revenue per day from each of its hotel rooms.

Why it Matters:

RevPAR is arguably the most important of all ratios used in the hotel industry. Because the measure incorporates both room rates and occupancy, it provides a convenient snapshot of a how well a company is filling its rooms, as well as how much it is able to charge.

It should be noted that RevPAR, by definition, is calculated on a per-room basis. Therefore, one company can have a higher RevPAR than another, but still have lower total revenues if the second firm manages more rooms.
 

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