Key performance indicators or KPIs help hoteliers in evaluating how the hotel is performing. This article explains how to do hotel room revenue calculation and all the critical formulas used in revenue management.
Hotel room revenue calculation
As a manager or property owner, learning how to calculate and use KPIs should be on your “to-do” list. And that’s because they show where your hotel stands and what needs to be improved.
If you’re new to revenue management, make sure to start by reading this article:
Let’s start with the most common metric the hospitality industry uses – RevPAR.
RevPAR stands for revenue per available room. RevPAR hotel formula allows you to see how your average daily rate is filling in the available rooms.
Therefore it can help you find the right price point to draw maximum revenue over a certain period, per available room. In addition, it indicates how much money the hotel has made from the room.
Hotel managers can use the following formulas for calculating RevPAR:
RevPAR = multiply average daily rate (ADR) by occupancy rate.
RevPAR= divide the total number of rooms available by total revenue from the month.
Example: There’s a 150-rooms hotel, with an average daily rate of $100. It has an average daily occupancy of 80%; therefore, its RevPAR is $80 a day.
When you want to estimate the monthly RevPAR, multiply daily RevPAR by the number of days.
What’s more, keep in mind that the RevPAR hotel formula doesn’t consider other revenue streams, like spa, selling tours, tourist tickets, airport transfers, etc.
How to calculate RevPAR index
While writing about the RevPAR formula, it’s worth mentioning about RevPAR index. As similar, as they sound, they are not the same. Instead, the RevPAR index indicates how well the hotel performs compared with competitors.
Of course, here important is choosing the suitable competitor’s set, offering similar services to yours.
Calculating the index includes dividing your hotel RevPAR by the summed RevPAR of properties you compare with and multiplying the results by 100.
When the RevPAR index equals 100, it means you’re getting an expected amount of market share. The ideal hotel scenario is when the results are higher than 100, meaning you’re getting more of the market share.
ADR hotel formula
You might have noticed in the RevPAR formula that you need to know the average daily rate (ADR). So let us explain to you the ADR meaning in the hotel.
This metric tells how much revenue a hotel makes on average per room on any given day.
To calculate ADR for hotels, you need to divide average room revenue earned by the number of rooms sold. Remember to exclude rooms occupied by staff.
Let’s look at the hotel example of using the ADR formula. The average room revenue earned in a day in a hotel in Amsterdam is $3000, and in one day, they sold 40 rooms. The average daily rate in this hotel is $75.
What’s the difference between ADR and RevPAR?
ADR shows you the average price from a sold room. Meanwhile, RevPAR gives you insights on the total of revenues from every room – sold or not.
When you want to improve the average daily rate, you need to increase revenues from each guest. You can do it by creating special packages catered to a segment of guests, more personalizing, or special offers.
In addition, if your hotel has an occupancy rate below 100% and the RevPAR is below ADR, it’s a signal you could lower the average daily rate to fill in the rooms.
Gross operating profit per available room or GOPPAR is a critical KPI in the revenue management strategy. As a hotelier, calculating it will give you a bigger picture of your hotel as a whole. That’s because it considers all revenue streams, like rooms, food, and beverage, etc., and the costs involved in generating it.
The formula used to calculate GOPPAR
Divide gross operating profit (GOP) by available rooms. Imagine calculating GOPPAR for a year. In this example, the hotel has 60 rooms:
- 60 x 365 days = 21.900 available rooms in a year
- Total hotel revenues = $4 million
- Expenses like wages and bills = $1.5million
- GOP is $2.5 million
- GOPPAR: $2.5 million/21.900 = $114
TrevPAR or total revenue per available room shows revenues generated from rooms and other departments (income from a spa, food, beverage, etc.).
To calculate it, you need to divide total revenue by available rooms. So if your hotel’s daily income is $6.000 and it has 60 rooms, the TrevPAR for the day would be $100.
It’s different from GOPPAR in that it doesn’t include costs involved in hotel operations.
RevPASH is an abbreviation for revenue per available seat hour and is helpful when the hotel has a restaurant. It measures the income of each seat available in an hour. Calculating it helps restaurant managers plan how much food they should purchase and schedule shifts.
RevPASH formula is as follows:
RevPASH = total outlet revenue / (available seats x opening hours)
You can calculate it for a specific hour, day, week, or month. In addition, Boston University created a RevPASH calculator, which can help you estimate it for your hotel restaurant.
Here is an RevPASH example in action:
RevPASH = $13.000/ (60 x 10) = $21
How can you increase it? For example, you can attract more clients during peak hours, like lunch or dinner, or run promotions.
Average hotel occupancy rate
The average hotel occupancy rate shows the percentage of occupied rooms during a chosen time. For a daily occupancy rate, divide the number of booked rooms by the total number of rooms.
100% occupancy rate is not always ideal, as it increases the costs involved, like cleaning, or can mean that hotel rooms sold out for too low a price. It would help if you looked for a balance where your occupancy rate is high, and you’re maximizing profits from each room.
The average length of stay formula
Another popular metric in the hotel industry is the average length of stay or ALOS. It shows the average amount of days your guests stay in a hotel during a particular time.
How to calculate the length of stay?
The average length of stay calculation involves dividing the number of room nights by the number of bookings. For example, if the hotel has 100 room nights over the month, represented by 55 bookings, the ALOS is 1,8. This means that during the month dominated short stays. If that’s uncommon for the hotel, you can adjust rates to attract longer stays or use the minimum length stay requirement.
These key performance indicators or KPIs are the musts when you manage a travel accommodation. Property management systems available right now calculate some of them for you.
What’s more, KPIs give you insights into the performance of your property, help you decide how to move forward and where’s room for improvement.
Others read also:
- Hotel pricing strategies – How do hotels calculate prices
- What is revenue management and how does it work?
- Awesome working tips on how to increase hotel revenue
Pricepoint helps hotels and hostels maximize revenues with an automated revenue management system. On this blog, Pricepoint shares industry knowledge about revenue management.